Uni Reading List
Index / 001 EN
Corporate Finance cover

Business

Business

Corporate Finance

Jonathan Berk; Peter DeMarzo

A corporate finance textbook organized around a single valuation principle: the Law of One Price. Berk and DeMarzo use that idea to connect investment decisions, financing choices, and risk management into one coherent framework rather than a set of separate rules. Extensive worked examples, spreadsheet-based problems, and interviews with practitioners accompany each topic.

Prerequisites: Introductory accounting and basic algebra are assumed; a first statistics course helps with the risk and return material.

Difficulty Level
Intermediate
Academic Level
Undergraduate
corporate financevaluationcapital budgetingcapital structurefinancial decision makingTextbook

01 / Reading Guide

Reading Guide

Citation

Berk, J., & DeMarzo, P. (2023). Corporate Finance (6th ed.). Pearson.

Chapter Summary

The publisher's contents list ten parts and 31 chapter titles. Pearson frames the book around a valuation framework built on the Law of One Price, and the order of the parts follows a recognisable path: the firm and its markets, time and interest rates, valuing projects and firms, risk, financing, advanced valuation, options, long-term and short-term financing, and finally special topics.

Part 1, Introduction: The Corporation and Financial Markets; Introduction to Financial Statement Analysis; Financial Decision Making and the Law of One Price

The opening part introduces the corporation and the markets in which it operates, then financial statement analysis, and then states the valuation principle that the rest of the book uses. Placing the Law of One Price in the third chapter means it is set up before any calculation is done.

Part 2, Time, Money, and Interest Rates: The Time Value of Money; Interest Rates; Valuing Bonds

Three chapters develop discounting and compounding, how interest rates are quoted and determined, and how bonds are valued. This part supplies the tools that the later valuation chapters assume.

Part 3, Valuing Projects and Firms: Investment Decision Rules; Fundamentals of Capital Budgeting; Valuing Stocks

The part moves from rules for choosing among investments to building the cash flows of a project in capital budgeting, and then to the valuation of stocks.

Part 4, Risk and Return: Capital Markets and the Pricing of Risk; Optimal Portfolio Choice and the Capital Asset Pricing Model; Estimating the Cost of Capital; Investor Behavior and Capital Market Efficiency

Four chapters cover how markets price risk, portfolio choice and the CAPM, the estimation of the cost of capital, and the question of investor behaviour and market efficiency.

Part 5, Capital Structure: Capital Structure in a Perfect Market; Debt and Taxes; Financial Distress, Managerial Incentives, and Information; Payout Policy

The capital-structure sequence starts from a perfect market and then adds taxes, distress costs, incentives and information, before turning to payout policy.

Part 6, Advanced Valuation: Capital Budgeting and Valuation with Leverage; Valuation and Financial Modeling: A Case Study

Two chapters bring leverage back into capital budgeting and close with a case study in valuation and financial modelling.

Part 7, Options: Financial Options; Option Valuation; Real Options

This part introduces financial options, their valuation, and real options.

Part 8, Long-Term Financing: Raising Equity Capital; Debt Financing; Leasing

Part 8 turns to how firms obtain long-term funds through equity, debt and leasing.

Part 9, Short-Term Financing: Working Capital Management; Short-Term Financial Planning

Two chapters cover working capital and short-term planning.

Part 10, Special Topics: Mergers and Acquisitions; Corporate Governance; Risk Management; International Corporate Finance

The final part collects mergers and acquisitions, corporate governance, risk management and international corporate finance.

Key Concepts

Parts 1–3: Valuation Foundations

  • Law of One Price: the valuation principle named in the publisher description and in the title of the third chapter.
  • Time value of money and interest rates: the subject of the first two chapters in Part 2.
  • Investment decision rules and capital budgeting: choosing projects by their cash flows.

Parts 4–6: Risk and Financing Choices

  • Capital Asset Pricing Model and cost of capital: how risk is priced and turned into a discount rate.
  • Capital structure in a perfect market: the benchmark case before taxes, distress and information are added.
  • Payout policy: how firms return cash to investors.

Parts 7–10: Options, Financing and Special Topics

  • Financial and real options: valuing choices as well as fixed cash flows.
  • Working capital management: short-term financing decisions.
  • Mergers, governance and risk management: topics gathered at the end.

Critical Analysis

Strengths

  • A single organising idea. The title of the third chapter and the publisher description both make the Law of One Price the book's framework, so topics are presented as applications of one principle rather than a set of separate rules.
  • Breadth in a logical sequence. Thirty-one chapters in ten parts cover the full range from time value to governance, and the part titles make the argument visible: value first, then risk, then financing.
  • Options treated in their own part. Placing financial options, option valuation and real options in a dedicated part means the topic is not squeezed into a single end-of-book chapter.
  • A worked case. A chapter titled "Valuation and Financial Modeling: A Case Study" ties the earlier valuation material together.

Limitations

  • Length. With 31 chapters, no one-semester course covers everything, and readers have to choose among Parts 6–10.
  • Prerequisites are not stated in the public listing. The contents begin with the corporation and financial statements, but the publisher's page does not specify required algebra or accounting background.
  • Only publisher material is available for features. Claims such as practice problems in the "practice finance to learn finance" style come from Pearson's overview, so the quality of the end-of-chapter material cannot be judged from the contents alone.

Where It Fits in the Course

Within the corporate finance list this is a full-length text for readers who have already met the basics. Ross, Westerfield and Jordan's Fundamentals of Corporate Finance is an introductory text organised around time value of money, risk and return and the creation of value, with many step-by-step examples, and is the gentler first course. Dahlquist and Knight's Principles of Finance 2e is a free OpenStax introduction that covers financial statements, time value, valuation, risk and capital budgeting through business cases.

Brealey, Myers, Allen and Edmans's Principles of Corporate Finance is the closest alternative in scope, a comprehensive text that stresses reasoning about why firms and markets behave as they do. Atrill's Financial Management for Decision Makers blends core theory with practical tools for analysis, planning and decision making, with a manager's use of finance in view.

How to Use This Book

The book suits students in an intermediate corporate finance course, MBA students, and self-learners who want a structured treatment from valuation to financing. Time value of money is the first technical hurdle, so Parts 1 and 2 should be secure before Part 3.

A practical plan:

  • Core: Parts 1–5 in order, from the Law of One Price through capital structure and payout policy.
  • Next: Part 6 and Part 7 for readers who need leverage-adjusted valuation or options; these build on the core.
  • As needed: Parts 8–10 for financing mechanics, working capital, mergers, governance, risk management and international finance.
  • Alongside: Re-derive the numerical examples yourself in a spreadsheet and check each chapter against the financial-statement and discounting tools of the early chapters.