(Ivo Welch) Corporate Finance: An Introduction

How can I suggest an improvement to this FAQ, the website, or the book? How do I provide feedback?
Email ivo welch. Be specific. If you have a suggested solution or specific improvement, please describe it, too.
Why has the author not responded to my question?
If you ask a question that has already been answered in this FAQ, you will not hear back from me.
What is the current edition and its ISBN?
Fourth edition, Spring 2017. The ISBN number is 978-0-9840049-2-8.
What has changed between editions?

Edition 2 (2010): The book has been restructured into a reasonably-long main text (like a 'fundamentals' book) and a (free) companion book. The companion contains all chapter appendices (the chapters themselves tell the reader what is in the companion); and chapters that would not fit into a one-semester course.

Edition 3 (2013): A lot of small refinements (with a list in the beginning of the book describing them). One big change: my treatment of the CAPM for long-term capital budgeting is now much more pessimistic. If you already own edition 2, you can print Chapter 9.

Edition 4 (2017): All updated to 2016. Some small corrections. Intel Corp takes the key role for financials, capital structure, and pro-forma. CAPM cost-of-capital chapter is now broken out into a "benchmark cost of capital" chapter (which is empirically valid) and a pure CAPM chapter (which is empirically not valid).

Wasn't this book published by Prentice-Hall (Pearson)? Do you have any misgivings about Prentice-Hall (Pearson)?
Yes, the first edition was published by Prentice-Hall, ISBN 0321277996, in 2008, via a license for the North-American market. In late 2010, I reacquired the North-American rights. I now own the book completely. The first edition was priced at >$200. I do not have any misgivings. Their book development was first-rate. If you want to write a book, please contact Donna Battista. I also understand why after my book's publication, their marketing department decided to roll more with Berk-DeMarzo which they had brought out just two years prior to my own textbook. Besides, publishers are generally more important in the development than in the marketing and sales of books.
Where can I buy a printed copy of the book?
Please buy the book here.
I am in another country. Can I still buy the book?
Yes, you can buy it pretty much everywhere, except perhaps if you are in Canada. There are Canadian laws against foreign book sales.
Why is this book so cheap (or free) when its peers cost $300/book?
  1. I care primarily about changing how finance is taught. I hope that there is at least a little price sensitivity among us finance instructors. [The major book publishers claim that there is almost none—which is why books cost over $250/book today (and $500 soon). It borders on the obscene IMHO.]
  2. I would also like to see a few students keep the book after their classes, rather than have to resell it. I hope there is stuff worth remembering in the book!
  3. The book is in black-and-white in print, rather than in color.
Can I post this book on my own website, too? Can I print or redistribute and sell it?
Absolutely not. You can link to the website here. Students and other readers have my permission to download a personal copy of the book, but only for themselves. They can also order a printed copy. The book is not in the public domain. It is the result of many years of hard work.

Commercial publishers who want to license and cobrand the book can do so for a non-exclusive license fee of $100,000. Typically, I recommend the much cheaper solution: link to this website and ask the students to take care of the rest.

Should I print the book myself or buy a printed copy from lulu?
lulu is far more efficient at printing, and you can usually have it within a week. (Until then, use the free online copy.) Lulu will also save you money and a mess of loose-leaf paper. To discourage self-printing, there is a watermark behind the freely distributed pdf text. This means that the lulu copy will always be much nicer than a self-print.
What is the level of the book?
It has been used on all levels, from high schools through college through graduate school through PhD classes. It has been used in highly-ranked schools (e.g., Harvard, Yale, etc.) and in unranked schools. It is definitely suitable for mid-tier schools, both at the graduate and undergraduate levels. I do not believe that there is an intrinsic difference between 4th-year undergraduate students, 1st-year MBA students, 1st-year MFE students —or even 1st-year PhD students—when it comes to grasping the basic intuition of finance.
What are the biggest advantages of this book?
A more logical and thus sensible organization. A gradual ramp-up of complexity. Easier readability. "Numerical example to formula" orientation. Coverage of important aspects (e.g., comparables, pro-formas) not in standard books. Focus on economic thinking and problem solving, not institutional details. Honesty. Not only coverage, but also deemphasis of the CAPM for long-term capital budgeting and emphasis on benchmarked costs of capital. A discussion of where finance research is guessing at answers. A clear distinction between credit (default) premia and risk premia. Self-contained. A strong distinction between expected and promised cash flows. Robustness. Pitfalls in capital budgeting and checklists. Financials from a finance perspective. A better explanation of how APV works. (coverage comparison.)
How does the book compare to other leading textbooks?

Please view the coverage comparison.

I bought the book. Where are the solutions to end-of-chapter problems?
The answers are not publicly available. Don't ask. The end-of-chapter problems are used as graded homeworks by many instructors. (Posting or handing out the answers would invalidate their courses.) The in-chapter questions are similar problems with solutions, and syllabus.space has equizzes. The instructor's manual is not for sale, not even for $100,000. Clear?
I want to teach myself. Can you please send me the instructor manual?
Absolutely not. The instructor manual is for instructors, not for students.
I bought the book. I expect better service. I do not understand the example on p.200. I demand ...
Don't bother. I am not your teaching assistant. I don't make money off the book, even the printed edition. The online edition is free, too. I appreciate suggestions that help me improve the student experience, but only if these relate to many students and future readers of my book. I can't take care of individuals. That is the job of instructors.
Why no kindle or ibook format?
An ebook format would be great, but unfortunately, this is not feasible. As of 2016, the native kindle and ibook formats cannot deal with complex page layouts and algebraic formulas, as they appear in my book. The epub technical format that they use is just not designed to handle technical books. You can either have rescalable reflowable text (epub) or sophisticated math formulas in a fixed layout (pdf). You cannot have both at the same time.

Even if future versions of the publication format had this capability, I might still not do it. I am wary of the control of amazon and apple—and the 35% that they are taking now, and 70% that they will be taking in a few years when they control the market is no boon.

How can I help?
  • Tell your instructor that you like the textbook. Even if they have assigned it, they are guessing, too.
  • Recommend the book to finance instructors. Tell them to contact me for instructor auxiliary material and online quiz support. (This extra material is only available to accredited-school instructors. It is not available to students.)
  • Leave honest feedback on amazon. Give your name so that it is clear that I (the author) did not post the review under a pseudonym. (I would never do this, but other authors have been known to do so.) The book is cheaper here than it is on Amazon.
  • Recommend the book to friends.
  • Link to the official book web site http://book.ivo-welch.info. Again, legitimate links only, please. It will raise the visibility on the search engines. (And, no, I don't trade links to improve the search-engine rankings.)
  • As an instructor, share your slides, classnotes, homeworks, and exams with other instructors. Please contact me.

Errata, Future Plans, Experimental Chapters

Book Errata

No 4th ed errata known yet. There will be some.

Other Chapters

I have also written some chapters that did not make it into the book, and which are therefore not very refined. They are posted and/or available in the companion:

  • An alternative investments focused set of chapters:

    I may or may not complete a derivative version of the book that focuses more on investments (asset pricing). Until then, you can download and read the relevant chapters in Investments Chapters (not for corporate finance): bookg.pdf). Obviously, these chapters are much less polished than the corporate finance chapters, but they use a different method to teach mean-variance optimization and the CAPM. (These are the cornerstones of equity asset pricing.) If you want to understand the deus behind the machina (the CAPM), even though these chapters are still raw, I would hope that you would find them better than the formula way or hand-waving way found in some other books.

    On the plus side, these chapters go much more into detail than the chapters in the corporate finance text. On the minus side, there is newer material (and sometimes overlapping material with better exposition) in the corporate finance test.

  • A non-representative chapter on Ethics: I have also written an experimental chapter about ethics, which can be downloaded at SSRN.

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