Custom Principles of Finance with Corporate Applications essay paper sample
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Emery and Finnerty’s Principles of Finance with corporate applications is a finance text that is well laid out, thus making it easy to read and to understand. This text is divided into two major sections: principles and applications. The principles are introduced in chapter 2, (after introduction in chapter1) whereby the twelve principles of finance are summarized and then the full discussion on the principles of finance is discussed in other seven chapters. The application part of the text deals with applying the principles of finance to corporate finance issues. This part has 17 chapters which have further been divided into four parts comprising of the long-term investment decisions, long-term financing decisions, investment and financing interactions, and finally, the short-term decisions.
Much information that is presented in this text can be found elsewhere but the advantage of using this book is that there is repeated application of principles and stressing of ideas which makes the book very comprehensive. The repeated application of self-interested behavior principle and incremental benefits principle leads to one understanding corporate financial issues totally. Time value of money as in chapter 3 is well covered whereas the capital market in chapter 4 is covered fully in a chapter ahead. Chapter 5 outlines the basic principles to develop capital market efficiency and chapter 6 seeks to apply the present value model to valuing stocks and bonds. Here, stock price has been related very well. Chapter 7 which covers risk return and asset –pricing models brings the elements of mathematics to our minds while chapter 8 gives us comprehensive thoughts about options.
The final chapter of principles of finance is financial contracting. Here, I take issue because the concept of bonding by the agency is not mentioned. The author fails to explain that debt holders price protect them such that share holders are never in a position to bond themselves against doing things that are contrary to debt holders wish. This issue makes this chapter not to be very clear.
In the application part of the book, every last chapter looks at the issue from a practical perspective while the other chapters apply the principles of finance. Thus, the author has combined theory and practice very well, not neglecting either. In my opinion, the role of opportunity cost in determining the cash flows that are relevant to an investment decision would have been stressed earlier in capital budgeting chapters, so that it would be very easy to determine how certain costs and benefits affect a decision. In summary Emery and Finnerty’s work is comprehensive, interesting to read and leaves the reader thinking. The work is thorough and honest. It is relevant and appropriate for use in institutions of higher learning.