Lectures on Corporate Finance

Overview of the book

What follows is a short overview of what is in the book.

Introductory Remarks

This course of lectures introduces students to elementary concepts of corporate finance using a more systematic approach than is generally found in other textbooks. Axioms are first highlighted and the implications of these important concepts studied afterwards. These implications are used to answer questions about corporate finance, including issues related to derivatives pricing, state-price probabilities, dynamic hedging, dividends, capital structure decisions, and risk and incentive management.

The main thing to note about this book compared to more standard texts in corporate finance is the level of abstraction. We are arguing in an abstract manner to make the unifying themes, represented by the axioms, clear. But this does not mean that we are using advanced mathematics. While we are not afraid of using mathematical expressions where it will simplify understanding, the emphasis is on basic algebra. No advanced calculus or stochastic processes is used. We provide an extensive set of examples in this book. Most of them are relatively simplistic, they are used to clarify a single point.

We are on purpose not trying to be encyclopedic in our coverage of finance. This book is mainly on principles, little about the nitty-gritty of institutions, in which many finance text abounds.

In order to understand the concepts in this book it is essential to work with numerical problems. End of chapter problems are provided for most chapters. Each problem has an indicated level of difficulty, ranking from 1 (simple) to 10 (very hard). If there is a lot of work involved with a problem, this will also push it up the scale.

A Roadmap (Where are we going?).

Introductory, setting the stage. We present some of the ``axioms'' that we rely on in the later analysis. Like all axioms, they sound reasonable.

Basics, covered in all finance books. Multiperiod pricing and derivatives.

Corporate Finance Risk And Incentive Management. Longer Examples.