Pike Robert, Neal Bill. Corporate finance and investment: decisions and strategy
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Index 745
capital growth 62–4
capital investment process 181–7
authorisation 186
budget determination 182
evaluation 185
monitoring and control 187
options 311–14
project classification 185
project definition 184
project search and development 182–3
screening 184
capital leases 392
capital market 25
imperfections in 83–4
capital market approach to mergers 568–9
capital market line (CML) 255–7, 727
capital rationing 134–7, 181
‘hard’ 134
and information asymmetry 135
multi-period 137
single-period 135–7
‘soft’ 134–5
transaction costs 135
capital structure 272, 504, 727
and CAPM 522–5
MM on 513–15
target structure 495–6
capitalisation issues 430, 727
capitalisation rates 490
captive venture capital firms 419
carrying costs 344
cash
for financing a takeover 552–3
sources of 7–8
cash discounts 357–8
cash floats 370
cash flow analysis 122–3
incremental 148–51
in investment decisions 122
cash flow statements 51
cash flows
and advantages of leasing 397–8
associated 149
multi-period 212–14
remittable in foreign investment 636–7
single-period 200–2
timing of 123
and translation exposure 598–9
unconventional 132–3
valuation of 98–100
cash management 367–73
cash flow forecasts 369–70
cash flow statements 369
models of 372–3
reasons for holding cash 367–9
short-term investment 373
cash operating cycle 340–1, 727
Casson, M. 634
Catao, L. 244
central banks 609–10
certainty 196
certainty equivalence 208
Chan, K. 261, 263
Chang, K. 608
chaos theory 41–2
‘Chapter 11’ arrangements 501
characteristics line (CL) 245, 727
chartism 36, 608, 727
Chesley, C.R. 291
Chrysler (company) 543, 549
Cisco Systems 93
City Code see Takeover Code
Clare, A.D. 263
Clark, T.M. 406
classical tax system 461, 727
clearing banks 27
clientele effect 276, 459–60, 727
CNBC (television channel) 37–8
Coats Viyella (company) 553
Coca-Cola (company) 95, 98, 133, 174
coefficient of variation 202
Cohen, Norma 127
coherent market hypothesis (CMH) 42
collaterallised mortgage obligations (CMOs) 434
collective dominance, theory of 547
Collier, P. 348, 625
Commercial Finance Corporation 581
commercial paper 389, 727
co-movement 223, 727
Companies Act (1981) 466, 514
Companies Act (1985) 450
Compass Group 549
Competition Act (1998) 545
Competition Commission 44, 546–7
competitive strategy 17
compound interest 62–4
concentration banking 370
concentric acquisition 727
Confederation of British Industry (CBI) 43
conglomerate takeovers 549, 727
constant dividend valuation model 108–9
contingent claim security 307
contra-cyclical effects 220, 727
contributions to fixed costs 484
control of companies 420
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746 Index
conversion terms 435
in financing a takeover 553
convertible loan stock 310, 436, 727
convertible shares 415, 435
convertibles 435–6
Cooke, T.E. 582
Cooper, D.J. 164
Copeland, T.E. 47, 234, 266, 443, 473, 506, 534
Coral Eurobet 440
corporate behaviour, understanding of 663–4
corporate governance 14–15
corporate restructuring 575–81
business fit and focus 580
divestment 576–7
incentives 581
joint ventures 579–80
MBO 577–8
and use of debt 581
corporate strategy 17
corporate venturing 419–20
Corporate Venturing Scheme 419
corporation tax 155
impact of 521–2
MM on 519–22, 536
correlation coefficient 727
corruption 650
Corus Group plc 594–5
cost-centre treasuries (CCTs) 326
cost of debt 727
cost of equity 272–3, 727
cost reduction 27
and capital investment 185
cost of running out of stock or cash 345
Coulthurst, N.J. 164
counter-party risk 617, 728
counter-trade 728
country risk 647–51, 728
coupon rate of interest 492, 728
Courts (company) 503
co-variability 223
covariance 223–5, 728
covered calls 302
covered interest arbitrage 604
Cox, J. 316
credit collection policy 358–60
credit limits 356
credit risk 330, 617
creditors 499
CREST system 728
Criminal Justice Act (1993) 424
critical mass 549, 728
cross-currency interest swaps 623
‘crown jewels’ defence 562
cum-dividend 448
cumulative shares 416
currency futures contracts 620–1, 728
currency information system 612
currency options 310, 619–23, 728
currency risk
exchange rate forecasting 607–10
exchange rate structure 596–7
exposure management 601–6
external hedging 617–23
foreign exchange exposure 598–600
foreign exchange management strategy 610–13
internal hedging 614–17
currency swaps 334, 621–3, 728
currency switching 645, 728
current assets 48
current cost accounting 92, 728
current ratio 53, 338, 728
cut-off rate for new investment 518, 535
Daimler-Chrysler 345
Daimler-Benz 543, 549
Daniels, J.D. 656
Davies, E.W. 625
Davies, Greg 661, 670
Day, R. 250
days’ cash-on-hand ratio 338
deal flow 420
debt
cost of 492–3
and shareholder wealth 504
tax advantage of 521
debentures 432–3, 728
debt capacity 728
debt/equity ratio 515–17, 534–5
debt instruments 432–41
asset-backed securities 434–5
bond yields 437
convertibles 435–6
debentures 432–3, 728
deep-discount 433–4
eurobonds 439–41
floating rate notes 441
foreign bonds 439
mezzanine debt 438
warrants 437–8
debt relief 76
debtor days 52
debtors 93
deep-discount debt instruments 433–4
default 479, 728
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Index 747
defensive stock 728
Dell Computers 106
Delphi techniques 649
DeMonaco, L.J. 566
deposit-taking institutions 27–8
deregulation of markets 9
derivatives 25, 310–11, 728
and risk management 332–4
Deutsche Bank 542, 574
Deutsche Telekom 464
development capital 420
Diageo (company) 94
Dimson, E. 40, 250–2, 292
direct debit 370
Director General of Fair Trading 545–6
directors’ dealings 424
disclosure 424
discount houses 27
discount rate 728
below growth rate 107–8
on investment projects 288–9, 532–3
and required return 253
and SVA 283–8
variable 131
discount tables 66–7
discounted cash flow (DCF) 100–3, 728
in project appraisal 157–9
in valuation 72, 100–3
discounted payback 128
discounting 65–8
disintermediation 29, 389, 728
Disney Corporation 173, 434
Dissanaike, G. 40
diversifiable risk 242, 331, 728
diversification 220, 663, 728
and required returns 264
and risk 242, 331
by takeovers 551
divestment 576–7
dividend cover 54
dividend growth model 101, 105–6, 728
and firm value 451, 453
problems with 106–11
and shareholder value analysis 272–6
dividend irrelevance 451, 728
objections to 458–63
dividend per share 54
dividend puzzle 470–1
dividend restrictions 432–3
dividend stream, valuation of 104
dividend valuation model (DVM) 104–6, 450–1, 728
dividend yield 45, 55, 728
dividends 50
alternatives to 465–7
clientele effect 459–60
cuts in 451–4
external equity financing 457–8
and firm value 450–8
information content of 463–5
legal considerations 450
as residual 455–6
shareholders’ reliance on 458
shareholders’ risk 458–9
stable policy for 470
strategic considerations 449
and taxation 461–3
Dixit, A. 316
dollar rates against sterling 594
domestic firms 642
double tax agreements (DTAs) 639, 728
doubles 303
Dow, Charles 38
Dow Jones index 44
Dow Theory 38
Doyle, Peter 544
Dresdner Bank 574
Drucker, P.F. 563
Drury, J.C. 398, 406
D.S. Smith plc 323–4
due diligence 420, 542
Dun & Bradstreet 360
duration of long-term finance 413
Dynergy (company) 545
Eagle Star Insurance 549
earnings before interest and taxes (EBIT) 50, 728
earnings before interest, tax, depreciation
& amortisation (EBITDA) 51, 98
earnings dilution 728
earnings per share (EPS) 10, 54–5
and takeovers 551–2
earnings stream, valuation of 96–7
earnings yield 108, 728
East, Warren 541
Eckert, Robert 181
economic exposure 599–600, 642–3
economic order quantity 364–5, 728
economic theory and currency risk 601–6
expectations theory 602
interest rate parity 603–5
international EMH 606
‘Open Fisher’ theory 605–6
purchasing power parity (PPP) 602
economic value added (EVA) 111–12, 498–9, 728
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748 Index
effective rate of interest 399
efficiency frontier 226–7, 729
efficient market hypothesis (EMH) 35, 667
anomalies in 40–1
and CAPM 238
and chaos theory 41–2
criticisms of 40
fundamental and technical analysis 36–7
semi-strong form of 35
strong form of 35
weak form of 35
Egon Zehnder Associates 564
Eiteman, D.K. 625, 656
Elton, E. J. 138, 463
Emap (company) 542
EMI (company) 545
Emirates Airline 441
enhanced scrip dividends 466, 729
Enron (company) 15–16, 545
Enterprise Investment Scheme 418, 729
enterprise value 90, 729
entrapment 669
entrepreneurial companies 412, 729
environmental aspects of investment 180–1
E.On AG (company) 98
equity beta 253, 286, 729
equity capital 8
cost of 517–18
equity finance, raising of 417–31
AIM 424
equity issues 417–31
obligations 424
obtaining a quotation 423–4
quoted companies 421–2
rights issues 426–9
scrip issues 430
stock splits 430
unquoted companies 417–21
venture capital 418–21
equity options 310
equity values 90
equivalent loans 394–5, 729
equivalent risk classes 729
Euro Disney 173
euro rates against sterling 594
eurobonds 439–41, 729
Euronext 25
European Court of First Instance 545, 547
‘European’ options 299, 619, 729
European Union 33
Merger Regulation 546
Eurotunnel 195, 314–15
exchange agio 604, 729
exchange controls 637
exchange rate forecasting 607–10
and central banks 609–10
and market efficiency 609
exchange rate management strategy 611
Exchange Rate Mechanism 9, 606
exchange rates
and risk 642–5
structure of 596–7
ex-dividend 448, 729
executive share options 12, 16
exercise date 300
exercise price 299, 729
exit (from shareholding) 420
expectations 729
expectations theory 78–9
expected net present value (ENPV) 197
Export Credit Guarantee Department 651
export factoring 405
exporting 632
exporting firms 642
external hedging techniques 617–23
currency options 619–23
currency swaps 621–3
futures contracts 620–1
externalisation 632, 729
factor models 261–2
factoring 385–6, 729
Factors Chain International (FCI) 405
‘fair game’ process 34
Fair Trading Act (1973) 545
Fama, Eugene 47, 234, 251, 260–1, 266
Farmers Insurance 549
Federgruen, Awi 206
Ferguson, A. 43
Finance Act (1981) 578
Finance Act (1988) 449
Finance and Leasing Association (FLA) 389
Finance Corporation for Industry 581
finance departments 9–10
finance function 5–7
changes in 670–1
investment decisions 6–7
finance leases 392–3, 729
financial assets 6
‘financial characteristics’ approach to mergers 568
financial decisions 6
financial distress 499–503, 729
costs of 526
MM on 526–7
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Index 749
financial gearing 484–6, 729
and risk 486–9
financial institutions 25–7, 729
financial management 8–9
financial markets 24–7
efficiency of 34–41
financial objectives 10–11
financial pages, reading of 44–6
financial ratios 52–3, 433
financial reports 433
financial risk 199
Financial Services Act (1986) 32
Financial Services Authority 32, 729
financial services sector 27–30
savings institutions 28–9
unit and investment trusts 29
financial statement analysis 48–56
balance sheets 48–50
cash flow statements 51
interpretation of accounts and ratios 55–6
profit and loss accounts 50
ratios 51–5
Finnie, J. 190
Fireball QXL 439
Firer, C. 292
first-year allowances 156, 401
Firth, M. 506, 656
Fison’s (company) 549
fixed assets 4
new investment in 280
fixed charges 383, 729
fixed costs 199
fixed/fixed swaps 623
fixed/floating swaps 623
fixed-interest securities 553
flat yield 437, 729
flexible manufacturing systems (FMSs) 178
floating charges 383, 729
floating rate notes (FRNs) 441, 729
Foley, B.J. 47
follow-on opportunities options 312
football clubs, quoted 93–4
Ford, Henry 180
Ford Motor Company 345
foreign bonds 439, 729
foreign currency swaps 617, 729
foreign direct investment (FDI) 729
APV for 654–5
evaluation of 638–41
factors in favour of 247–8
financing of 651–3
WACC for 653–4
foreign exchange exposure 636, 642–6, 729
and currency risk 598–600
foreign exchange management (FEM) strategy 610–13
hedging translation exposure 610–13
transaction exposure 612–13
foreign investment
complexities of 636–7
entry strategies 632–4
evaluation of 638–41
exchange controls 637
foreign exchange risk 642–5
incremental hypothesis 634–6
by multinational corporations 631–2
operating exposure 645–6
political and country risk 647–51
taxation differences 639–41
forfaiting 404, 729
Forgeard, Noel 210
Forte’s (company) 467
forward contracts 332, 617, 729
forward-forward swaps 618
forward market 25, 596
forward options 617, 729
forward premiums 597
forward rates of exchange 643, 730
forward vertical integration 550
Fosback, N. 242
Francis, J.C. 263
Francis, S.C. 566
Franks, J. 288, 570–1, 582
free cash flow (FCF) 101–3, 514, 730
French, Kenneth 251, 261, 266
Friedman, M. 254
FT-SE indices 44–6
full-payout leases 392
fundamental analysis 36–7, 730
in exchange rate forecasting 605–9
future value 63
futures 25
currency contracts 620–1
risk management 333–4
Gale, B.T. 18
Gapenski, L.C. 374
Gates, Bill 177
GE Capital 435, 566
gearing 8
in cash flow statements 53
effect on ROE 488
measures of 480–2
MM on 516
traditional view of 489–92
and WACC 529–30
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750 Index
General Electric (GEC) 175, 467, 545, 561
General Motors 345, 478
general valuation model (GVM) 100
generally accepted accounting principles (GAAP)
50, 92–3, 730
generic swaps 336
Gentry, J. 348
Ghosh, C. 465
Giddy, I.H. 625
Gitman, L.J. 290–1
GKN plc 466
Glaum, M. 613, 625
global companies 412, 642, 730
Gluck, F.W. 582
going-concern value 730
golden handcuffs 103
golden parachutes 562
Google 411
Gordon, Myron 458, 473
government stock 78
Graham, B. 449
Granada (company) 467
Grand Metropolitan Hotels 94
Graves, S.B. 43
Gray, S.J. 582
Gregory, Alan 552, 570, 572, 583
gross redemption yield 78
Group 4 Securicor 575
Grubb, M. 251, 288
Gruber, M. 463
Gup, B.E. 292
Halifax (bank) 567
Hamada, R.S. 523
Hand, James 661, 670
‘hands on’ shareholding 421
Hanson (company) 593
Harrington, D.R. 292
Harris, R.S. 570, 582
Harrison, J.S. 560
Harrison, R. 417
Harry Potter 133
Hass, J.E. 212
Hatzopoulos, P. 158, 160, 164, 188, 210
HBOS plc 567
hedging 646–7, 730
and currency risk 594–5
and interest rate risk 336
and risk exposure 330
and risk transfer 331
with share options 302–4
Helliwell, J.F. 212
Henderson, S.K. 625
herd behaviour 668
Hertz, D.B. 207
heuristics 670
highly-leveraged transactions (HLTs) 502
Hill, N. 374
hire purchase 389–91, 730
Hirshleifer, J. 37
Ho, S.M. 212
Hodgkinson, L. 164
Holland 656
Holmes, D.E.A. 164, 188
home-made dividends 458, 473–4, 730
home-made gearing 516, 730
Honeywell (company) 545
horizontal integration 549, 730
hostile bids, chronology of 547–8
Hunt, J. 564
hurdle rates in SVA 290–1
hybridity 730
Hypobank 542
ICAEW 95
‘illusion of control’ bias 667
importing firms 642
improvement proposals in capital investment 185
imputation systems 462, 730
‘in the money’ situations 299, 304
income gearing 482–3, 730
income statements 50
incremental cash flow analysis 148–51
incremental hypothesis 634–6, 730
incrementalism 663
independent venture capital firms 419
Indonesia 655–6
industrial cooperation joint ventures 579
inflation
in project appraisal 153–4
and time-value of money 62
information asymmetry 39, 420, 505, 663, 726, 730
and capital rationing 135
and dividend policy 463–5
information content 663, 730
information efficiency of markets 34
information processing, human 666
information technology 244
inherent shareholder value 279
Inion (company) 33–4
initial public offerings (IPOs) 421, 579, 730
Inland Revenue 155
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Index 751
insider trading 730
insolvency 499–500, 513
Insolvency Act (1986) 500
insurance companies 28
and loan guarantees 310
and risk transfer 331
‘insured’ schemes 28
intangible assets 48–9, 93
interest Agio 604, 730
interest cover 54, 482–3, 730
interest rate exposure 335–6
interest rate management 335–7
interest rate options 310
interest rate parity (IRP) 603–5, 730
interest rate swaps 336
interest rates
calculation of 70–1
changes in 63, 505
factors affecting 73
interest yield 437
intermediaries offers 424
internal hedging techniques 614–17
internal rate of return 70–1, 730
and investment appraisal 125–7
internalisation 632, 634, 730
‘international’ bonds 439–41
international diversification 243
International Fisher Theory 605, 730
International Monetary Fund (IMF) 76
International Power plc 429
International Reporting Standards 92
international trade 402–5
documents for 403
Internet bubble 41
intrinsic worth of shares 36, 304
inventory management 362–7
investment categories in SVA 279–80
investment-consumption decision 79–84
investment decisions 6–7, 182
accounting rate of return 129–30
and capital rationing 134–7
cash flow analysis 122
constraints on 134
and financing decisions 150
IRR techniques 125–7
NPV techniques 123–5
payback period 128–9
profitability index 127–8
ranking of mutually exclusive projects 130–3
investment portfolios 28–9, 220
investment risk see risk
investment strategy
advanced manufacturing technology investment 178–80
capital investment process 181–7
considerations in 174–8
environmental aspects 180–1
post-auditing 188–9
investment trusts 29
investor ratios 54–5
Investors for Industry (3i) 419, 465, 581
invoice discounting 386–7, 730
irredeemables 69, 78, 492
issue by tender 423
Issuing Houses Association 27
Jackson, Michael 434
Jarvis, R. 406
Jensen, M.C. 11, 40, 550, 570, 582
Johanson, J. 634
John Lewis Partnership 13–14
joint-equity ventures 579
joint ventures 579–80, 730
Jolliffe, Alexander 579
Jones, C.S. 563–4, 582
Jowit, Juliette 314–15
Junankar, S. 289
junk bonds 432, 730
Jupe, R.E. 103
just-in-time planning 366–7
kanban system 367
Kaplan, R.S. 179, 190
Kaplan, S.N. 502
Kaplanis, E. 243
Keane, S, 47, 459, 506, 656
Keelin, T. 236
Kelda Group 448
Kenning Motor Group 569
Kester, W.C. 316
Keynes, J.M. 41
Kindleberger, C.P. 625
Klemm, M. 558
K-Mart 503
KPMG (consultancy) 571–2, 579
Kuwano, Yukimori 175–6
lagging 615, 730
Lane Cove Tunnel Finance 439
Larcker, D.E. 183
Late Payments of Commercial Debts (Interest) Act
(1998) 382
Law of One Price 34, 634, 730
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752 Index
leading 615, 730
leasing 391–402
as an alternative source of funds 397
cash flow advantages of 397–8
and corporation tax 398–402
cost of 398
‘equivalent loan’ concept 394–5
evaluation of 393–6
as a financing decision 395–6
in long-term finance 441–3
motives for 396–8
and off-balance sheet financing 398
types of 392
Leeds United FC 435
Lees, S. 558, 564, 572
Leeson, Nick 333
letters of credit 403, 730
leverage ratio 485
leveraged buy-outs 562
Levis, M. 261
Levy, H. 164
licensing 559, 632–3, 731
limited liability 4–5
Limmack, R.J. 570
Lindley plc 486–7
linear programming 139–43
Lintner, J. 464
liquidation 499–500
liquidity
and dividend policy 465–7
management of 338
risk to 330
transformation 27
liquidity preference theory 78–9
liquidity ratios 53
listed companies 731
listing rules 31
‘living dead’ companies 421
Lloyd-Webber, Andrew 100
Lloyds TSB 545
Lo, Andrew 38
loan capital 8
Loan Guarantee Scheme 384–5, 731
loan stock 310, 432
local investment networking companies (LlNCs) 417
London, Simon 671
London Inter-Bank Offer Rate (LlBOR) 387, 438
London International Financial Futures and Options
Exchange (LlFFE) 25
London Stock Exchange 30–4
European market 33
history 30–1
market regulation 32
share ownership 33
long-term finance
corporate aims 412–13
debt instruments 432–41
leasing and sale-and-lease-back 441–3
raising of 413–14, 417–31
shareholder funds 414–17
long-term incentive plans (LTIPs) 12
Lorie, J.H. 138
Lucent (company) 545
Luehrman, T.A. 534
McBeth, J. 260
McDaniel, W.R. 138
McDermott, M.C. 582
McGowan, C.B. 263
McIntyre, A.D. 164
MacKinlay, Craig 38
McKinsey-General Electric portfolio matrix 174–5
McRae T.W. 625
Madura, J. 550, 625, 656–7
management buy-ins (MBIs) 420, 731
management buy-outs (MBOs) 419, 421, 438, 577–8, 731
checklist for success of 578
managerial incentives 12
managerialism 11
managers, corporate 668–9
Manchester United FC 93
Mannesmann (company) 567
Manson, C. 571
Mao, J.C.T. 212
Marais, D. 339
Marconi (company) 24, 542
marginal cost of capital (MCC) 495, 731
marginal efficiency of investment (MEI) 456, 731
market behaviour, understanding of 664–5
market capitalisation 50, 731
market efficiency 34–41
implications of 38–9
increases in 39
market inefficiency 661
market model 245–6
market portfolios 241, 256, 731
market risk 199, 330
market segmentation theory 78–9
markets, access to 4
Markowitz, H.M. 234
Marsh, P. 40, 43, 47, 292
Mason, C. 417
matching 327, 615, 731
materials requirement planning (MRP) 366
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Index 753
Mathur, I. 570
Mattel (company) 181
maturity of stock 78
Mayer, C. 571
Meall, L. 499
mean-variance rule 203
Meckling, W.H. 11
Mehra, R. 250
mental accounting 670
Mercer (consultancy) 571
Merchant, Khozem 636
merchant banks 27–8
mergers 8, 731
assessing the impact of 567–72
integration sequence for 564–6
for management control 550
post-merger integration 563–7
Merton, R. 316
Metro (company) 219
mezzanine finance 438, 731
Microsoft 106, 177, 431
Miller, F.H. 234
Miller, M. 373–4, 448, 451, 458–9, 473, 480, 506, 513–15, 534
Mills, R.W. 164
Milner, Charles 579
Milunovich, Steve 471
minimum-risk portfolio 225, 230
modified internal rate of return (MIRR) 138–9, 731
Modigliani, F. 448, 451, 458–9, 473, 480, 513–15, 534
Modigliani and Miller (MM) capital structure theories 731
Monetary Policy Committee 731
money market cover 618, 731
Monopolies and Mergers Commission (MMC) 427
Monson, Guy 72
Monsoon (company) 626
Monte Carlo simulation 207
moral hazard 420, 503, 731
Morgan, Michael 468–9
Mossin, J. 259
multilateral netting 614, 731
multinational companies (MNCs) 631, 731
advantages of 631–2
multi-period capital rationing 137, 139–43
multi-period cash flows and risk 212–14
Murdoch, Rupert 562
Muscovy Company 5, 30
mutually exclusive projects, ranking of 130–3
My Travel (company) 512
Myers, S.C. 138, 266, 316, 374, 406, 506, 530, 534
naked options 300
Nalco (company) 635–6
Narayanaswamy, V.J. 406
De Nationale Investerings-bank 435
natural hedging 335, 645 , 731
natural matching 615
NatWest Bank 567
Navenby plc 99–100, 105–6
Neale, C.W. 164, 188, 190, 636
negative returns 487
Nestlé (company) 94, 435
net advantage of a lease (NAL) 394, 396, 731
net asset value (NAV) 90, 731
in brand valuation 96
problems with 92–4
net book value 49
net current assets 50
net debt 481, 731
net present value (NPV) 67, 73–6, 664, 731
adjusted for risk 208–10
and DCF 123–5
theoretical case for 79–80
and unconventional cash flows 132
net working capital 337–8
netting 614, 731
neutral stocks 731
new issue markets 731
new product proposals in capital investment 185
New York Stock Exchange 33
News Corporation 434, 562
niche companies 412, 731
Nikkei index 44
nil paid price of rights 427
Nintendo (company) 595
non-financial goals of management 11
non-recourse 731
Norwood, S.W. 292
notes (securities) 432
offers for sale by prospectus 423
Office of Fair Trading 32, 427, 583
Official List (of companies) 44, 731
open accounts 402
‘Open Fisher’ theory 603–4
open offers 429
operating clauses 392
operating efficiency of markets 34
operating exposure 642–4, 732
management of 645–6
operating gearing 198–9, 286–7, 413, 484–6, 731–2
operating leases 732
operating leverage 485
operating profit 50
operational strategy 17
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.
754 Index
opportunity costs 663, 732
in project appraisal 148–9
opportunity sets 226, 230–1
optimal capital structure 225, 479, 732
optimal portfolio 225, 227, 732
option contracts 299
option to abandon 311–12
option to wait and see 312, 314
options 25, 732
ordering costs 345
ordinary share capital 8, 414–15
Orr, D. 373, 374
O’Shea, D. 47
Osler, C. 607
‘out of the money’ situations 299
outrights 597
over-the-counter (OTC) market 31, 619
overconfidence on the part of investors 670
overdrafts 732
overreaction hypothesis 40
overseas banking 28
overstocking 362
overtrading 346–7, 732
consequences of and remedies for 347
owner’s equity 732
ownership
and long-term finance 413
transferability of 4
Pacman defence 562
parallel matching 615, 645, 732
part-payout leases 392
participating shares 416
patents 633
payback period 128–9
in investment decisions 128–9
in project appraisal 160–2
Payne, A.F. 582
payout ratio 448
Peacock, A. 567
pecking order theory 505
Peel, M.J. 583
pension funds 28
PepsiCo 580, 637
perfectly-correlated cash flows 213
perpetual warrants 437
perpetuities 732
present value of 84–5
valuation of 69
Peters, E. 42, 47
Peterson, P.P. 406
Pettit, J. 473
Pike, R.H. 67, 134, 138, 158, 164, 190, 210, 212, 374
Pilkington’s (company) 239–40
Pinches, G. 164
Pindyck, R. 316
placing 423
with clawback 425
‘plain vanilla’ swaps 336
‘plain vanilla’ debt 733
plant hire 392
Pohlman, R.A. 164, 290–1
Pointon, J. 164
‘poison pills’ 562, 732
political risk 647–51, 732
Poon, S. 261
Porter, M.E. 559, 567
portfolios 220, 732
portfolio effect 220–2, 732
portfolio insurance 303
portfolio investment 732
portfolio management 29
portfolio risk 199
portfolio theory
correlation in 227–31
on project appraisal 233–4
principles of 221–2
risk measurement 223–5
risk in relation to return 226–7
with three or more components 231–2
post-completion auditing 188–9, 563, 732
Prasad, S.B. 656–7
pre-emption rights 425
preference shares 415–16, 732
for financing a takeover 553
preferential borrowing 396
premiums
on option prices 299
on share prices 415
Prescott, E.C. 250
present value 65–9
arithmetic of 68–71
discount tables 66–7
formula for 84–5
of perpetuities 84–5
present value interest factor (PVIF) 66, 125
for annuities (PVIFA) 66, 85
Price, Colin 574
Price, J. 625
price/earnings ratio (PER) 45–6, 54, 89, 732
and constant dividend valuation model 108–9
price-to-earnings multiple 96–7
price variation 616
pricing efficiency of markets 34
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