Essentials of Corporate Finance Essentials of Corporate Finance By Robert Parrino, David S. Kidwell, Thomas Bates Researchers and educators agree that it takes more than academic knowledge to be prepared for college—intrapersonal competencies like conscientiousness have been proven to be strong determinants of success. WileyPLUS with ORION for Essentials of Corporate Finance helps you identify students’ proficiency early in the semester and intervene as needed. Essentials of Corporate Finance offers a finely tuned balance of intuitive conceptual understanding, problem solving, analysis, and decision making. Packed with every resource found in Fundamentals of Corporate Finance, this briefer version offers a focused approach to the fundamentals of value creation. Schedule a Demo Sign Up for a Test Drive Adopt WileyPLUS Want to learn more about WileyPLUS? Click Here Hear from our Authors What’s Inside About the Authors Table of Contents Simulations help students sharpen analytical skills Learning by Doing applications contain quantitative problems with step-by-step solutions to help students better understand how to apply their intuition and analytical skills to solve problems. The interactive tutorials are based on the Learning by Doing applications and are assignable in WileyPLUS. Concepts are connected to the real world Finance Weekly Updates is a free news blog that is updated every Monday morning with the most current and relevant news stories for your management courses. Each week, five new articles are posted, along with source information, discussion questions, and textbook topic references. Features Include: Read, Study, Practice A complete online version of the text Excel-based templates Excel-based animated tutorials Student Quizzes with instant feedback Crossword Puzzles and Flash Cards for interactive review Assignment Prepare & Present Wiley Corporate Finance Video Collection Series Computerized Test Bank PowerPointTM Slides to summarize chapter content Finance Weekly Updates: www.wileyfinanceupdates.com A “Link-to-text” feature that allows students to access specific portions of their online text for immediate, contextual help as they are working Practice Questions Pre-lecture Quiz Questions gauge student’s knowledge before class Post-lecture Quiz Questions to test student’s knowledge after class End of chapter questions Test Bank Web Quizzing ROBERT PARRINO is a member of the faculty at the University of Texas since 1992. He teaches courses in regular degree and executive education programs as well as in customized executive education courses for industrial, financial, and professional firms. He has also taught at the University of Chicago, University of Rochester, and IMADEC University in Vienna. Parrino has received numerous awards for teaching excellence at the University of Texas from students, faculty, and the Texas Exes (alumni association). Parrino has been involved in advancing financial education outside of the classroom in a variety of ways. As a Chartered Financial Analyst (CFA) charter holder, he has been very active with the CFA Institute as a member of the candidate curriculum committee and as a regular speaker at the annual Financial Analysts Seminar. He has spoken at over 20 Financial Analyst Society meetings, and he served as a member of the planning committee for the CFA Institute’s Annual Meeting. Parrino is also the founding director of the Hicks, Muse, Tate & Furst Center for Private Equity Finance at the University of Texas. The center sponsors conferences and other educational activities in areas related to private equity finance. Parrino was vice president for financial education of the Financial Management Association (FMA) from 2008 to 2010 and an academic director of the FMA from 2011 to 2013. In 2017, he was elected to be VP-Program for the 2019 FMA annual meeting. He also co-founded the Financial Research Association and is associate editor of the Journal of Corporate Finance. Parrino’s research focus includes corporate governance, financial policies, restructuring, mergers and acquisitions, and private equity markets. He has published his research in several journals, including the Journal of Finance, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Journal of Law and Economics, Journal of Portfolio Management, and Financial Management. Parrino has won numerous awards for his research, including the 2013–2014 Career Award for Outstanding Research Contributions at the McCombs School of Business. Parrino has experience in the application of corporate finance concepts in a variety of business situations. Since entering the academic profession, he has been retained as an advisor on valuation issues concerning businesses with enterprise values ranging to more than $1 billion and has consulted in areas such as corporate financing, compensation, and corporate governance. Parrino was previously president of Sprigg Lane Financial, Inc., a financial consulting firm with offices in Charlottesville, Virginia, and New York City. While at Sprigg Lane, he was on the executive, banking, and portfolio committees of the holding company that owns Sprigg Lane. Before joining Sprigg Lane, Parrino was on the Corporate Business Planning and Development staff at Marriott Corporation. At Marriott, he conducted fundamental business analyses and preliminary financial valuations of new business development opportunities and potential acquisitions. Parrino holds a B.S. in chemical engineering from Lehigh University, an MBA degree from The College of William and Mary, and M.S. and Ph.D. degrees in applied economics and finance, respectively, from the University of Rochester. DAVID S. KIDWELL has over 30 years of experience in financial education as a teacher, researcher, and administrator. He has served as dean of the Carlson School at the University of Minnesota and of the School of Business Administration at the University of Connecticut. He was also on the faculty at the Krannert Graduate School of Management, Purdue University, where he was twice voted the outstanding undergraduate teacher of the year. An expert on the U.S. financial system, Kidwell is the author of more than 80 articles dealing with the U.S. financial system and capital markets. Kidwell has published his research in the leading journals, including the Journal of Finance, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Financial Management, and Journal of Money, Credit, and Banking. Kidwell holds an undergraduate degree in mechanical engineering from California State University at San Diego, an MBA with a concentration in finance from California State University at San Francisco, and a Ph.D. in finance from the University of Oregon. THOMAS W. BATES is the chair of the Department of Finance and Dean’s Council of 100 Distinguished Scholars at the W. P. Carey School of Business, Arizona State University. He has also taught courses in finance at the University of Delaware, the Ivey School of Business at the University of Western Ontario, and the University of Arizona where he received the Scrivner teaching award. During his career as an educator, Bates has taught corporate finance to students in undergraduate, MBA, executive MBA, and Ph.D. programs, as well as in custom corporate educational courses. Bates is a regular contributor to academic finance literature in such journals as the Journal of Finance, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, and Financial Management. His research addresses a variety of issues in corporate finance, including the contracting environment in mergers and acquisitions, corporate liquidity decisions and cash holdings, and the governance of corporations. In practice, Bates has worked with companies and legal firms as an advisor on issues related to the valuation of companies and corporate governance. Bates received a B.A. in economics from Guilford College and his doctorate in finance from the University of Pittsburgh. PART 1 INTRODUCTION 1 The Financial Manager and the Firm 1 PART 2 FOUNDATIONS 2 The Financial System and the Level of Interest Rates 26 3 Financial Statements, Cash Flows, and Taxes 50 4 Analyzing Financial Statements 83 PART 3 VALUATION OF FUTURE CASH FLOWS 5 The Time Value of Money, Discounted Cash Flows, and Valuation 126 6 Risk and Return 183 7 Bond Valuation and the Structure of Interest Rates 221 8 Stock Valuation 253 PART 4 CAPITAL BUDGETING DECISIONS 9 The Fundamentals of Capital Budgeting 284 10 Cash Flows and Capital Budgeting 328 11 The Cost of Capital 363 PART 5 FINANCING DECISIONS 12 Working Capital Management 395 13 How Firms Raise Capital 426 14 Capital Structure Policy 458 15 Dividends, Stock Repurchases, and Payout Policy 495 PART 6 FINANCIAL PLANNING 16 Financial Planning and Managing Growth 519 PART 7 INTERNATIONAL DECISIONS 17 International Financial Management 554 Wiley Team for Success. Dedicated to Student Achievement. 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