Richard A. Brealey,
London School of Business Stewart C. Myers,
Sloan School of Management, MIT Alan J. Marcus,
Wallace E Carroll School of Management Elizabeth M. Maynes,
Schulich School of Business, York University Devashis Mitra,
University of New Brunswick
ISBN: 0070984034 Copyright year: 2009
Feature Summary
New to this Edition
The new fourth Canadian edition includes updated Canadian content throughout the text, particularly with regard to capital markets, tax legislation, and financial services. The Brealey authors have put emphasis on finding a balance of Canadian and international companies, which are identified with international icons in the text.
Other strengths of the Brealey text include:
NEW – FOUR colour interior design!
The analytical tools used with the book have been enhanced
More spreadsheet boxes have been integrated into the chapters
New end-of-chapter problems have been written, including new exercises using the Educational Version of Standard & Poor’s Market Insight
New exercises have been added that require the use of the Internet
New and revised mini-cases
Re-written, reorganized, and new material have been added to improve readability and to update coverage across all chapters.
Pedagogy
Chapter Overviews
Each chapter begins with an overview relating the material to be covered in the chapter. Learning goals are contained in this section, which are referred to again in the Summary at the end of the chapter.
Examples
Separated numbered and titled examples are extensively integrated into the chapters providing detailed applications and illustrations of the text material.
Finance in Action Boxes
Almost every chapter includes at least one “Finance in Action” box. These are excerpts, usually from the financial press, providing real life illustrations of the chapter’s topics, such as ethical choices in finance, new views about stock valuation, financial planning, or corporate takeovers.
International Icon
An international icon appears where the authors discuss global issues.
Key Points
Are identified by a key icon and are located throughout the text. These points underscore and summarize the importance of the immediately preceding material, at the same time helping students to focus on the most relevant topics critical to their understanding.
Check Point Questions
Check Point questions are provided within each chapter, and enable students to check their understanding as they progress through their reading. Both conceptual and calculation-type questions are included. All answers are provided within the end of the chapter material.
Key Formulas
Called out in the text, key formulas are identified by a number. A summary of key formulas can be found on the Brealey Online Learning Centre.
Calculator Boxes and Exercises
Financial Calculator boxes provide examples of solving a variety of problems with directions for the most popular financial calculators.
Excel Spreadsheets
Excel spreadsheet boxes are integrated into several chapters and provide the student with detailed examples of how to use spreadsheets when applying financial concepts. While these boxes may be skipped without harm, they give students a valuable introduction to financial modelling.
END OF CHAPTER Material
A variety of end-of-chapter features are offered to support the concepts presented throughout each chapter and include: Summary, Related Web Links, Key Terms, Questions and Problems, Solutions to Check Points, and Mini cases.
The Questions and Problems portion incorporate: internet questions, S&P questions, questions with guided steps, integrative questions, questions linked to Finance in Action boxes, qualitative/conceptual questions and questions that require the use of Excel or equivalent spreadsheet to solve. Each question is labelled with a level of difficulty and answers to selected questions (identified by an asterisk) are provided in Appendix B.
Related Web Links
Web citations listed at the end of each chapter immediately direct students to the best sources of financial information on the Internet.
Key Terms
Throughout each chapter, key terms appear in the bold type with margin definitions and are listed in the end of chapter material for easy reference.
S & P Questions. Analytical and decision oriented questions are now included in the end-of -chapter Questions and Problems. The questions directly incorporate the Educational Version of Market Insight, a service based on Standard & Poor’s renowned Compustat database.
Internet Problems
Students are presented with problems to solve using the wealth of material available on the Internet.
Excel Questions
Excel questions are incorporated into the end-of-chapter Questions and Problems and are identified by the icon in the margin. These templates are available for download on the Brealey text’s Online Learning Centre.
Mini Cases
Integrative mini cases end most chapters and allow students to apply their knowledge to relatively complex, practical situations.
Chapter by Chapter Changes
This fourth Canadian edition of Fundamentals includes many changes. The analytical tools used with the book have been enhanced; there are more spreadsheet boxes integrated into the chapters; most chapters now contain end-of-chapter student exercises using the Educational Version of Standard & Poor’s Market Insight; end-of-chapter problems include exercises that ask students to use a variety of Internet resources to solve financial problems and end-of-chapter integrative mini cases. In addition, material has been rewritten, rearranged, and new material added to improve readability and update coverage across chapters. Here are some examples of the changes that have been made.
Chapter 1 (The Firm and the Financial Manager) has been largely rewritten to improve readability and interest. The section on business organizations has new material on private corporations and the pros and cons of being a public corporation. Examples of investment and financial decisions of well-known companies are used to illustrate the main activities of financial managers, the role of financial markets, and the goals of a corporation. New content on the ethical issues that confront managers include Finance in Action articles on the value of ethical dealings to maintain reputation and on the challenges of using stock options to align management objectives with the firm’s goals.
Chapter 2 (Financial Markets and Institutions) opens with the history of Research in Motion, illustrating how financial markets help infant firms grow into healthy adults. Two new “Finance in Action” boxes one on microcredit and the other on Sharia-compliant finance, give examples of innovation in financial markets. Financial intermediaries have been extended to include exchange traded funds (ETFs) and hedge funds. A new section, Value Maximization and the Cost of Capital, connects the role of financial markets to support the firm’s financial objective of maximizing shareholders wealth. A nontechnical introduction presents the idea of the opportunity cost of capital that provides context for the later discussion of present value.
Chapter 3 (Accounting and Finance) includes updated discussions of reporting issues informed by the accounting failures and reforms of the last few years. The chapter also discusses some of the shortcomings of accounting practice that became apparent in the recent scandals. The updated discussion of taxes also includes new material on the tax treatment of dividends in the context of personal taxes.
Chapter 4 (The Time Value of Money) has been updated and rearranged to improve logical flow. The chapter includes new spreadsheet applications.
Chapter 5 (Valuing Bonds) has been updated and rearranged to improve logical flow. Bond prices now are taken from the Web, rather than the financial press. The concepts of accrued interest and clean and dirty prices have been added, allowing students to figure out the actual price paid for a bond. A “Finance in Action” box on Maple bonds has been added to the reorganized section on corporate bonds.
Chapter 6 (Valuing Stocks) has updated information on markets for trading stocks as well as stock information available on the Web. We use data on real firms to illustrate the concept and importance of growth opportunities in firm valuation (Google) and to provide an application of valuation using multistage dividend discount models (Saputo).
Chapter 7 (Net Present Value and Other Investment Criteria) has been streamlined and reorganized. The Chapter concludes with an expanded and updated discussion of capital budgeting practices in corporate Canada and the United States.
Chapter 8 (Using Discounted Cash Flow Analysis to Make Investment Decisions) works through a realistic comprehensive example of capital budgeting analysis and includes updated information on capital cost allowance (CCA). The chapter has been reorganized. An appendix showing how the CCA tax shield is derived is available to the reader at the Online Learning Centre.
Chapter 9 (Project Analysis) We have integrated economic value added (EVA®) into the chapter. The authors show how EVA can be used to evaluate projects, emphasizing the opportunity cost of the capital employed in the project. An introduction to real options has been added to this chapter. The material on project valuation has been rewritten with new spreadsheet material and with more emphasis on each component of cash flow.
Chapter 10 (Introdution to Risk, Return and the Opportunity Cost of Capital) ten years of monthly stock returns for Barrick Gold and Canadian National Railway are used to visually show how forming a porfolio reduces return variability.
Chapter 11 (Risk, Return, and Capital Budgeting) now has a spreadsheet solution box illustrating the estimation of beta using Excel. Also, the discussion of the risk-return relationship has been revised to improve the explanation of the CAPM.
Chapter 12 (The Weighted-Average Cost of Capital and Company Valuation) has a new example of calculating the WACC of Canadian Pacific. The discussion of the measurement of a company’s capital structure and the required rates of return has been revised to be more of a “how to” guide. In a new section a practical example is worked through showing how the weighted-average cost of capital is used to value entire businesses. Both the calculation of free cash flows and two methods of estimating terminal value are explained. To reflect this new content, the chapter title has been changed to “The Weighted-Average Cost of Capital and Company Valuation.”
Chapter 13 (Introduction to Corporate Financing and Governance) has been extensively updated. The chapter’s new title reflects its greater emphasis on corporate governance. The chapter contains updated discussion of governance issues and related legislation in the United States (Sarbanes-Oxley) and Canada (Bill C-198). The chapter also examines the recent subprime crisis in the United States and its impact on credit markets and economic activity in countries around the world, including Canada.
Chapter 14 (Venture Capital, IPOs, and Seasoned Offerings).The chapter has been renamed and has updated material on developments in the IPO market. An appendix to the Chapter discussing the financing of new and small enterprises has been rewritten to reflect changes in the venture capital industry and other sources of small business financing in Canada.
Chapter 15 (Debt Policy) has been renamed and updated with Canadian examples and statistics in the discussions on costs of financial distress and explaining financing choices. The discussion of bankruptcy procedures has now been incorporated into this chapter.
Chapter 16 (Payout Policy) has been renamed to reflect its broader focus on share repurchases along with dividend policy.
Chapter 17 (Financial Statement Analysis) has been updated and has new material on the calculation and interpretation of EVA.
Chapter 18 (Financial Planning) has a new introduction that provides context for the role of financial planning models.
Chapter 19 (Short-Term Planning) now starts with the link between short-term and long-term financing. A new “Finance in Action” box on L.A. Gear illustrates how liquidating short-term assets provided financing that delayed the ultimate bankruptcy of the company. The components of working capital, operating and cash conversion cycles are illustrated with financial data for NOVA Chemicals. The cash budget section has been revised to improve its readability. The discussion on sources of short-term financing has been updated to include the concepts of cash-flow based and asset-based loans and to add asset-backed commercial paper to the material on commercial paper.
Chapter 20 (Cash and Inventory Management) has been revised to clarify the role of float in Canada, compared to the US and other countries. An overview of various payment methods used in different countries helps to illustrate the role of float. Although the efficiency of the Canadian payment system reduces the need for float, float is still relevant in Canada. Less relevant means of managing float have been removed but float management services provided by Canadian banks have been retained. A new section on the money market includes details on asset-backed commercial paper and a “Finance in Action” box on Canadian non-bank asset-backed commercial paper crisis of 2007/2008.
Chapter 21 (Credit Management and Collection) has been streamlined to focus on trade credit, now that the discussion of the bankruptcy process has been moved to Chapter 15. A Canadian Z score formula has been added.
Chapter 22 (Leasing) has been updated to include a new “Finance in Action” box assessing the impact of possible changes to the accounting of operating leases on retailers. Also added is an explanation and example of evaluating a financial lease using present value formulas, including the CCA tax shield formulas found in Chapter 8.
Chapter 23 (Mergers, Acquisitions, and Corporate Control) contains many new Canadian examples and extended coverage of leveraged buyouts, including a list of recent LBOs, the role of private equity in LBOs and a ”Finance in Action” box on the BCE buyout.
Chapter 24 (International Financial Management) has expanded discussion on hedging and political risk.
Chapter 25 (Options) The market data has been updated, focusing on the put and call options on Research in Motion stock. Put-call parity is now covered in the chapter.
Chapter 26 (Risk Management) has updated discussion on hedging
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2009 McGraw-Hill Higher Education