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How to Master Corporate Finance with Fundamentals of Corporate Finance Asia Global Edition



Fundamentals of Corporate Finance Asia Global Edition Answers




If you are looking for a comprehensive and practical guide to corporate finance, you might want to check out Fundamentals of Corporate Finance Asia Global Edition by Ross, Westerfield, Jordan, Lim, and Tan. This book covers the essential topics and concepts in corporate finance, such as valuation, capital raising, capital structure, and investment decisions. It also provides real-world examples and cases from Asian companies and markets, as well as online resources and exercises for students and instructors.




Fundamentals Of Corporate Finance Asia Global Edition Answers



In this article, we will give you a brief overview of some of the main topics covered in this book. We will also provide some answers to common questions that you might have about corporate finance. By reading this article, you will gain a better understanding of what corporate finance is, how it works, and why it matters.


What is corporate finance?




Corporate finance is the study of how firms manage their financial resources and activities. It involves answering three main questions:



  • How do firms value themselves and their assets?



  • How do firms raise capital to fund their operations and investments?



  • How do firms allocate capital among competing projects and goals?



The ultimate goal of corporate finance is to maximize the value of the firm for its owners or shareholders. This means that corporate finance decisions should aim to increase the cash flows generated by the firm, while taking into account the risk and cost of those cash flows.


How to value a company?




One of the most important tasks in corporate finance is to estimate the value of a company or its assets. This can help firms make better decisions about mergers and acquisitions, divestitures, capital budgeting, and financial reporting. There are different methods and techniques for valuing a company, but they all rely on the same basic principle: the value of a company is equal to the present value of its expected future cash flows.


Here are some of the most common methods and techniques for valuing a company:


Discounted cash flow method




The discounted cash flow (DCF) method is based on projecting the future cash flows of the company and discounting them back to the present using an appropriate discount rate. The discount rate reflects the risk and opportunity cost of investing in the company. The DCF method can be applied to the entire company (enterprise value) or to its equity (equity value).


The formula for the DCF method is:


Value = CF1/(1 + r) + CF2/(1 + r) + ... + CFn/(1 + r)


Where:



  • Value is the present value of the company or its equity



  • CFi is the expected cash flow in year i



  • r is the discount rate



  • n is the number of years in the projection period



Comparable company analysis method




The comparable company analysis (CCA) method is based on comparing the valuation ratios of the company with those of similar companies in the same industry or sector. The valuation ratios measure how much the market is willing to pay for a certain level of performance or growth. Some of the most common valuation ratios are price-to-earnings (P/E), price-to-book (P/B), price-to-sales (P/S), and enterprise value-to-EBITDA (EV/EBITDA).


The formula for the CCA method is:


Value = Ratio x Benchmark


Where:



  • Value is the estimated value of the company or its equity



  • Ratio is the selected valuation ratio of the company



  • Benchmark is the average or median valuation ratio of the comparable companies



Market-based method




The market-based method is based on estimating the value of a company based on its market capitalization or enterprise value. The market capitalization is equal to the number of shares outstanding multiplied by the share price. The enterprise value is equal to the market capitalization plus the net debt (total debt minus cash and equivalents). The market-based method assumes that the market price reflects all available information and expectations about the company.


The formula for the market-based method is:


Value = Market Cap or EV


Where:



  • Value is the estimated value of the company or its equity



  • Market Cap is the market capitalization of the company



  • EV is the enterprise value of the company