The Tenth Edition continues the tradition of excellence that has earned Fundamentals of Corporate Finance its status as market leader. Every chapter has been updated to provide the most current examples that reflect corporate finance in today’s world. The supplements package has been updated and improved, and with the enhanced Connect Finance and Excel Master, student and instructor support has never been stronger.

McGraw-Hill Connect Plus Finance is an online assignment and assessment solution with an integrated, printable eBook. With the Tenth Edition,

Connect users have access to LearnSmart, an adaptive learning system designed to help students learn faster, study more efficiently, and retain more knowledge for greater success.

Excel Master, available at no charge on the text’s website, is a unique and interactive Excel tutorial program expertly designed to teach students how to solve problems using spreadsheets.

Visit www.mhhe.com/rwj for more information on Connect Plus Finance and Excel Master, plus additional student and instructor resources.

LEADERSHIP inspires LOYALTY

Ross Westerfield Jordan

te n t h e d i t i o n

FUNDAMENTALS OF CORPORATE FINANCE

STANDARD EDITION

ISBN 978-0-07-803463-3 MHID 0-07-803463-9

www.mhhe.com

tenth edition

STANDARDEDITION

Ross

Westerfield

Jordan

FUN

DA

MEN

TALS O

F CO

RPORATE FIN

AN

CE

EAN

Md. D

alim #1170484 11/10/11 C

yan Mag Y

elo Black

Less managing. More teaching. Greater learning.

STUDENTS GET:

Easy online access to homework, tests, and quizzes assigned by your instructor.

Immediate feedback on how you’re doing. (No more wishing you could call your instructor at 1 a.m.)

Quick access to lectures, practice materials, eBook, and more. (All the material you need to be successful is right at your fingertips.)

A Self-Quiz and Study tool that assesses your knowledge and recommends specific readings, supplemental study materials, and additional practice work.*

*Available with select McGraw-Hill titles.

With McGraw-Hill's Connect® Plus Finance,

INSTRUCTORS GET:

Simple assignment management, allowing you to spend more time teaching.

Auto-graded assignments, quizzes, and tests.

Detailed Visual Reporting where student and section results can be viewed and analyzed.

Sophisticated online testing capability.

A filtering and reporting function that allows you to easily assign and report on materials that are correlated to accreditation standards, learning outcomes, and Bloom’s taxonomy.

An easy-to-use lecture capture tool.

The option to upload course documents for student access.

With McGraw-Hill's Connect® Plus Finance,

Would you like your students to show up for class more prepared? (Let’s face it, class is much more fun if everyone is engaged and prepared…)

Want an easy way to assign homework online and track student progress? (Less time grading means more time teaching…)

Want an instant view of student or class performance? (No more wondering if students understand…)

Need to collect data and generate reports required for administration or accreditation? (Say goodbye to manually tracking student learning outcomes…)

Want to record and post your lectures for students to view online?

Want to get better grades? (Who doesn’t?)

Prefer to do your homework online? (After all, you are online anyway…)

Need a better way to study before the big test? (A little peace of mind is a good thing…)

STUDENTS... INSTRUCTORS...

Less managing. More teaching. Greater learning.

STUDENTS GET:

Easy online access to homework, tests, and quizzes assigned by your instructor.

Immediate feedback on how you’re doing. (No more wishing you could call your instructor at 1 a.m.)

Quick access to lectures, practice materials, eBook, and more. (All the material you need to be successful is right at your fingertips.)

A Self-Quiz and Study tool that assesses your knowledge and recommends specific readings, supplemental study materials, and additional practice work.*

*Available with select McGraw-Hill titles.

With McGraw-Hill's Connect® Plus Finance,

INSTRUCTORS GET:

Simple assignment management, allowing you to spend more time teaching.

Auto-graded assignments, quizzes, and tests.

Detailed Visual Reporting where student and section results can be viewed and analyzed.

Sophisticated online testing capability.

A filtering and reporting function that allows you to easily assign and report on materials that are correlated to accreditation standards, learning outcomes, and Bloom’s taxonomy.

An easy-to-use lecture capture tool.

The option to upload course documents for student access.

With McGraw-Hill's Connect® Plus Finance,

Would you like your students to show up for class more prepared? (Let’s face it, class is much more fun if everyone is engaged and prepared…)

Want an easy way to assign homework online and track student progress? (Less time grading means more time teaching…)

Want an instant view of student or class performance? (No more wondering if students understand…)

Need to collect data and generate reports required for administration or accreditation? (Say goodbye to manually tracking student learning outcomes…)

Want to record and post your lectures for students to view online?

Want to get better grades? (Who doesn’t?)

Prefer to do your homework online? (After all, you are online anyway…)

Need a better way to study before the big test? (A little peace of mind is a good thing…)

STUDENTS... INSTRUCTORS...

Want an online, searchable version of your textbook?

Wish your textbook could be available online while you’re doing your assignments?

Want to get more value from your textbook purchase?

Think learning finance should be a bit more interesting?

Connect® Plus Finance eBook

If you choose to use Connect® Plus Finance, you have an affordable and searchable online version of your book integrated with your other online tools.

Connect® Plus Finance eBook offers features like:

Topic search

Direct links from assignments

Adjustable text size

Jump to page number

Print by section

Check out the STUDENT RESOURCES section under the Connect® Library tab.

Here you’ll find a wealth of resources designed to help you achieve your goals in the course. Every student has different needs, so explore the STUDENT RESOURCES to find the materials best suited to you.

Want an online, searchable version of your textbook?

Wish your textbook could be available online while you’re doing your assignments?

Want to get more value from your textbook purchase?

Think learning finance should be a bit more interesting?

Connect® Plus Finance eBook

If you choose to use Connect® Plus Finance, you have an affordable and searchable online version of your book integrated with your other online tools.

Connect® Plus Finance eBook offers features like:

Topic search

Direct links from assignments

Adjustable text size

Jump to page number

Print by section

Check out the STUDENT RESOURCES section under the Connect® Library tab.

Here you’ll find a wealth of resources designed to help you achieve your goals in the course. Every student has different needs, so explore the STUDENT RESOURCES to find the materials best suited to you.

FUNDAMENTALS OF CORPORATE FINANCE

Standard Edition

ros34639_fm_i-xlii.indd iros34639_fm_i-xlii.indd i 08/12/11 5:47 PM08/12/11 5:47 PM

Financial ManagementBlock, Hirt, and DanielsenFoundations of Financial ManagementFourteenth Edition

Brealey, Myers, and AllenPrinciples of Corporate FinanceTenth Edition

Brealey, Myers, and AllenPrinciples of Corporate Finance, Concise Second Edition

Brealey, Myers, and MarcusFundamentals of Corporate FinanceSeventh Edition

BrooksFinGame Online 5.0

BrunerCase Studies in Finance: Managing for Corporate Value CreationSixth Edition

Cornett, Adair, and NofsingerFinance: Applications and TheorySecond Edition

Cornett, Adair, and NofsingerM: FinanceFirst Edition

DeMelloCases in FinanceSecond Edition

Grinblatt (editor)Stephen A. Ross, Mentor: Infl uence through Generations

Grinblatt and TitmanFinancial Markets and Corporate StrategySecond Edition

HigginsAnalysis for Financial ManagementTenth Edition

KellisonTheory of InterestThird Edition

Ross, Westerfi eld, and JaffeCorporate FinanceNinth Edition

Ross, Westerfi eld, Jaffe, and JordanCorporate Finance: Core Principles and ApplicationsThird Edition

Ross, Westerfi eld, and JordanEssentials of Corporate FinanceSeventh Edition

Ross, Westerfi eld, and JordanFundamentals of Corporate FinanceTenth Edition

ShefrinBehavioral Corporate Finance: Decisions that Create ValueFirst Edition

WhiteFinancial Analysis with an Electronic CalculatorSixth Edition

InvestmentsBodie, Kane, and MarcusEssentials of InvestmentsEighth Edition

Bodie, Kane, and MarcusInvestmentsNinth Edition

Hirt and BlockFundamentals of Investment ManagementTenth Edition

Hirschey and NofsingerInvestments: Analysis and BehaviorSecond Edition

Jordan, Miller, and DolvinFundamentals of Investments: Valuation and ManagementSixth Edition

Stewart, Piros, and HeislerRunning Money: Professional Portfolio ManagementFirst Edition

Sundaram and DasDerivatives: Principles and PracticeFirst Edition

Financial Institutions and MarketsRose and HudginsBank Management and Financial ServicesNinth Edition

Rose and MarquisFinancial Institutions and MarketsEleventh Edition

Saunders and CornettFinancial Institutions Management: A Risk Management ApproachSeventh Edition

Saunders and CornettFinancial Markets and InstitutionsFifth Edition

International FinanceEun and ResnickInternational Financial ManagementSixth Edition

RobinInternational Corporate FinanceFirst Edition

Real EstateBrueggeman and FisherReal Estate Finance and InvestmentsFourteenth Edition

Ling and ArcherReal Estate Principles: A Value ApproachThird Edition

Financial Planning and InsuranceAllen, Melone, Rosenbloom, and MahoneyRetirement Plans: 401(k)s, IRAs, and Other Deferred Compensation ApproachesTenth Edition

AltfestPersonal Financial PlanningFirst Edition

Harrington and NiehausRisk Management and InsuranceSecond Edition

Kapoor, Dlabay, and HughesFocus on Personal Finance: An Active Approach to Help You Develop Successful Financial SkillsThird Edition

Kapoor, Dlabay, and HughesPersonal FinanceTenth Edition

Walker and WalkerPersonal Finance: Building Your FutureFirst Edition

The McGraw-Hill/Irwin Series in Finance, Insurance, and Real EstateStephen A. RossFranco Modigliani Professor of Finance and EconomicsSloan School of Management, Massachusetts Institute of Technology, Consulting Editor

ros34639_fm_i-xlii.indd iiros34639_fm_i-xlii.indd ii 08/12/11 5:47 PM08/12/11 5:47 PM

FUNDAMENTALS OF CORPORATE FINANCE

Standard Edition

Tenth Edition

Stephen A. RossMassachusetts Institute of Technology

Randolph W. Westerfi eldUniversity of Southern California

Bradford D. JordanUniversity of Kentucky

ros34639_fm_i-xlii.indd iiiros34639_fm_i-xlii.indd iii 08/12/11 5:47 PM08/12/11 5:47 PM

FUNDAMENTALS OF CORPORATE FINANCE

Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright © 2013, 2010, 2008, 2006, 2003, 2000, 1998, 1995, 1993, 1991 by The McGraw-Hill Companies, Inc. All rights reserved. Printed in the United States of America. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 0 RJE/RJE 1 0 9 8 7 6 5 4 3 2

ISBN 978-0-07-803463-3 (standard edition)MHID 0-07-803463-9 (standard edition)ISBN 978-0-07-747945-9 (alternate edition)MHID 0-07-747945-9 (alternate edition)

Vice president and editor-in-chief: Brent Gordon Publisher: Douglas ReinerExecutive editor: Michele JanicekExecutive director of development: Ann TorbertDevelopment editor II: Jennifer LohnVice president and director of marketing: Robin J. ZwettlerMarketing director: Brad ParkinsSenior marketing manager: Melissa S. CaughlinVice president of editing, design, and production: Sesha BolisettyLead project manager: Christine A. VaughanBuyer II: Debra R. SylvesterCover/interior designer: Pam VerrosLead media project manager: Brian NacikMedia project manager: Joyce J. ChappettoCover image: Getty ImagesTypeface: 10/12 Times RomanCompositor: MPS Limited, a Macmillan CompanyPrinter: R. R. Donnelley

Library of Congress Cataloging-in-Publication Data

Ross, Stephen A. Fundamentals of corporate fi nance / Stephen A. Ross, Randolph W. Westerfi eld, Bradford D. Jordan.—10th ed., Alternate ed. p. cm.—(The McGraw-Hill/Irwin series in fi nance, insurance and real estate) Includes index. ISBN-13: 978-0-07-803463-3 (standard ed. : alk. paper) ISBN-10: 0-07-803463-9 (standard ed. : alk. paper) ISBN-13: 978-0-07-747945-9 (alternate ed. : alk. paper) ISBN-10: 0-07-747945-9 (alternate ed. : alk. paper) 1. Corporations—Finance. I. Westerfi eld, Randolph W. II. Jordan, Bradford D. III. Title. HG4026.R677 2013 658.15—dc23 2011042532

www.mhhe.com

ros34639_fm_i-xlii.indd ivros34639_fm_i-xlii.indd iv 08/12/11 5:47 PM08/12/11 5:47 PM

To our families and friends with love and gratitude.S.A.R. R.W.W. B.D.J.

ros34639_fm_i-xlii.indd vros34639_fm_i-xlii.indd v 08/12/11 5:47 PM08/12/11 5:47 PM