Foundations of Finance, 9th edition

For undergraduate courses in Corporate Finance.

The Five Key Principles for the Foundations of Finance

Foundations of Finance retains its foundational approach to the key concepts of finance, bolstered by real-world vignettes, cases, and problem exercises. Utilizing five principles, which are presented at the beginning of the book and applied throughout, the authors introduce a multi-step approach to financial problem solving that appeals to students’ at all levels, math and numerical skills. As in previous editions, the Ninth Edition focuses on valuation and opens every chapter with a vignette based on financial decisions faced by contemporary, real-world companies and firms. Other highly useful features include mini cases, cautionary tales, lists of key terms, and a discussion of ethics. Revised and updated, thenewest edition includes new lecture videos, financial thinking, user feedback, and lessons from the recent economic crisis.

Also Available with MyFinanceLab^™

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.

Students, if interested in purchasing this title with MyFinanceLab, ask your instructor for the correct package ISBN and Course ID. Instructors, contact your Pearson representative for more information.

About the Book

Comprehensive Coverage of Financial Concepts

• UPDATED! Chapter-by-chapter updates have been made in response to the continued development of financial thought, reviewer comments, and recent economic crisis, including:
  • Revised and updated introduction and discussion of the “Five Principles” in Chapter 1
  • Revised coverage of the term structure of interest rates to address very low rates at present; simplified, more intuitive discussion of interest rate determinants; and added coverage of the term structure of interest rates in Chapter 2
  • Use of the Coca-Cola company to discuss financial statements, expanded coverage of balance sheets, more intuitive presentation of cash flows, and new explanation of fixed and variable costs as part of presenting income statements in Chapter 3
  • Chapter 4 compares Coca-Cola to PepsiCo to illustrate comparative evaluation of a firm’s financial performance; provides a new Finance at Work and revised presentation of evaluating a company’s liquidity
  • Chapter 5 has been revised to appeal to students regardless of numerical skills, including new section on “Making Interest Rates Comparable” and new questions and problems
  • Updated examples and information on rates of return in Chapter 6
  • New examples of actual firms in Chapter 7
  • Chapter 8 includes more current explanation of options for getting stock quotes from the Wall Street Journal
  • Chapter 9 includes five new lecture captures and eight revised problems
  • Chapter 10 includes an extensively revised introduction that discusses Disney’s decision to build the Disney Shanghai Resort and a new section with additional discussion of the modified internal rate of return
  • Chapter 11 includes a revised introduction examining the difficulties Toyota faced in estimating future cash flows when it introduced the Prius, along with a new Finance at Work box and problem set
  • Chapter 12 includes a revised problem set
  • Chapter 13 includes an updated discussion of the tax code for personal tax treatment of dividends and capital gains, and a new lecture capture
  • Chapters 14 and 15 contain new problem exercises
  • Chapter 16 has been revised extensively to reflect changes in exchange rates and global financial markets, and a new section titled “What a Change in the Exchange Rate Means for Business” deals with the implications of exchange rate changes

• Five Principles, presented at the beginning of the book, provide students with a strong foundation of the key concepts in finance so they are able to apply such principles outside of class to real-life situations.
  • Principle 1: Cash Flow Is What Matters
  • Principle 2: Money Has a Time Value
  • Principle 3: Risk Requires a Reward
  • Principle 4: Market Prices are Generally Right
  • Principle 5: Conflicts of Interest Can Cause Agency Problems
• A Focus on Valuation. Although many professors and instructors make valuation the central theme of their course, students often lose sight of this focus when reading their text. The authors have revised this edition to reinforce this focus in the content and organization of the text:
  • Five finance principles provide the foundation for the valuation of any investment.
  • New topics are introduced in the context of “what is the value proposition?” and “how is the value of the enterprise affected?”

Provide Context

• Real-World Chapter-Opening Vignettes. Each chapter begins with a story about a current, real-world company faced with a financial decision related to the chapter material. These vignettes have been carefully prepared to stimulate student interest and can be used as a lecture tool to provoke class discussion.
• Integrated Examples. These real-world examples encourage students to apply the concepts presented in each chapter.
• Mini Cases. A comprehensive Mini Case appears at the end of almost every chapter, covering all the chapter’s major topics. This Mini Case provides an opportunity to apply all the concepts presented within the chapter in a realistic setting, thereby strengthening students’ understanding of the material.
• “Cautionary Tale” Boxes. These give students insights into how the core concepts of finance apply in the real world. Each “Cautionary Tale” box goes behind the headlines of finance pitfalls in the news to show how one of the five principles was forgotten or violated.
• Use of an Integrated Learning System. The text is organized around the learning objectives that appear at the beginning of each chapter to provide the instructor and student with an easy-to-use integrated learning system. Numbered icons identifying each objective appear next to the related material throughout the text and in the summary, allowing easy location of material related to each objective.
• Financial Calculators. The use of financial calculators has been integrated throughout this text, especially with respect to the presentation of the time value of money. Where appropriate, calculator solutions appear in the margin.

Check Understanding

• “Can You Do It?” and “Did You Get It?” Sections. This text provides examples for students at the end of each chapter titled, “Can You Do It?” These examples are followed by a “Did You Get It?” section several pages later in the text. Together, these sections provide an essential ingredient to the building-block approach to the material in this text.
• Remember Your Principles. These in-text inserts appear throughout the material, encouraging students to take time out and reflect on the meaning of the concepts just presented. The use of these inserts, coupled with the use of the five principles, keeps the student focused on the interrelationships and motivating factors behind the concepts.
• Financial Decision Tools. This feature recaps keys equations shortly after their application in the chapter.
• Chapter Summaries. These have been rewritten to make it easier for students to connect the summary with each of the in-chapter sections and learning objectives.
• Key Terms List for Each Chapter. New terminology introduced in the chapter is listed along with a brief definition.
• Study Problems. The end-of-chapter study problems have been improved and dramatically expanded to allow for a wider range of student practice. In addition, the study problems are now organized according to learning objective so that both the instructor and student can readily align text and problem materials.
• Cover Ethics. Ethics is covered as a core principle and “Ethics in Financial Management” boxes appear throughout. These show students that ethical behavior is doing the right thing and that ethical dilemmas are everywhere in finance.
• A Multi-Step Approach to Problem Solving and Analysis. The authors understand that there is a wide range of math comprehension and skill in the undergraduate finance course. They address this problem both in terms of text content and pedagogy: First, they present math only as a tool to help us analyze problems, and only when necessary. Second, since finance is an analytical subject that requires students to solve problems, the authors provide numbered chapter examples which appear throughout the book. Each of these examples follows a very detailed and multi-step approach to problem solving that helps students develop their problem-solving skills:
  • Step 1: Formulate a Solution Strategy. For example, what is the appropriate formula to apply? How can a calculator or spreadsheet be used to “crunch the numbers”?
  • Step 2: Crunch the Numbers. The authors present a completely worked out step-by-step solution. They present a description of the solution in prose and then a corresponding mathematical implementation.
  • Step 3: Analyze Your Results. Each solution ends with an analysis of what the solution means. The authors emphasize that decisions are often based on incomplete information, which requires the exercise of managerial judgment, a fact of life that is often learned on the job.
• NEW! Brief (10 to 15 minute) lecture videos contain direct “tutoring” from the authors that will help students with primary examples in the text. Available in the eText, students can replay these videos as many times as necessary.

Also Available with MyFinanceLab^™

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! Enhanced eText. Available within the online course materials and offline via an iPad app, the enhanced eText allows instructors and students to highlight, bookmark, take notes, and share with one another.
  • 52 Lecture Capture Videos, recorded by the author, help students understand more fully each of the in-text examples.
• A fully functional financial calculator. Students now have access to a fully functional financial calculator inside MyFinanceLab. Along with access to the calculator within MyFinanceLab, all MyFinanceLab users get free access to the new financial calculator app they can download to their iPhone^®, iPad^®, or Android device.
• MyFinanceLab Video Series illustrate key topics including:
  • Default Risk
  • Market Efficiency
  • Diversification
  • Mutual Fund Performance
  • Castle in the Air Theory
  • Stocks 101/Intro to Stocks
• Worked Solutions provide step-by-step explanations on how to solve select problems using the exact numbers and data that were presented in the problem. Instructors will have access to the Worked Solutions in preview and review mode.
• Adaptive Learning Study Plan (Powered by Knewton). Not every student learns the same way and at the same rate. And now, thanks to advances in adaptive learning technology, you no longer have to teach as if they do. MyLab & Mastering with Adaptive Learning assesses student performance and activity in real time and, using data and analytics, personalizes content to reinforce concepts that target each student’s strengths and weaknesses. 
  • Dynamic Study Modules help students study effectively on their own by continuously assessing their activity and performance in real time. Here's how it works: students complete a set of questions with a unique answer format that also asks them to indicate their confidence level. Questions repeat until the student can answer them all correctly and confidently. Once completed, Dynamic Study Modules explain the concept using materials from the text. These are available as graded assignments prior to class, and accessible on smartphones, tablets, and computers. Available for select titles.
• Learning Catalytics^™ is an interactive, student response tool that uses students’ smartphones, tablets, or laptops to engage them in more sophisticated tasks and thinking. Now included with MyFinanceLabwith eText, Learning Catalytics enables you to generate classroom discussion, guide your lecture, and promote peer-to-peer learning with real-time analytics. Instructors, you can:
  • Pose a variety of open-ended questions that help your students develop critical thinking skills.
  • Monitor responses to find out where students are struggling.
  • Use real-time data to adjust your instructional strategy and try other ways of engaging your students during class.
  • Manage student interactions by automatically grouping students for discussion, teamwork, and peer-to-peer learning.
• Reporting Dashboard. View, analyze, and report learning outcomes clearly and easily, and get the information you need to keep your students on track throughout the course, with the new Reporting Dashboard. Available via the MyFinanceLab Gradebook and fully mobile-ready, the Reporting Dashboard presents student performance data at the class, section, and program levels in an accessible, visual manner.
• 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 inline, after each question, or on a separate sheet
• Mobile Player. Students and instructors will be able to access multimedia resources and complete assessments right at their fingertips, on any mobile device. Highlights of Pearson's MyFinanceLab Mobile Player:
  • Works on mobile devices and tablets, as well as laptop and desktop computers
  • Fresh and intuitive design
  • Compatible with browser-based magnification settings

About the Book

Comprehensive Coverage of Financial Concepts

• UPDATED! Chapter-by-chapter updates have been made in response to the continued development of financial thought, reviewer comments, and recent economic crisis, including:
  • Revised and updated introduction and discussion of the “Five Principles” in Chapter 1
  • Revised coverage of the term structure of interest rates to address very low rates at present; simplified, more intuitive discussion of interest rate determinants; and added coverage of the term structure of interest rates in Chapter 2
  • Use of the Coca-Cola company to discuss financial statements, expanded coverage of balance sheets, more intuitive presentation of cash flows, and new explanation of fixed and variable costs as part of presenting income statements in Chapter 3
  • Chapter 4 compares Coca-Cola to PepsiCo to illustrate comparative evaluation of a firm’s financial performance; provides a new Finance at Work and revised presentation of evaluating a company’s liquidity
  • Chapter 5 has been revised to appeal to students regardless of numerical skills, including new section on “Making Interest Rates Comparable” and new questions and problems
  • Updated examples and information on rates of return in Chapter 6
  • New examples of actual firms in Chapter 7
  • Chapter 8 includes more current explanation of options for getting stock quotes from the Wall Street Journal
  • Chapter 9 includes five new lecture captures and eight revised problems
  • Chapter 10 includes an extensively revised introduction that discusses Disney’s decision to build the Disney Shanghai Resort and a new section with additional discussion of the modified internal rate of return
  • Chapter 11 includes a revised introduction examining the difficulties Toyota faced in estimating future cash flows when it introduced the Prius, along with a new Finance at Work box and problem set
  • Chapter 12 includes a revised problem set
  • Chapter 13 includes an updated discussion of the tax code for personal tax treatment of dividends and capital gains, and a new lecture capture
  • Chapters 14 and 15 contain new problem exercises
  • Chapter 16 has been revised extensively to reflect changes in exchange rates and global financial markets, and a new section titled “What a Change in the Exchange Rate Means for Business” deals with the implications of exchange rate changes

Check Understanding

• Brief (10 to 15 minute) lecture videos contain direct “tutoring” from the authors that will help students with primary examples in the text. Available in the eText, students can replay these videos as many times as necessary.

Also Available with MyFinanceLab^™

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.

• Enhanced eText. Available within the online course materials and offline via an iPad app, the enhanced eText allows instructors and students to highlight, bookmark, take notes, and share with one another.
  • 52 Lecture Capture Videos, recorded by the author, help students understand more fully each of the in-text examples.