This book describes the theory and practice of corporate finance. We hardly need to explain why financial managers need to master the practical aspects of their jobs, but we should spell out why down-to-earth managers need to bother with theory.

Managers learn from experience how to cope with routine problems. But the best managers are also able to respond to change. To do so you need more than time-honored rules of thumb; you must understand why companies and financial markets behave the way they do. In other words, you need a theory of finance.

Does that sound intimidating? It shouldn't. Good theory helps you to grasp what is going on in the world around you. It helps you to ask the right questions when times change and new problems need to be analyzed. It also tells you which things you do not need to worry about. Throughout this book we show how managers use financial theory to solve practical problems.

Of course, the theory presented in this book is not perfect and complete—no theory is. There are some famous controversies where financial economists cannot agree. We have not glossed over these disagreements. We set out the arguments for each side and tell you where we stand.

Much of this book is concerned with understanding what financial managers do and why. But we also say what financial managers should do to increase company value. Where theory suggests that financial managers are making mistakes, we say so, while admitting there may be hidden reasons for their actions. In brief, we have tried to be fair but to pull no punches.

CHANGES IN THE EIGHTH EDITION
What has changed in this edition? You have seen the first change on the cover: Franklin Allen has joined the author team. Sometimes the addition of a new author means one of the existing authors proposes to take a backseat. That is not the case with us. Franklin's addition represents a genuine 50 percent increase in capacity and brings additional expertise and ideas to the venture. We are all enthusiastic about Franklin's commitment to Principles of Corporate Finance.

Principles is written for students of financial management. For many readers it is their first look at the world of finance. Therefore, in each edition we try to make the book simpler, clearer, and more fun to read. But the book is also used extensively as a reference and a guide for practicing managers around the world. Therefore we also strive to make each edition more comprehensive and authoritative. We believe this edition is better for both the student and the practicing manager. Here are some of the major changes.

There are two new chapters. Credit risk deserves a chapter of its own, so we gave it one. The new Chapter 24 collects topics that were previously scattered across several chapters, but it also contains new material. For example, we now discuss how banks and other financial institutions measure the value at risk from their loans.

Recent financial scandals, both in the United States and overseas, have highlighted the importance of good systems of corporate governance. In Chapter 34, the second new chapter, we compare financial markets, institutions, and corporate governance around the world. We explain why these different systems have developed and we discuss their relative strengths and weaknesses.

Chapter 34 is not the only place where we have increased coverage of the agency problems of motivating and controlling managers. For example, Chapter 2 contains an expanded section on corporate goals and corporate governance and Chapter 12 includes a deeper discussion of executive compensation structures and the measurement of managers' performance.

We have also expanded coverage of behavioral finance. The first natural place to introduce behavioral issues is in the discussion of market efficiency in Chapter 13, but we also circle back to the topic in later chapters. For example, we ask whether an understanding of behavioral psychology can help us to understand new issue pricing, dividend policy, and mergers.

Chapters 16 and 19 have also been rewritten. Chapter 16 now speaks more broadly about payout policy, not just about cash dividends. This responds to the growth in stock repurchases as a way to return cash to stockholders. Chapter 19 now shows how to use the weighted average cost of capital to value companies or divisions of companies. By covering valuation after we have discussed capital structure, we are able to introduce and work through more complex and realistic valuation problems.

Financial managers work in an international environment. Therefore in this edition we have continued to add international material. International issues are the subject matter of Chapter 28 (Managing International Risks) and Chapter 34 (Governance and Corporate Control Around the World). But you will also find many international examples throughout the rest of the book.

The eighth edition is more Web-friendly than the seventh. There are more Web references in the text and we have included an updated and expanded list of useful Web sites at the beginning of each part. We have also added Web exercises that give the reader the opportunity to gain experience with useful financial Web sites.

As every first-grader knows, it is easier to add than subtract, so to make way for these new topics we needed to do some judicious pruning. Readers familiar with earlier editions will notice two places where we have consolidated. First, we have combined the two chapters on cash management and credit management. We believe that as a result the main tasks of working capital management come through with less clutter. Second, we no longer have a separate chapter on convertible debt and warrants. Instead, we describe them in Chapter 25, which reviews the many different kinds of debt that companies issue.

MAKING LEARNING EASIER
Each chapter of the book includes an introductory preview, a summary, and an annotated list of suggestions for further reading. There is a quick and easy quiz, practice questions on both numerical and conceptual topics, and a few challenge questions. Many questions use financial data on actual companies, which the reader can download from Standard & Poor's Educational Version of Market Insight. Answers to the quiz questions may be found at the end of the book, along with a glossary and tables for calculating present values and pricing options. We have also provided for each chapter concept review questions and have keyed these to the page in the book where the topic is discussed. Sample questions are shown at the end of each chapter. The full set of Concept Review Questions is available on the CD that comes with the book and on the book's Web site www.mhhe.com/bma8e.

The mini-cases at the end of each chapter have been revised and include specific questions to guide the case analyses. Answers to the mini-cases are available to instructors on this book's Web site.

A new feature of this edition is that a number of tables are now shown in the text as Excel spreadsheets. In these cases an equivalent "live" spreadsheet is contained on the book's CD and on the Web site. Readers can use these live spreadsheets to understand better the calculations behind the table and to see the effect of changing the underlying data. A number of end-of-chapter questions ask the student to use the spreadsheets to check that they understand the effect of changing inputs.

The 35 chapters in this book are divided into 11 parts. Each part includes a short introduction that explains the sequence of topics. Parts 1 to 3 of the book cover valuation and capital investment decisions, and Parts 4 to 8 discuss long-term financing. Part 9 focuses on financial planning and short-term financial decisions. Part 10 looks at mergers and corporate control. Part 11 concludes. We realize that instructors will wish to select from these topics and many will prefer a different sequence. Therefore, we have ensured that the text is modular, so topics can be introduced in several logical orders. For example, there should be no difficulty in reading the material on financial statement analysis and short-term financial decisions before the chapters on valuation and capital investment.

SUPPLEMENTS
In this edition, we have gone to great lengths to ensure that our supplements are equal in quality and authority to the text itself.

For the Instructor
Instructor's CD-ROM
ISBN 0072957298
This comprehensive CD contains all the following instructor supplements. We have compiled them in electronic format for easier access and convenience. Print copies are available through your McGraw-Hill representative.

• Instructor's Manual The Instructor's Manual was extensively revised and updated by C. R. Krishnaswamy of Western Michigan University. It contains an overview of each chapter, teaching tips, learning objectives, challenge areas, key terms, and an annotated outline that provides references to the PowerPoint slides.
• Test Bank The Test Bank was also updated by C. R. Krishnaswamy, who included well over 1,000 new multiple choice and short answer/discussion questions based on the revisions of the authors. The level of difficulty is varied, and is indicated by using a label of easy, medium, or difficult.
• Computerized Test Bank Using McGraw-Hill's EZ Test software, instructors can quickly create customized exams. This user-friendly program allows instructors to sort questions by format; edit existing questions or add new ones; and scramble questions for multiple versions of the same test.
• PowerPoint Presentation System Matt Will of the University of Indianapolis prepared the PowerPoint Presentation, which contains exhibits, outlines, key points, and summaries in a visually stimulating collection of slides. Also found on the Student CD-ROM and the book Web site, the slides can be edited, printed, or rearranged in any way to fit the needs of your course.
• Excel Templates Eric Sandburg of Interactive Learning created the templates in Excel. There are templates for selected exhibits, as well as various end-of-chapter problems, that have been set as Excel spreadsheets. They correlate with specific concepts in the text and allow students to work through financial problems and gain experience using spreadsheets. Each template is tied to a specific problem in the text and can also be found on the Student CD-ROM and the book Web site, denoted by an icon.

Solutions Manual
ISBN 0072957271
The Solutions Manual, prepared by Bruce Swensen, Adelphi University, contains solutions to all practice questions and challenge questions found at the end of each chapter. This supplement is also available for purchase by your students or can be packaged with your text at a discount.

Videos
ISBN 007295728X
The McGraw-Hill/Irwin Finance Video Series is a complete video library designed to bring added points of discussion to your class. You will find examples of how real businesses face today's hottest topics, like mergers and acquisitions, going public, time value of money, and careers in finance.

For the Student
Student CD-ROM
ISBN 007295731X
Packaged with each new text is a CD-ROM for students that contains many features designed to enhance the classroom experience. Three learning modules from the Finance Tutor Series are included on the CD: Time Value of Money Tutor, Stock and Bond Valuation Tutor, and Capital Budgeting Tutor. In each module, students answer questions and solve problems that not only assess their general understanding of the subject, but also their ability to apply that understanding in real-world business contexts. In "Practice Mode," students learn as they go by receiving in-depth feedback on each response before proceeding to the next question. Students who want to assess their current knowledge may select "Test Mode," where they read an extensive evaluation report after they have completed the test.

Also included are the PowerPoint presentation slides, Excel spreadsheet templates, video clips, and many useful Web links.

Study Guide
ISBN 0072957263
The Study Guide was carefully revised by V. Sivarama Krishnan of Cameron University and contains useful and interesting keys to learning. It includes an introduction to each chapter, key concepts, examples, exercises and solutions, and a complete chapter summary.

Online Learning Center
www.mhhe.com/bma8e
Find a wealth of information online! This site contains information about the book and the authors as well as teaching and learning materials for the instructor and the student, including:

• Interactive FinSims This newly developed asset consists of multiple simulations of key financial topics. Ideal for students to use in order to reinforce their knowledge and gain additional practice in strengthening their skills.
• Online Quizzes These multiple-choice questions are provided as an additional testing and reinforcement tool for students. Each quiz is organized by chapter to test the specific concepts presented in that particular chapter. Immediate scoring of the quiz will occur upon submission and the correct answers will be provided.
• Standard & Poor's Educational Version of Market Insight McGraw-Hill is proud to partner with Standard & Poor's by offering instructors and students access to the educational version of Market Insight. A passcode card is bound into new books, which gives you access to six years of financial data for over 800 companies. Relevant chapters contain end-of-chapter problems that use this data to gain a better understanding of practical business situations.
• PowerWeb: Ethics in Finance This password-protected Web site offers professors a turnkey solution to adding the Internet to a course. Included are current articles from the public press, curriculum-based materials, weekly updates with assessment, interactive exercises, and much more!