Corporate Finance Canadian Edition Berk Demarzo

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Corporate Finance, Third Canadian Edition Plus NEW MyLab Finance with Pearson eText. International Corporate Finance. Third Canadian Edition, 3/E Berk, DeMarzo. Using the unifying valuation framework based on the Law of One Price, top researchers Jonathan Berk and Peter DeMarzo set the new standard for corporate finance. This product is part of the. For Fundamentals of Corporate Finance, 2nd Edition Berk, DeMarzo. Pearson eText for Fundamentals of Corporate Finance, 2nd Edition.

Jonathan Berk Corporate Finance

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Stangeland, University of Manitoba productFormatCode=P31 productCategory=2 statusCode=17 isBuyable=false subType=sub path/ProductBean/courseSmarttrue ISBN-10:. ISBN-13: 18321830029 ©2013. Pearson Education Canada. Paper Bound with Access Card, 888 pp Published This item is temporarily out of stock. We recommend the following item as a replacement: prodCategory: 2 statusCode: 17.

Features Hallmark Approach: Using the Law of One Price as the Unifying Principle of Valuation The text presents corporate finance as an application of a small set of simple core ideas. Modern finance theory and practice is grounded in the idea of the absence of arbitrage (or the Law of One Price) as the unifying concept in valuation. The rest of the text relates major concepts to the Law of One Price, creating a framework to ground the student reader. This methodology directly connects theory to practice and presents a unified approach to what might appear to students as disparate ideas. Improving on the Basics: Timelines and Interest Rates The authors introduce timelines in Chapter 4, “The Time Value of Money,” and stress the importance of creating timelines for every problem that involves cash flows. Each subsequent example involving cash flows includes a timeline as the critical first step. Emphasizing Capital Budgeting and Valuation The text presents capital budgeting and valuation in two stages.

The first stage comes early and focuses on identifying cash flows. Chapter 7, “Fundamentals of Capital Budgeting,” examines the valuation of projects within a firm and provides a clear and systematic presentation of the difference between earnings and free cash flow and the importance of using capital cost allowance (CCA) instead of depreciation for determining after-tax cash flows.

The second stage follows the discussion of the pricing of risk and capital structure. Chapter 18, “Capital Budgeting and Valuation with Leverage,” presents the three main methods for capital budgeting with leverage and market imperfections: the weighted average cost of capital (WACC) method, the adjusted present value (APV) method, and the flow-to-equity (FTE) method. Rethinking the Teaching of Risk and Return Using the no-arbitrage concept alone, the authors explain conceptually one of the core principles of finance: that risk must be evaluated relative to a benchmark. Later, the flexible structure of Part IV allows professors to tailor coverage of risk and return to fit their course. Stressing the Capital Structure Decision The text places heavy emphasis on the firm’s capital structure in Chapters 14–17, but also allow instructors to tailor the coverage as suits them by presenting Modigliani and Miller in a perfect world at the outset and then layering on frictions in subsequent chapters.

Canadian Content 1. Relevant Canadian tax code to make the examples more realistic to students and to give them exposure to how Canadian taxation works. Incorporated information on both countries’ institutions and markets and often include comparisons with other countries. End of Chapter Pedagogy Key Points and Equations Key terms Online Practice Opportunities Review Questions Problems Data Case Integrative Case. Websites and Online Courses.

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Jonathan Berk Corporate Finance

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Teaching Students to Think Finance With a consistency in presentation and an innovative set of learning aids, Corporate Finance, Third Canadian Edition, simultaneously meets the needs of both future financial managers and non-financial managers. This textbook truly shows every student how to “think finance.” Using the unifying valuation framework based on the Law of One Price, Corporate Finance, Third Canadian Edition, blends coverage of time-tested principles and the latest advancements with the practical perspective of the financial manager. With this ideal melding of the core with modern topics, innovation with proven pedagogy, renowned researchers Berk, DeMarzo and Stangeland establish the new canon in finance. Features Bridging Theory and Practice The Law of One Price as the Unifying Principle of Valuation The Law of One Price framework reflects the modern idea that the absence of arbitrage is the unifying concept of valuation. This critical insight is introduced in Chapter 3, revisited in each Part Opener, and integrated throughout the text–motivating all major concepts and connecting theory to practice. Study Aids with a Practical Focus To be successful, students need to master the core concepts and learn to identify and solve problems that today’s practitioners face. End-of-chapter problems written personally by Jonathan Berk, Peter DeMarzo, and David Stangeland offer instructors the opportunity to assign first-rate materials to students for homework and practice with the confidence that the problems are consistent with the chapter content.

Both the problems and solutions, which were also written by the authors, have been class-tested and accuracy checked to ensure quality. End-of-Chapter Materials Reinforce Learning Testing understanding of central concepts is crucial to learning finance. Part 2 presents the basic tools that are the cornerstones of corporate finance.

As we have already pointed out, Chapter 3 introduces the Law of One Price and net present value as the basis of the unifying framework that will guide the student through the course. A brief introduction to risk is included so students begin to understand how risk affects asset pricing. An optional appendix is available online for instructors who want to get into the mathematics of replicating portfolios or want to introduce primitive securities for valuing other securities. Chapter 4 introduces the time value of money and describes methods for estimating the timing of cash flows and computing the net present value of various types of cash flow patterns.

A new online appendix on using a financial calculator has been added to this chapter. Chapter 5, Interest Rates, provides an extensive overview of issues that arise in estimating the appropriate discount rate. Part 3 opens with bond valuation in Chapter 6 and is an excellent way to show a direct application of the time value and interest rate material from chapters 4 and 5. Chapter 7 includes stock valuation and material on market efficiency. It is another good application of the time value material from chapter 4 and the market efficiency section reinforces the separation principles from chapter 3.

Chapter 8 begins the coverage on capital budgeting and we present and critique alternatives to net present value for evaluating projects. We explain the basics of valuation for capital projects in Chapter 9 and provide a clear and systematic presentation of the difference between earnings and free cash flow and give a solid understanding of Canadian tax effects from capital cost allowance (CCA). The flexible structure of Part 4 allows professors to tailor coverage of risk and return to their needs—be it for a theory- or practice-heavy emphasis. Chapter 10, Capital Markets and the Pricing of Risk, provides the keys to understanding risk and return.

The chapter also explains the distinction between diversifiable and systematic risk. After this comprehensive yet succinct treatment, professors can choose to continue on to the theory, now centralized in Chapter 11, Optimal Portfolio Choice and the Capital Asset Pricing Model, which presents the CAPM and develops the details of mean-variance portfolio optimization.

Alternatively, professors can proceed directly to Chapter 12, Estimating the Cost of Capital, which is a practically-focused chapter on the cost of capital. Chapter 13 examines the role of behavioural finance and ties investor behaviour to the topic of market efficiency and alternative models of risk and return. Some professors may want to supplement the market efficiency material in Chapter 7 with sections 13.1 to 13.6. Part 6 addresses how a firm should raise the funds it needs to undertake its investments and the firm’s resulting capital structure. We focus on examining how the choice of capital structure affects the value of the firm in the perfect world in Chapter 17, and with frictions such as taxes and agency issues in Chapters 18 and 19. Chapter 19 features new coverage of the asset substitution problem and debt overhang and relates these items to options concepts covered Chapter 14. We focus on payout policy in Chapter 20.

In Part 7, we return to the capital budgeting decision with the complexities of the real world. Chapter 21 introduces the three main methods for capital budgeting with leverage and market imperfections: the weighted average cost of capital (WACC) method, the adjusted present value (APV) method, and the flow-to-equity (FTE) method.

We present these traditionally difficult but important ideas by emphasizing the underlying assumptions and core principles behind them, moving through progressively more complex ideas. This organization allows professors to delve as deeply into these techniques as is appropriate for their needs.

Chapter 22 presents a capstone case for the first six parts of the book that applies the techniques developed up to this point to build a valuation model for a firm, Ideko Corp., using Excel. In Part 8, we explain the institutional details associated with alternative long-term financing sources. Chapter 23 describes the process a company goes through when it raises equity capital. In Chapter 24, we review how firms can use the debt markets to raise capital and the role of asset-backed securities, collateralized debt obligations, and mortgage-backed securities in the financial crisis. Chapter 25 introduces leasing as an alternative and in the lease analysis treats the CCA tax shields in a manner consistent with the presentation in Chapter 9. Part 10 addresses special topics.

Chapter 28 discusses mergers and acquisitions, and Chapter 29 provides an overview of corporate governance. In Chapter 30, we consider corporations’ use of insurance and financial derivatives to manage risk We compare and contrast the different risk management techniques and present several new examples on practical risk management. Chapter 31 introduces the issues a firm faces when making a foreign investment and addresses the valuation of foreign projects. Canadian Content and Context A Canadian text should reflect Canadian realities, and show how they fit into the bigger picture. The Canadian tax system, for example, differs significantly from that of the United States in regards to dividends, capital gains, capital cost allowance, and leasing.

We use the relevant Canadian tax code to make the examples more realistic to students and to give them exposure to how Canadian taxation works. There are many institutional and market differences between Canada and the United States. We have incorporated information on both countries’ institutions and markets and often include comparisons with other countries. We feel it is important that students understand Canada’s relative positioning on a number of issues related to markets, the financial crisis, corporate governance, and corporate finance. To this end, we have selected Canadian examples, when appropriate, for use in the text.

We have rearranged the topics in Part 3 - Basic Valuation, so that bond valuation immediately follows chapter 5 where interest rates are covered. This gives a direct application of the time value and interest rate concepts just covered. In the appendix to chapter 6 we explicitly describe the pure expectations and liquidity preference theories for the term structure of interest rates. We follow bond valuation with stock valuation in chapter 6, and before moving into the capital budgeting chapters. With stock valuation, we briefly describe the free cash flow and leave further development of this topic to chapter 9 on capital budgeting. Understanding options continues to gain importance given events and failings in the recent financial crises we have witnessed.

In addition, an understanding of options helps to understand capital structure theory – particularly with respect to indirect costs of financial distress. Thus we moved the placement of the option chapters so they fall between the Risk and Return section and the capital structure material.

For many instructors the first options chapter – chapter 14 – will be sufficient to bring options discussion into further material on capital structure and risk management. We made the discussion more explicit regarding option payoffs and option profits and took reviewers advice to simplify profits to be equal to the payoff minus the initial option cost (rather than the FV of the cost as in the previous edition). Finally, for this edition, students and instructions can access and download the data cases from the MyFinanceLab.

CHAPTER BY CHAPTER CHANGES Chapter 1: The Corporation. Updated example of largest corporation and how it ranks versus countries. Updated example 1.1 and 1.3 to include holding of investments inside TFSA; updated personal and corporate tax rates to more recent applicable rates. Updated wording for clarity. Updated section on principal-agent problem to highlight agency problems in financial firms that led to their downfall in the financial crisis of 2008.

Updated principal-agent section with further explanation on the failure of some compensation schemes. Added discussion of limit vs market orders in section on transaction costs and the bid-ask spread. Updated end of chapter questions to use REITs instead of income trusts. Chapter 2: Introduction to Financial Statement Analysis. Chapter opener updated. Updated wording for clarity.

Indicated that IFRS is now adopted (versus going to be adopted) in Canada and is expected in the US in 2016. Added explicit discussion of Asset Turnover prior to Asset Turnover being an input into a later discussion and example 2.3. Updated Example 2.3. Updated Canadian data for Example 2.4, with solution.

Updated Example 2.6 to use BCE and its segmented data. Chapter 3: Arbitrage and Financial Decision Making. Chapter opener updated. Commodity prices updated throughout. Example 3.1 Canadianized. Price of Risk section moved into chapter (formerly appendix 3A). Arbitrage with Transaction Costs section moved into chapter (formerly in appendix).

Expanded end of chapter questions that dealt with price of risk. NEW Appendix on the math behind price of risk calculations that shows students how to do calculations using a system of equations and then implements using matrices. Additional questions, solutions, and excel solutions are included. This appendix will be available on the MyFinanceLab.

Chapter 4: The Time Value of Money. Chapter opener updated.

Updated all equations and equation descriptions to precisely indicate when PV, FV, and cash flow timing occur. Added concept of “discount factor” (previously there was only the interest rate factor given). Provided additional explanations regarding use of Excel for time value calculations.

Revised section 4.5 for annuities and perpetuities regular and growing. Added simple derivation of growing annuity PV as the PV of one growing perpetuity minus the PV of a later growing perpetuity. Added section 4.7 on doing time value calculations with non-annual time intervals. In section 4.8, added explanation how loan payments are determined by setting the amount borrowed equal to the PV of the payments and solving for the payments. In section 4.9, showed how IRR can be calculated manually in simple cases (including perpetuities — regular and growing) and how the spreadsheet or financial calculator is needed in more complex cases. Added end of chapter questions and also deleted a couple questions that were not really covered in this chapter (and are covered in chapter 5). NEW appendix on using a financial calculator.

Chapter 5: Interest Rates. Chapter opener updated. Updated and clarified explanations regarding interest rate quotes and conversions. Chapter presents a general 3-step method for doing interest rate conversions. Updated figure 5.1 to 2012. Added discussion regarding post crisis monetary policy (low interest rates and intervention in long-end of term structure by central banks). Updated figure 5.2; added January 2012 yield curve; dropped 2005 yield curve.

Introduced and defined term, “spot rate of interest” and used it in discussion of yield curve. Updated eq. 5.7 to be consistent with notation in chapter 4. Replaced interview: includes discussion of European crisis.

Updated table 5.2 rates and companies to show a good spread of yields across different companies relative to the Government of Canada yield. Chapter 6: Valuing Bonds (was chapter 8). Chapter opener updated. Updated all tables and figures that relied on real data. Metasequoia 4 crack. Updated equations and timelines to be consistent with prior chapters’ notations.

Updated financial crisis box to include European problem and negative rate on German bond. Used “spot rate” terminology as appropriate. Added section on Sovereign Debt and associated end of chapter questions.

Updated and clarified appendix and notation. Added theories of the term structure of interest rates in the appendix:. Pure Expectations Theory. Liquidity Preference Theory (updated example to show origin of theory) Chapter 7: Valuing Stocks (was chapter 9). Edited for clarity.

Updated equations where necessary to make notation consistent with prior chapters. Added brief explanation on Free Cash Flow as this chapter no longer comes after the capital budgeting chapters where Free Cash Flow is fully developed. New Chapter 9 now on capital budgeting has full development of Free Cash Flow. Updated Kenneth Cole example.

Updated/Canadianized example 7.12. Added box on forms of market efficiency. Updated/added end of chapter questions. Updated wording in Data Case re: use of browser to pull off data. Chapter 8: Investment Decision Rules (was chapter 6).

Deleted EVA reference in the notation section per reviewer feedback. Edited for clarity. Added highlighted paragraph for NPV rule. Added Box on computing the NPV profile and using Excel’s Data Table component.

Re-ordered summary to be consistent with order of presentation in the chapter. Updated wording in Data Case. Chapter 9: Fundamentals of Capital Budgeting (was chapter 7).

Chapter opener replaced with RIM’s Blackberry 10 project. Example that flowed through chapter redone with hypothetical company rather than RIM as reviewers were concerned about the longevity of RIM. Wording updates throughout chapter to improve clarity. Added Box with a sample of CCA asset classes and their CCA rates. Added small section on unavoidable competitive effects contrasting a new product causing cannibalization versus an eroding market share being regained by a new product.

Provided point form summary of the cash flow effects of an asset purchase and sale. Replaced data case and provided full spreadsheet solution. Chapter 10: Capital Markets and the Pricing of Risk. Updated Chapter Opener data and discussion. Reference to sources included. Updated descriptions of stock indices and stats related to companies.

Updated Figure 10.1; fixed major error from prior versions that omitted dividend component of returns of indices. Dates go to end of 2011 (most recent available given various data sources). Updated answers to concept check questions. Updated wording, explanations, clarity of text and examples. Updated table 10.2 to end of 2012; updated calculations and discussion that followed.

Updated Figure 10.5 to reflect data in table 10.5. Clarified time frames used.

Updated Figure 10.6 to include all stocks in both Canadian and US indices with actual return and volatility data and showed negative return results too. This is a great figure and can provide a lot of room for instructors to have discussion about what went on with the markets and the individual stocks. Updated discussion on diversification to use diversifying strategies rather than redundancy strategies. Updated box on long-run diversification to be consistent with figure 10.1. Added comment about applicability (or not) of country specific stock indices as proxies for the market portfolio.

Updated, clarified, improved discussion on Betas. Updated data and discussion on Beta Versus Volatility Box. Added note about negative beta stocks being rare and supported with data. Chapter 11: Optimal Portfolio Choice and the Capital Asset Pricing Model.

Updated wording, explanations, clarity of text and examples. Updated box on Excel and Covariance functions. Chapter 12: Estimating the Cost of Capital. Updated wording, explanations, clarity of text and examples. Updated Table 12.1 to end of 2011. Updated discussion of high and low beta industries/stocks. Added reference to Excel’s LINEST function.

Concluded AMR bond box with info about their bankruptcy. Updated Apple example 12.6. Replaced figure 12.4 and updated discussion. Data to January 2013. Chapter 13: Investor Behaviour and Capital Market Efficiency. Updated wording, explanations, clarity of text and examples. Replaced Figure 13.1 to include new data, companies.

Updated references. Updated section on the performance of fund managers.

Updated example 13.3 and end of chapter problems that rely on data. Updated related solutions.

Chapter 14: Financial Options (was chapter 20). Updated wording, explanations, clarity of text and examples: eliminated the term ‘gain’ when ‘payoff’ is more appropriate. Defined explicitly ‘payoff’.

For profits, eliminated the future valuing of the original cost of the option, so profit = payoff — initial cost (versus old version where it was profit = payoff — future value of initial cost to time of expiration). Fixed solutions to problems 29 and 30. Chapter 15: Option Valuation (was chapter 21). Updated wording, explanations, clarity of text and examples. Updated Financial Crisis Box. Added interview with Myron Scholes. Reworded added chapter independence in Corporate Applications section.

This previously referenced chapter 16 on capital structure, but now that chapter will come after this chapter. Referenced beta asset equation from chapter 12 instead of from capital structure chapter, added brief explanation and introduced debt overhang. This can now be referenced in the capital structure chapter explicitly as something that is derived. Chapter 16: Real Options (was chapter 22). Updated wording, explanations, clarity of text and examples. Added discussion on investment options and firm risk. Reviewed and revised EOC problems.

Chapter 17: Capital Structure in a Perfect Market (was chapter 14). Updated wording, explanations, clarity of text and examples. Clarified items in Table 17.8. Added explanatory footnote in Figure 17.1. Updated Example 17.7. Updated Example 17.8. Added Financial Crisis Box on Bank Capital Requirements.

Updated Data Case instructions. Chapter 18: Debt and Taxes (was chapter 15). Updated wording, explanations, clarity of text and examples.

Updated chapter opener. Updated Table 18.1 and replaced Forzani with Shoppers Drug Mart. Updated tax-rate table 18.3 to 2013 data. Updated example 18.5. Updated figure 18.4 to reflect tax advantages across different provinces.

Updated and expanded Figure 18.5 so it is current and also shows break down of types of debt financing and types of equity financing (rather than just aggregates); also updated related text and included in discussion what was going on after the financial crisis. Updated figure 18.6 and related discussion regarding debt to value ratios. Updated figure 18.7 and related discussion regarding debt to value ratios across industries. Highlighted 2009 and 2012 data showing how the depressed values affected the ratios in 2009. Updated figure 18.9 and related discussion. Highlighted how 2010 EBITs were 28% lower than 2009 EBITS and how this affected the ratios.

Chapter 19: Financial Distress, Managerial Incentives, and Information (was chapter 16). Updated wording, explanations, clarity of text and examples.

Updated chapter opener. Updated Lehman bankruptcy costs. Updated references.Added interpretations of financial distress costs and capital structure using an options framework context in Section 19.5: “Excessive Risk Taking and Asset Substitution” and in “Debt Overhang and Underinvestment”. Made explicit ‘agency costs of debt’ versus ‘agency costs of equity’ and tied the latter back to the principal agent problem discussion from chapter 1. Added section in Moral Hazard Box about bankers resistance to capital requirements given the implicit guarantee on too-big-to-fail banks.

Updated figure 19.4 and related discussion. Updated format of figure to show relative percentages of financing through time.

Brought in Jewer interview that was previously in chapter 14 as it fits better in this chapter. Chapter 20: Payout Policy (was chapter 17). Updated wording, explanations, clarity of text and examples,.

Updated chapter opener. Updated Figure 20.4 on dividends and repurchases and associated text discussion. Updated Figure 20.5 on repurchases and associated text discussion. Updated examples that used Canadian tax rates to the 2013 tax rates. Used TFSA in addition to RRSP as a tax sheltered account.

Updated Table 20.3 for firms with large cash balances. Updated Berkshire Hathaway Box. Updated reverse split discussion with Citigroup example. Updated Figure 20.8. Updated Problems: 2, 11, 13, 24 and updated their solutions accordingly (all to use 2013 tax rates except 2 where it uses a more current date for a dividend payment). Chapter 21: Capital Budgeting and Valuation with Leverage (was chapter 18). Updated wording, explanations, clarity of text and examples.

Updated chapter opener. Updated example 21.6. Edits to Financial Crisis Box Chapter 22: Valuation and Financial Modeling: A Case Study (was chapter 19). General Updates. Chapter 23: The Mechanics of Raising Equity Capital. Updated wording, explanations, clarity of text and examples.

Added equation 23.1. Updated/Replaced Table 23.1. Updated/replaced Figure 23.1. Updated/Replaced Table 23.2.

Clarified Example 23.1. Updated/replaced Table 23.3. Updated/replaced Figure 23.3. Updated/replaced Figure 23.4. Updated question 9 in EOC Questions; also in Word and Excel solutions.

Chapter 24: Debt Financing. Updated wording, explanations, clarity of text and examples. Updated data throughout as appropriate and possible.

Chapter 25: Leasing. Updated wording, explanations, clarity of text and examples. Updated data throughout as appropriate and possible. Added ‘Mitigating Debt Overhang’ section. Clarified ‘Preserving Capital’ section. Added EOC problem 11 and solution.

Chapter 26: Working Capital Management. Updated wording, explanations, clarity of text and examples. Updated data throughout as appropriate and possible. Fixed equation 26.1 and re-ordered sub equations. Replaced Table 26.1 with industry averages by industry sector on TSX Composite Index. Updated instruction for Data Case.

Chapter 27: Short-Term Financial Planning. Updated wording, explanations, clarity of text and examples. Updated data throughout as appropriate and possible. Updated Financial Crisis box and the figure within it.

Chapter 28: Mergers and Acquisitions. Updated wording, explanations, clarity of text and examples. Updated data throughout as appropriate and possible. Updated examples in section: Economies of Scale and Scope. Added text and figure for LBO section: Figure 28.3 added.

Chapter 29: Corporate Governance. Updated wording, explanations, clarity of text and examples. Added text and box on Dodd-Frank Act of 2010 — also in summary section. Updated and replaced Figure 29.1. Added Facebook as an example of company with dual class shares.

Chapter 30: Risk Management. Updated wording, explanations, clarity of text and examples. Added explanation of forward contracts in section on long term contracts as a way of hedging.

Updated Example 30.4. Rewrote Hedging with Futures Contracts section. Added section on hedging commodity price risk with options contracts and added comparison of hedging with options versus futures (including examples and end of chapter questions).

Rewrote ‘Deciding to Hedge Commodity Price Risk’ section. Updated ‘Differing Hedging Strategies at U.S. Airlines’ box. Added paragraph on speculating (with cautions). Updated Figure 30.3 to today’s date and changed to daily data instead of yearly data. Redid/updated Examples 30.5 and 30.6. Updated Figure 30.4 to match examples and updated accompanying text.

Updated text in covered interest parity section to coincide with example 30.6. Updated/rewrote section on currency options.

Updated footnote re LIBOR to reflect how banks were manipulating it. Added two multi-part EOC questions. Chapter 31: International Corporate Finance. Updated data throughout as appropriate and possible. Updated and clarified wording and explanations as appropriate.

Updated instructions in Data Case. Websites and Online Courses.

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