IN THE BEGINNING . . .

It was probably inevitable that the four of us would collaborate on this project. Over the last 20 or so years, we have been working as two separate “RWJ” teams. In that time, we managed (much to our own amazement) to coauthor two widely adopted undergraduate texts and an equally successful graduate text, all in the corporate finance area. These three books have collectively totaled 20 editions (and counting), plus a variety of country-specific editions and international editions, and they have been translated into at least a dozen foreign languages.

Even so, we knew that there was a hole in our lineup at the graduate (MBA) level. We’ve continued to see a need for a concise, up-to-date, and to-the-point product, the majority of which can be realistically covered in a typical single term or course. As we began to develop this book, we realized (with wry chuckles all around) that, between the four of us, we have been teaching and researching finance principles for well over a century. From our own very extensive experience with this material, we recognized that corporate finance introductory classes often have students with extremely diverse educational and professional backgrounds. We also recognized that this course is increasingly being delivered in alternative formats ranging from traditional semester-long classes to highly compressed modules, to purely online courses, taught both synchronously and asynchronously.

OUR APPROACH

To achieve our objective of reaching out to the many different types of students and the varying course environments, we worked to distill the subject of corporate finance down to its core, while maintaining a decidedly modern approach. We have always maintained that corporate finance can be viewed as the working of a few very powerful intuitions. We also know that understanding the “why” is just as important, if not more so, than understanding the “how.” Throughout the development of this book, we continued to take a hard look at what is truly relevant and useful. In doing so, we have worked to downplay purely theoretical issues and minimize the use of extensive and elaborate calculations to illustrate points that are either intuitively obvious or of limited practical use.

Perhaps more than anything, this book gave us the chance to pool all that we have learned about what really works in a corporate finance text. We have received an enormous amount of feedback over the years. Based on that feedback, the two key ingredients that we worked to blend together here are the careful attention to pedagogy and readability that we have developed in our undergraduate books and the strong emphasis on current thinking and research that we have always stressed in our graduate book.

From the start, we knew we didn’t want this text to be encyclopedic. Our goal instead was to focus on what students really need to carry away from a principles course. After much debate and consultation with colleagues who regularly teach this material, we settled on a total of 20 chapters. Chapter length is typically 30 pages, so most of the book (and, thus, most of the key concepts and applications) can be realistically covered in a single term or module. Writing a book that strictly focuses on core concepts and applications necessarily involves some picking and choosing, with regard to both topics and depth of coverage. Throughout, we strike a balance by introducing and covering the essentials, while leaving more specialized topics to follow-up courses.

As in our other books, we treat net present value (NPV) as the underlying and unifying concept in corporate finance. Many texts stop well short of consistently integrating this basic principle. The simple, intuitive, and very powerful notion that NPV represents the excess of market value over cost often is lost in an overly mechanical approach that emphasizes computation at the expense of comprehension. In contrast, every subject we cover is firmly rooted in valuation, and care is taken throughout to explain how particular decisions have valuation effects.

Also, students shouldn’t lose sight of the fact that financial management is about management. We emphasize the role of the financial manager as decision maker, and we stress the need for managerial input and judgment. We consciously avoid “black box” approaches to decisions, and where appropriate, the approximate, pragmatic nature of financial analysis is made explicit, possible pitfalls are described, and limitations are discussed.

NEW TO THE 2ND EDITION

With our first edition IPO of Corporate Finance: Core Principles & Applications, we had the same hopes and fears as any entrepreneurs. How would we be received in the market? Based on the very gratifying feedback we received from that first edition, we learned that many of you agreed with us concerning the need for a focused, concise treatment of the major principles of corporate finance.

In developing our second edition, one of the things we focused on was extensive updating. We wanted to be as current as possible throughout the book. As a result, we revamped, rewrote, or replaced essentially all of the chapter opening vignettes, in-chapter real-world examples, and The Real World readings. We updated facts and figures throughout the book, and we revised and expanded the already extensive end-of-chapter material. Also, based on user feedback, we rewrote many of the end-of-chapter cases to tie them to a single company so that a common thread runs through them.

Specific user feedback also led us to add material to several chapters, including:

• Chapter 3: Discussion of the effect of excess capacity on external funds needed.
• Chapter 4: New material on loan amortization.
• Chapter 5: Expanded discussion of taxes and zero coupon bonds.
• Chapter 12: Flotation costs and their effect on cost of capital.
• Chapter 18: Trade credit as a source of short-term financing.

The most extensive change occurs in Chapter 16, Dividends and Other Payouts. Academic research on dividends and dividend policy has flourished in recent years, and we wanted to make sure that our chapter reflected the most up-to-date thinking. With that objective in mind, we thoroughly rewrote the chapter such that it synthesizes the main ideas and empirical evidence from a number of very recent published and unpublished studies.

Our attention to updating and improving also extended to the extensive collection of support and enrichment materials that accompany the text. Working with many dedicated and talented colleagues and professionals, we continue to provide supplements that are unrivaled at the graduate level (a complete description appears in the following pages). Whether you use just the textbook, or the book in conjunction with other products, we believe you will be able to find a combination that meets your current as well as your changing needs.

—Stephen A. Ross

—Randolph W. Westerfield

—Jeffrey F. Jaffe

—Bradford D. Jordan