Corporate Finance · Van Horne, 13th Ed.

The Concept Map

How every chapter connects — one continuous loop back to shareholder value

💡 How to read this map: follow the diagram top to bottom for the main decision flow. The solid white arrows show one concept feeding directly into the next. The dashed gold arrows show feedback loops — places where a later decision loops back and changes an earlier number.

The whole diagram is really one big loop: every chapter exists to answer the same question asked in Chapter 1 — does this decision make shareholders wealthier?

Financing mix changes WACC Retained earnings = equity Closes the loop back to Chapter 1 CHAPTER 1 · THE ULTIMATE GOAL 💡 Maximize Shareholder Wealth Every decision below is judged against this one standard CHAPTER 3 · FOUNDATION Time Value of Money PV, FV & discounting mechanics CHAPTER 5 · FOUNDATION Risk & Return CAPM, beta & the risk premium CHAPTER 15 · THE HURDLE RATE 💡 Cost of Capital (WACC) Blends TVM + CAPM into one required return CHAPTERS 12–13 · WHERE TO INVEST 💡 Capital Budgeting (NPV, IRR) Accept projects that clear the WACC hurdle CHAPTER 17 · HOW TO PAY FOR IT 💡 Capital Structure Debt vs. equity mix used to fund those projects CHAPTER 18 · WHAT TO DO WITH PROFITS 💡 Dividend Policy Retain earnings to reinvest, or pay shareholders THE RESULT 💡 Value Created → Share Price Rises Positive NPV + efficient financing + smart payout
Main flow — one concept feeds the next
Feedback loop — a later decision changes an earlier input

Reading the Interplay — In Plain English

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Step 1 → 2 : Tools before decisions You can't value anything without Time Value of Money (moving cash flows across time) and Risk & Return (pricing uncertainty via beta/CAPM). These two chapters are pure toolkit — every later chapter borrows from them.
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Step 2 → 3 : Tools combine into a hurdle rate Cost of Capital (WACC) is literally TVM's discounting logic plus CAPM's risk premium, blended across debt, preferred, and equity financing.
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Step 3 → 4 : The hurdle rate decides what to build Capital Budgeting takes WACC as the discount rate in NPV and as the benchmark for IRR — this is where the firm decides which real assets to invest in.
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Step 4 → 5 : Every investment needs financing Once a project is approved, the firm must decide how to pay for it — this is Capital Structure. But the debt/equity mix chosen here feeds back and changes WACC itself (the dashed loop) — these two chapters constantly influence each other.
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Step 5 → 6 : Profits need a home Whatever earnings remain must either be retained (a source of equity financing that flows back into Capital Structure) or paid out as dividends. This is why Dividend Policy sits right next to Capital Structure in the loop.
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Step 6 → 7 → 1 : Back to the beginning Good investment choices (positive NPV), an efficient financing mix (lower WACC), and a well-read dividend signal all raise the stock price — which is exactly the Chapter 1 goal the whole map started with.
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Corporate finance isn't seven separate topics — it's one continuous loop: measure risk and time → price capital → invest wisely → finance and pay out smartly → raise share price → repeat.