Foundations of Finance, Global Edition (9e)

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. Utilising 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 9th 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, the newest edition includes new lecture videos, financial thinking, user feedback, and lessons from the recent economic crisis.

1. An Introduction to the Foundations of Financial Management
2. The Financial Markets and Interest Rates
3. Understanding Financial Statements and Cash Flows
4. Evaluating a Firm’s Financial Performance
5. The Time Value of Money
6. The Meaning and Measurement of Risk and Return
7. The Valuation and Characteristics of Bonds
8. The Valuation and Characteristics of Stock
9. The Cost of Capital
10. Capital-Budgeting Techniques and Practice
11. Cash Flows and Other Topics in Capital Budgeting
12. Determining the Financing Mix
13. Dividend Policy and Internal Financing
14. Short-Term Financial Planning
15. Working-Capital Management
16. International Business Finance
17. Cash, Receivables, and Inventory Management

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 not included. Students, if MyFinanceLab is a recommended/mandatory component of the course, please ask your instructor for the correct ISBN and course ID. MyFinanceLab should only be purchased when required by an instructor. Instructors, contact your Pearson representative for more information.

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.

• 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 organisation 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 organised 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 organised 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 analyse 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: Analyse Your Results. Each solution ends with an analysis of what the solution means. The authors emphasise 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.