Fundamentals of Corporate Finance Third Edition
Richard A. Brealey Bank of England and London Business School
Stewart C. Myers Sloan School of Management /Massachusetts Institute of Technology
Alan J. Marcus Wallace E. Carroll School of Management Boston College
with additional material from
Fundamentals of Corporate Finance, Alternate Fifth Edition
Essentials of Corporate Finance, Second Edition
Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky

Contents
SECTION 1 1
How to Value Perpetuities 50
How to Value Annuities 51
Annuities Due 54
Future Value of an Annuity 57
Inflation and the Time Value of Money 61
Real versus Nominal Cash Flows 61
Inflation and Interest Rates 63
Valuing Real Cash Payments 65
Real or Nominal? 67
Effective Annual Interest Rates 67
Summary 69
Related Web Links 69
Key Terms 70
Quiz 70
Practice Problems 72
Challenge Problems 75
Solutions to Self-Test Questions 77
Minicase 79
Financial Planning 81
What Is Financial Planning? 82
Financial Planning Focuses on the Big Picture 83
Financial Planning Is Not Just Forecasting 84
Three Requirements for Effective Planning 84
Financial Planning Models 86
Components of a Financial Planning Model 87
An Example of a Planning Model 88
An Improved Model 89
Planners Beware 93
Pitfalls in Model Design 93
The Assumption in Percentage of Sales Models 94
The Role of Financial Planning Models 95
External Financing and Growth 96
Summary 100
Related Web Links 101
Key Terms 101
Quiz 101
Practice Problems 102
Challenge Problems 106
Solutions to Self-Test Questions 106
The Firm and the Financial
Manager 3
Organizing a Business 4
Sole Proprietorships 4
Partnerships 5
Corporations 5
Hybrid Forms of Business Organization 6
The Role of the Financial Manager 7
The Capital Budgeting Decision 8
The Financing Decision 9
Financial Institutions and Markets 10
Financial Institutions 10
Financial Markets 11
Other Functions of Financial Markets and
Institutions 12
Who Is the Financial Manager? 13
Careers in Finance 15
Goals of the Corporation 17
Shareholders Want Managers to Maximize
Market Value 17
Ethics and Management Objectives 19
Do Managers Really Maximize Firm Value? 21
Snippets of History 25
Summary 25
Related Web Links 28
Key Terms 28
Quiz 28
Practice Problems 29
Solutions to Self-Test Questions 31
The Time Value of Money 33
Future Values and Compound Interest 34
Present Values 38
Finding the Interest Rate 44
Multiple Cash Flows 46
Future Value of Multiple Cash Flows 46
Present Value of Multiple Cash Flows 49
Level Cash Flows: Perpetuities and Annuities 50