Ribcarh a Brealey

N I N T H

E D I T I O N

RICHARD A. BREALEY

Professor of Finance London Business School

STEWART C. MYERS

Robert C. Merton (1970) Professor of Finance Sloan School of Management Massachusetts Institute of Technology

FRANKLIN ALLEN

Nippon Life Professor of Finance The Wharton School University of Pennsylvania

Mc Graw Hill

Boston BurrRidge, IL Dubuque, IA New York San Francisco St. Louis Bangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto

CONTENTS

P a r t

O n e

VALUE 1

C ha p t e r

1.1 1.2 1.3 1.4 1.5

1

2

FINANCE AND THE FINANCIAL MANAGER

Summary 29 Further Reading 31 Concept Review Questions Quiz 31 Practice Questions 32 Challenge Question 34 C h a p t e r

31

What Is a Corporation? 3 The Role of the Financial Manager 4 Who Is the Financial Manager? 6 Separation of Ownership and Management Topics Covered in this Book 9 Summary 10 Further Reading 10 Concept Review Questions 11 Quiz 11 C h a p t e r 2

3

35

HOW TO CALCULATE PRESENT VALUES

7

3.1

Valuing Long-Lived Assets 35 Valuing Cash Flows in Several Periods / Why the Discount Factor Declines as Futurity Increases—And a Digression on Money Machines / Calculating PVs and NPVs Looking for Shortcuts—Perpetuities and Annuities 40 How to Value Perpetuities /How to Value Annuities / PV Annuities: An Example / PV Annuities: Another Example/PV Annuities Due / Calculating Annual Payments: An Example /Future Value ofan Annuity: An Example More Shortcuts—Growing Perpetuities and Annuities 46 Growing Perpetuities / Growing Annuities Compound Interest and Present Values 48 A Note on Compounding Intervals / Continuous Compounding Summary 53 54 54 Web Projects Quiz 54 55 58

3.2

PRESENT VALUES, THE OBJECTIVES OF THE FIRM, A N D CORPORATE GOVERNANCE 13

2.1

Introduction to Present Value 14 Calculating Future Value and Present Value /Net Present Value / Risk and Present...