Corporate Finance: The Core, 4th edition

About the Book

Methodology that Connects Theory to Practice

• The Law of One Price: A Unifying Principle of Valuation. The Law of One Price is used as a framework, reflecting the modern idea that the absence of arbitrage is the unifying concept in valuation. This theme is explicitly introduced in Chapter 3, revisited in each Part Opener, and integrated throughout the text--motivating all major concepts. This methodology directly connects theory to practice, and unifies what might appear to students as disparate topics that comprise the course syllabus (corporate finance, investments, and valuation).
• Options for Teaching Risk and Return. Chapter 3 briefly introduces the concept of risk and return. Using the no-arbitrage concept, the reasoning behind evaluating risk relative to a benchmark is explained conceptually and allows for use of the concept of risk and return in early chapters. Later, the structure of Part IV is flexible and allows instructors to opt for brief or comprehensive coverage of the topic.
• Emphasis of Capital Budgeting and Valuation. Capital budgeting and valuation is presented in two distinct stages. The first, which appears in Chapter 8, focuses on cash flows, while the second stage focuses on capital budgeting and valuation in the real world in Chapter 18 and the capstone Chapter 19.

Learning Aids that Teach Students to ‘Think Finance’

• A Simplified Presentation of Mathematics. One of the hardest parts of learning finance is mastering the jargon, math, and non-standardized notation. Corporate Finance systematically uses:
• Notation Boxes: Each chapter opens by defining the variables and acronyms used in the chapter as a 'legend' for students' reference.
• Timelines: Introduced in Chapter 4, timelines are emphasized as the important first step in solving every problem that involves cash flows.
• Numbered and Labeled Equations: The first time a full equation is given in notation form it is numbered. Key equations are titled and revisited in the summary and in end papers.
• Using Excel boxes: Provide hands-on instruction of Excel techniques and include screenshots to serve as a guide for students.
• Spreadsheet Tables: Select tables are available as Excel files, enabling students to change inputs and manipulate the underlying calculations.

• Practice Finance to Learn Finance: Working problems are the proven way to cement and demonstrate an understanding of finance.
• Concept Check questions at the end of each section enable students to test their understanding and target areas in which they need further review.
• End-of-chapter problems written personally by Jonathan Berk and Peter DeMarzo offer instructors the opportunity to assign first-rate materials to students for homework and practice with the confidence that the problems are consistent with chapter content. Both the problems and solutions, which were also written by the authors, have been class-tested and accuracy checked to ensure quality.
• Data Cases present in-depth scenarios in a business setting with questions designed to guide students' analysis. Many questions involve the use of Internet resources and Excel techniques.
• Study Aids with a Practical Focus. To be successful, students need to master the core concepts and learn to identify and solve problems that today's practitioners face.
• Common Mistakes boxes alert students to frequently made mistakes stemming from misunderstanding core concepts and calculations—in the classroom and in the field.

Coverage of The Latest Developments in the Field

• Modern Research. Berk and DeMarzo introduce recent advances in finance research throughout the book. For example, Chapter 16 is a full-chapter treatment of the effects of financial distress, agency issues, and asymmetric information on the firm's choice of capital structure.
• Modern Practice. Throughout Corporate Finance the authors connect finance concepts to practice. Chapter 18 shows the relationship between the WACC, APV, and Flow-to-Equity methodologies, and stresses the role of the firm's leverage policy. Then, a unique capstone to capital budgeting, Chapter 19 illustrates the application and real-world implementation of valuation techniques.
• UPDATED! Focus on the 2007—2009 Financial Crisis and Sovereign Debt Crisis. Twenty-two Global Financial Crisis boxes reflect the reality of the recent financial crisis and ongoing sovereign debt crisis, noting lessons learned. Boxes across the book illustrate and analyze key details.
• Applications that Reflect Real Practice. Corporate Finance features actual companies and leaders in the field:
• NEW! Six interviews with notable practitioners highlight leaders in the field and address the effects of the financial crisis and ongoing European sovereign debt crisis.
• General Interest boxes highlight timely material from financial publications that shed light on business problems and real-company practices.
• NEW! Nobel Prize boxes reflect recent Nobel prizes awarded for material covered in the book.

Specific Content Changes

• NEW! Material that addresses the implications of negative interest rates has been added throughout the book.
• NEW! Coverage describes the ongoing changes to how stocks are traded worldwide. Also, the Dodd-Frank Act information has been updated and a new interview with M. Hathaway, NASDAQ has been included (Chapter 1).
• NEW! Interview with Ruth Porat, Google and an expanded explanation of key financial ratios have been added (Chapter 2).
• NEW! Box on the dynamics of stock index arbitrage and high frequency trading has been added (Chapter 3).
• NEW! Box on annuity due has been included (Chapter 4).
• NEW! Data Case on Florida’s pension plan liability has been added (Chapter 5).
• NEW! Expanded coverage of the European debt crisis, including a case study on the Greek default, has been added (Chapter 6).
• NEW! Common Mistake box on the sunk cost fallacy has been included (Chapter 8).
• NEW! Extensive data updates throughout have been made to reflect current market conditions (Chapter 10).
• NEW! Common Mistake box on using a single cost of capital in multidivisional firms and a new Using Excel box on estimating beta have been added (Chapter 12).
• UPDATED! Coverage of recent developments in asset pricing, discussion of fund manager performance, and an interview with Jonathan Clements, former columnist at WSJ,have been updated or expanded (Chapter 13).
• NEW! Material that relates the capital structure to the current debate on bank leverage has been added throughout Part 5.
• NEW! Box on the repatriation tax controversy has been included (Chapter 15).
• UPDATED! Discussion of corporate cash retention has been added (Chapter 17).
• NEW! Interview with Zane Rowe, VMWare, and material explaining the relation between DCF and residual income valuation methods, have been added (Chapter 18).
• NEW! Using Excel box “Summarizing Model Outputs” has been added (Chapter 19).
• NEW! Redesigned sections of Chapter 22, including new examples of decision tree methodology, make the exposition clearer.
• NEW! Increased coverage of early stage financing, including a detailed explanation of angel financing and venture capital deal terms; an expanded explanation of typical returns investors make; a new Common Mistake box on misinterpreting startup valuations; and a new interview with Kevin Laws, AngelList, have all been added (Chapter 23).
• NEW! Box on Detroit’s municipal bond default has been included (Chapter 24).
• UPDATED! New FASB rules for lease accounting and a new interview with Mark S. Long, XOJet have been added (Chapter 25).
• NEW! Box on the Ex-Im Bank controversy has been included (Chapter 27).
• NEW! Expanded discussion of valuation and premiums paid has been added (Chapter 28).
• NEW! Discussion of shareholder activism and its recent impact on corporate governance is now included (Chapter 29).

Also Available with MyFinanceLab^TM

MyFinanceLab is an online homework, tutorial, and assessment program designed to work with this text to engage students and improve results. Within its structured environment, students practice what they learn, test their understanding, and pursue a personalized study plan that helps them better absorb course material and understand difficult concepts.

• NEW! Auto-Graded Excel Projects use proven, field-tested technology, allowing instructors to seamlessly integrate Excel problems into their course.
• End-of-chapter problems. The values in the problems are algorithmically generated, giving students many opportunities for practice and mastery. Problems can be assigned by professors and completed online by students.
• Helpful tutorial tools, along with the same pedagogical aids from the text, support students as they study. Links to the eText direct students to the material they most need to review.
• Interactive Figures. Select in-text graphs and figures that cover topics such as bonds, stock valuation, NPV, and IRR have been digitally enhanced to allow students to interact with variables to affect outcomes and bring concepts to life.
• Video clips cover high-profile firms such as Boeing, Cisco, Delta, and Intel through interviews and analysis. The videos focus on core topical areas, including capital budgeting, mergers and acquisitions, and risk and return.
• Finance in the News provides weekly postings of a relevant and current article from a newspaper or journal article with discussion questions that are assignable in MyFinanceLab.
• Live news and video feeds from The Financial Times and ABC News provide real-time news updates.
• Author Solution Videos walk students through the in-text examples using math, the financial calculator, and spreadsheets.
• UPDATED! HTML5 Player. In addition to matching the Flash player’s support of Accessibility requirements, the HTML5 player has a new “Show Work” feature to allow students to enter text either from a keyboard or stylus and to draw freehand on different backgrounds, such as a coordinate graph, with multiple fonts and colors. Students can also continue to upload images such as phone photos of handwritten work. Printing enhancements include:

• a more pen-and-paper-friendly layout of exercises
• the ability for instructors to choose whether to print the header; to include an honor statement; and to print with answers in line, after each question, or on a separate sheet

About the Book

Coverage of The Latest Developments in the Field

• UPDATED! Focus on the 2007—2009 Financial Crisis and Sovereign Debt Crisis. Twenty-two Global Financial Crisis boxes reflect the reality of the recent financial crisis and ongoing sovereign debt crisis, noting lessons learned. Boxes across the book illustrate and analyze key details.
• Applications that Reflect Real Practice. Corporate Finance features actual companies and leaders in the field:
• Six interviews with notable practitioners highlight leaders in the field and address the effects of the financial crisis and ongoing European sovereign debt crisis.
• Nobel Prize boxes reflect recent Nobel prizes awarded for material covered in the book.

Specific Content Changes

• Material that addresses the implications of negative interest rates has been added throughout the book.
• Coverage describes the ongoing changes to how stocks are traded worldwide. Also, the Dodd-Frank Act information has been updated and a new interview with M. Hathaway, NASDAQ has been included (Chapter 1).
• Interview with Ruth Porat, Google and an expanded explanation of key financial ratios have been added (Chapter 2).
• Box on the dynamics of stock index arbitrage and high frequency trading has been added (Chapter 3).
• Box on annuity due has been included (Chapter 4).
• Data Case on Florida’s pension plan liability has been added (Chapter 5).
• Expanded coverage of the European debt crisis, including a case study on the Greek default, has been added (Chapter 6).
• Common Mistake box on the sunk cost fallacy has been included (Chapter 8).
• Extensive data updates throughout have been made to reflect current market conditions (Chapter 10).
• Common Mistake box on using a single cost of capital in multidivisional firms and a new Using Excel box on estimating beta have been added (Chapter 12).
• UPDATED! Coverage of recent developments in asset pricing, discussion of fund manager performance, and an interview with Jonathan Clements, former columnist at WSJ,have been updated or expanded (Chapter 13).
• Material that relates the capital structure to the current debate on bank leverage has been added throughout Part 5.
• Box on the repatriation tax controversy has been included (Chapter 15).
• UPDATED! Discussion of corporate cash retention has been added (Chapter 17).
• Interview with Zane Rowe, VMWare, and material explaining the relation between DCF and residual income valuation methods, have been added (Chapter 18).
• Using Excel box “Summarizing Model Outputs” has been added (Chapter 19).
• Redesigned sections of Chapter 22, including new examples of decision tree methodology, make the exposition clearer.
• Increased coverage of early stage financing, including a detailed explanation of angel financing and venture capital deal terms; an expanded explanation of typical returns investors make; a new Common Mistake box on misinterpreting startup valuations; and a new interview with Kevin Laws, AngelList, have all been added (Chapter 23).
• Box on Detroit’s municipal bond default has been included (Chapter 24).
• UPDATED! New FASB rules for lease accounting and a new interview with Mark S. Long, XOJet have been added (Chapter 25).
• Box on the Ex-Im Bank controversy has been included (Chapter 27).
• Expanded discussion of valuation and premiums paid has been added (Chapter 28).
• Discussion of shareholder activism and its recent impact on corporate governance is now included (Chapter 29).

Also Available with MyFinanceLab^TM

MyFinanceLab is an online homework, tutorial, and assessment program designed to work with this text to engage students and improve results. Within its structured environment, students practice what they learn, test their understanding, and pursue a personalized study plan that helps them better absorb course material and understand difficult concepts.

• Auto-Graded Excel Projects use proven, field-tested technology, allowing instructors to seamlessly integrate Excel problems into their course.
• UPDATED! HTML5 Player. In addition to matching the Flash player’s support of Accessibility requirements, the HTML5 player has a new “Show Work” feature to allow students to enter text either from a keyboard or stylus and to draw freehand on different backgrounds, such as a coordinate graph, with multiple fonts and colors. Students can also continue to upload images such as phone photos of handwritten work. Printing enhancements include:

• a more pen-and-paper-friendly layout of exercises
• the ability for instructors to choose whether to print the header; to include an honor statement; and to print with answers in line, after each question, or on a separate sheet