Corporate finance, 10th ed.

• Main Author: Stephen A. Ross, Randolph W. Westerfi eld, Jeffrey Jaffe.
• Format: Book
• Language: English
• Published: McGraw Hill 2020
• Subjects: Corporations—Finance.
• Online Access: http://dspace.uniten.edu.my/jspui/handle/123456789/15367

The teaching and the practice of corporate finance are more challenging and exciting than ever before. The last decade has seen fundamental changes in financial markets and financial instruments. In the early years of the 21st century, we still see announcements in the financial press about takeovers, junk bonds, financial restructuring, initial public offerings, bankruptcies, and derivatives. In addition, there are the new recognitions of “real” options, private equity and venture capital, subprime mortgages, bailouts, and credit spreads. As we have learned in the recent global credit crisis and stock market collapse, the world’s financial markets are more integrated than ever before. Both the theory and practice of corporate finance have been moving ahead with uncommon speed, and our teaching must keep pace. These developments have placed new burdens on the teaching of corporate finance. On one hand, the changing world of finance makes it more difficult to keep materials up to date. On the other hand, the teacher must distinguish the permanent from the temporary and avoid the temptation to follow fads. Our solution to this problem is to emphasize the modern fundamentals of the theory of finance and make the theory come to life with contemporary examples. Increasingly, many of these examples are outside the United States. All too often the beginning student views corporate finance as a collection of unrelated topics that are unified largely because they are bound together between the covers of one book. We want our book to embody and reflect the main principle of finance: Namely, that good financial decisions will add value to the firm and to shareholders and bad financial decisions will destroy value. The key to understanding how value is added or destroyed is cash flows. To add value, firms must generate more cash than they use. We hope this simple principle is manifest in all parts of this book. The Intended Audience of This Book This book has been written for the introductory courses in corporate finance at the MBA level and for the intermediate courses in many undergraduate programs. Some instructors will find our text appropriate for the introductory course at the undergraduate level as well. We assume that most students either will have taken, or will be concurrently enrolled in, courses in accounting, statistics, and economics. This exposure will help students understand some of the more difficult material. However, the book is selfcontained, and a prior knowledge of these areas is not essential. The only mathematics prerequisite is basic algebra. New to Tenth Edition All chapter openers and examples have been updated to reflect the financial trends and turbulence of the last several years. In addition, we have updated the end-ofchapter problems and questions in every chapter. We have tried to incorporate the many exciting new research findings in corporate finance. Several chapters have been extensively rewritten. • Chapter 9 Stock Valuation. This chapter now adds a description of how discounted cash flow can be used to determine the value of an entire enterprise in addition to individual common stocks. We also introduce the important concept of comparable firms and show how to use market data on comparable firms to bolster discounted cash flow methods. We try to organize the material so that instructors can choose which best fits their lesson plan. • Chapter 10 Risk and Return: Lessons from Market History. We continue to update and internationalize our discussion of historical risk and return since these updates are far from routine. One of our focal points is the equity risk premium (ERP). With better historical data and more countries included, our estimates of the ERP are on stronger footing. • Chapter 13 has been retitled, from Risk, Cost of Capital, and Capital Budgeting to Risk, Cost of Capital, and Valuation. We introduce the concept of the weighted average cost of capital (RWACC) and show how it can be used along with discounted cash flow to value both an entire enterprise as well as individual projects. • Chapter 15 Long-Term Financing. The introduction has been extensively rewritten to introduce the basic features of debt and equity as well as recent trends and innovations. • Chapter 17 Capital Structure: Limits to the Use of Debt has been rewritten to incorporate some new and important empirical and theoretical work on capital structure. It is now much clearer to us that actual capital structures vary a lot over time and are much less stable than previously thought. This instability is strongly correlated to investment needs and opportunities and also suggests a greater need for financial flexibility than was previously thought to be necessary. We incorporate some recent research on international leverage ratios. Among 39 different countries, the U.S. has the fourth lowest. • Chapter 19 Dividends and Other Payouts. We introduce the financial life cycle notion that most high-growth firms with external financial needs don’t pay dividends or buy back shares, and low-growth firms with excess cash flows do pay dividends and/or buy back shares. This simple fact sometimes is lost in determining why firms actually pay or do not pay dividends and buy back shares. We use new data incorporating the financial crisis and also when corporate earnings turn negative. Interestingly, in our study, the level of dividends did not change much but share repurchases fell off. • Chapter 20 has been retitled from Issuing Securities to the Public to Raising Capital. We build on the financial life cycle idea, introducing private equity and venture capital as early ways to raise funds in a firm’s life cycle. Later on, successful firms will do an initial public offering (IPO) and seasoned equity offers (SEO).