About The Authors

Stephen A. Ross

Sloan School of Management, Franco Modigliani Professor of Finance and Economics, Massachusetts Institute of Technology

Stephen Ross is presently the Franco Modigliani Professor of Finance and Economics at the Sloan School of Management, Massachusetts Institute of Technology. One of the most widely published authors in finance and economics, Professor Ross is recognized for his work in developing the Arbitrage Pricing Theory and his substantial contributions to the discipline through his research in signaling, agency theory, option pricing, and the theory of the term structure of interest rates, among other topics. A past president of the American Finance Association, he currently serves as an associate editor of several academic and practitioner journals. He is a trustee of CalTech, a director of the College Retirement Equity Fund (CREF), and Freddie Mac. He is also the co-chairman of Roll and Ross Asset Management Corporation.

Randolph W. Westerfield

Marshall School of Business, Dean of the School of Business Administration and holder of the Robert R. Dockson Dean's Chair of Business Administration, University of Southern California

Randolph W. Westerfield is Dean of the University of Southern California School of Business Administration and holder of the Robert R. Dockson Dean's Chair of Business Administration.

He came to USC from The Wharton School, University of Pennsylvania, where he was the chairman of the finance department and member of the finance faculty for 20 years. He was the senior research associate at the Rodney L. White Center for Financial Research at Wharton. His areas of expertise include corporate financial policy, investment management and analysis, mergers and acquisitions, and stock market price behavior.

Professor Westerfield serves as a member of the Board of Directors of Health Management Associates (NYSE: HMA), William Lyon Homes, Inc. (NYSE: WLS), the Lord Foundation, and the AACSB International. He has been consultant to a number of corporations, including AT&T, Mobil Oil, and Pacific Enterprises, as well as to the United Nations, the U.S. Department of Justice and Labor, and the State of California.

Bradford D. Jordan

Carol Martin Gatton College of Business and Economics, National City Bank Professor of Finance, University of Kentucky

Bradford D. Jordan is Professor of Finance and the National City Bank Professor at the University of Kentucky. He has a long-standing interest in both applied and theoretical issues in corporate finance and has extensive experience teaching all levels of corporate finance and financial management policy. Professor Jordan has published numerous articles on issues such as cost of capital, capital structure, and the behavior of security prices. He is a past president of the Southern Finance Association, and he is coauthor (with Charles J. Corrado) of Fundamentals of Investments: Valuation and Management, a leading investments text, also published by McGraw-Hill/Irwin.

from the Authors

When the three of us decided to write a book, we were united by one strongly held principle: Corporate finance should be developed in terms of a few integrated, powerful ideas. We believed that the subject was all too often presented as a collection of loosely related topics, unified primarily by virtue of being bound together in one book, and we thought there must be a better way.

One thing we knew for certain was that we didn't want to write a "me-too" book. So, with a lot of help, we took a hard look at what was truly important and useful. In doing so, we were led to eliminate topics of dubious relevance, 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.

As a result of this process, three basic themes became our central focus in writing Fundamentals of Corporate Finance:

An Emphasis on Intuition We always try to separate and explain the principles at work on a common sense, intuitive level before launching into any specifics. The underlying ideas are discussed first in very general terms and then by way of examples that illustrate in more concrete terms how a financial manager might proceed in a given situation.

A Unified Valuation Approach We treat net present value (NPV) as the basic concept underlying corporate finance. Many texts stop well short of consistently integrating this important principle. The most basic and important 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.

A Managerial Focus Students shouldn't lose sight of the fact that financial management concerns 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 finance, and, where appropriate, the approximate, pragmatic nature of financial analysis is made explicit, possible pitfalls are described, and limitations are discussed.

In retrospect, looking back to our 1991 first edition IPO, we had the same hopes and fears as any entrepreneurs. How would we be received in the market? At the time, we had no idea that just 10 years later, we would be working on a sixth edition. We certainly never dreamed that in those years we would work with friends and colleagues from around the world to create country-specific Australian, Canadian, and South African editions, an International edition, Chinese, Polish, Portuguese, and Spanish language editions, and an entirely separate book, Essentials of Corporate Finance, now in its third edition.

Today, as we prepare to once more enter the market, our goal is to stick with the basic principles that have brought us this far. However, based on an enormous amount of feedback we have received from you and your colleagues, we have made this edition and its package even more flexible than previous editions. We offer flexibility in coverage, by continuing to offer a variety of editions, and flexibility in pedagogy, by providing a wide variety of features in the book to help students to learn about corporate finance. We also provide flexibility in package options by offering the most extensive collection of teaching, learning, and technology aids of any corporate finance text. Whether you use just the textbook, or the book in conjunction with other products, we believe you will find a combination with this edition that will meet your current as well as your changing needs.

Stephen A. Ross

Randolph W. Westerfield

Bradford D. Jordan

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

Front Matter

Preface

© The McGraw-Hill Companies, 2002

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