This title is a Pearson Global Edition. The Editorial team at Pearson has worked closely with educators around the world to include content, which is especially relevant to students outside the United States. For MBA/graduate students taking a course in corporate finance. An emphasis on modern theory blended with practice elevates students’ financial decision makingUsing the valuation framework based on the Law of One Price, top researchers Jonathan Berk and Peter DeMarzo have set the new canon for corporate finance textbooks.

Corporate Finance, 5th Edition blends coverage of time-tested principles and the latest advancements with the practical perspective of the financial manager. Students have the opportunity to “practice finance to learn finance” by solving quantitative business problems like those faced by today’s professionals. With built-in resources to help students master the core concepts, students develop the tools they need to make sound financial decisions in their careers.

For a streamlined book specifically tailored to the topics covered in the first one-semester course, Corporate Finance: The Core, 5th Edition is also available by Jonathan Berk and Peter DeMarzo. MyLab Finance is not included. Students, if MyLab Finance is a recommended/mandatory component of the course, please ask your instructor for the correct ISBN. MyLab Finance should only be purchased when required by an instructor. Instructors, contact your Pearson representative for more information.

Reach every student by pairing this text with MyLab FinanceMyLab™ is the teaching and learning platform that empowers you to reach every student. By combining trusted author content with digital tools and a flexible platform, MyLab personalizes the learning experience and improves results for each student.

IT IS HARD TO BELIEVE HOW MUCH TIME HAS PASSED since we first sat down together and conceived of this book. We have now published 5 editions and reached well over a million students. We were originally motivated to write this textbook by a central insight: The core concepts in finance are simple and intuitive.

What makes the subject challenging is that it is often difficult for a novice to distinguish between these core ideas and other intuitively appealing approaches that, if used in financial decision making, will lead to incorrect decisions. Nothing has changed in the intervening years. De-emphasizing the core concepts that underlie finance strips students of the essential intellectual tools they need to differentiate between good and bad decision making. The book’s continued success is a testament to the value of this approach. We present corporate finance as an application of a set of simple, powerful ideas. At the heart is the principal of the absence of arbitrage opportunities, or Law of One Price—in life, you don’t get something for nothing.

This simple concept is a powerful and important tool in financial decision making. By relying on it, and the other core principles in this book, financial decision makers can avoid the bad decisions brought to light by the financial crisis and still ongoing every day. We use the Law of One Price as a compass; it keeps financial decision makers on the right track and is the backbone of the entire book.

Table of Contents:

Chapter 1 The Corporation and Financial Markets

Chapter 2 Introduction to Financial Statement Analysis

Chapter 3 Financial Decision Making and the Law of One Price

Chapter 4 The Time Value of Money

Chapter 5 Interest Rates

Chapter 6 Valuing Bonds

Chapter 7 Investment Decision Rules

Chapter 8 Fundamentals of Capital Budgeting

Chapter 9 Valuing Stocks

Chapter 10 Capital Markets and the Pricing of Risk

Chapter 11 Optimal Portfolio Choice and the Capital Asset Pricing Model

Chapter 12 Estimating the Cost of Capital

Chapter 13 Investor Behavior and Capital Market Efficiency

Chapter 14 Capital Structure in a Perfect Market

Chapter 15 Debt and Taxes

Chapter 16 Financial Distress, Managerial Incentives, and Information

Chapter 17 Payout Policy

Chapter 18 Capital Budgeting and Valuation with Leverage

Chapter 19 Valuation and Financial Modeling: A Case Study

Chapter 20 Financial Options

Chapter 21 Option Valuation

Chapter 22 Real Options

Chapter 23 Raising Equity Capital

Chapter 24 Debt Financing

Chapter 25 Leasing

Chapter 26 Working Capital Management

Chapter 27 Shor t-Term Financial Planning

Chapter 28 Mergers and Acquisitions

Chapter 29 Corporate Governance

Chapter 30 Risk Management

Chapter 31 International Corporate Finance

About the Authors

Jonathan Berk is the A.P. Giannini Professor of Finance at the Graduate School of Business, Stanford University and is a Research Associate at the National Bureau of Economic Research. Before coming to Stanford, he was the Sylvan Coleman Professor of Finance at Haas School of Business at the University of California, Berkeley. Prior to earning his Ph.D., he worked as an Associate at Goldman Sachs (where his education in finance really began). Professor Berk’s research interests in finance include corporate valuation, capital structure, mutual funds, asset pricing, experimental economics, and labor economics. His work has won a number of research awards including the Stephen A. Ross Prize in Financial Economics, TIAA-CREF Paul A. Samuelson Award, the Smith Breeden Prize, Best Paper of the Year in The Review of Financial Studies, and the FAME Research Prize. His paper, “A Critique of Size- Related Anomalies,” was selected as one of the two best papers ever published in The Review of Financial Studies. In recognition of his influence on the practice of finance he has received the Bernstein-Fabozzi/Jacobs Levy Award, the Graham and Dodd Award of Excellence, and the Roger F. Murray Prize. He served two terms as an Associate Editor of the Journal of Finance, and a term as a director of the American Finance Association, the Western Finance Association, and academic director of the Financial Management Association. He is a Fellow of the Financial Management Association and a member of the advisory board of the Review of Finance and the Journal of Portfolio Management. Born in Johannesburg, South Africa, Professor Berk has two daughters, and is an avid skier and biker.

Peter DeMarzo is the Staehelin Family Professor of Finance at the Graduate School of Business, Stanford University. He is the current President of the American Finance Association and a Research Associate at the National Bureau of Economic Research. He teaches MBA and Ph.D. courses in Corporate Finance and Financial Modeling. In addition to his experience at the Stanford Graduate School of Business, Professor DeMarzo has taught at the Haas School of Business and the Kellogg Graduate School of Management, and he was a National Fellow at the Hoover Institution. Professor DeMarzo received the Sloan Teaching Excellence Award at Stanford and the Earl F. Cheit Outstanding Teaching Award at U.C. Berkeley. Professor DeMarzo has served as an Associate Editor for The Review of Financial Studies, Financial Management, and the B.E. Journals in Economic Analysis and Policy, as well as Vice President and director of the American Finance Association. He has also served as Vice President and President of the Western Finance Association. Professor DeMarzo’s research is in the area of corporate finance, asset securitization, and contracting, as well as market structure and regulation. His recent work has examined issues of the optimal design of contracts and securities, leverage dynamics and the role of bank capital regulation, and the influence of information asymmetries on stock prices and corporate investment. He has also received numerous awards including the Western Finance Association Corporate Finance Best-Paper Award, the Charles River Associates Best-Paper Award, and the Barclays Global Investors/Michael Brennan Best-Paper of the Year Award from The Review of Financial Studies. Professor DeMarzo was born in Whitestone, New York, and is married with three boys. He and his family enjoy hiking, biking, and skiing.