Principles of Corporate Finance

Citation

Brealey, R. A., Myers, S. C., Allen, F., & Edmans, A. (2025). Principles of Corporate Finance (2025 release). McGraw Hill.

Chapter Summary

The 2025 release has thirty-four chapters grouped into twelve parts, running from present value to a closing chapter on what finance does and does not know. The publisher describes the book as one that explains why companies and financial markets behave as they do, so that managers can decide on the basis of theory and not only experience, and it says the authors set out controversies within financial theory in a balanced way while stressing practical applications. Every chapter of this release was revised, some extensively, with Alex Edmans joining as a co-author.

Part One: Value (Chapters 1–6)

The opening part runs through Introduction to Corporate Finance, How to Calculate Present Values, Valuing Bonds, Valuing Stocks, Net Present Value and Other Investment Criteria, and Making Investment Decisions with the Net Present Value Rule. It moves from the idea of present value through the valuation of bonds and stocks to the rule used for investment decisions.

Part Two: Risk (Chapters 7–9)

Risk, Diversification, and Portfolio Selection, The Capital Asset Pricing Model and Risk and the Cost of Capital introduce risk and connect it to the discount rate used for capital investment.

Part Three: Best Practices in Capital Budgeting (Chapters 10–11)

Project Analysis and How to Ensure That Projects Truly Have Positive NPVs deal with the way investment projects are analysed and checked.

Part Four: Financing Decisions and Marketing Efficiency (Chapters 12–14)

Efficient Markets and Behavioral Finance, An Overview of Corporate Financing and How Companies Issue Securities open the financing side of the book. The publisher's contents give the part title as "Financing Decisions and Marketing Efficiency".

Part Five: Payout Policy and Capital Structure (Chapters 15–18)

Payout Policy, Capital Structure in Perfect Capital Markets, How Much Should a Corporation Borrow? and Financing and Valuation cover payout and the choice of debt and equity.

Part Six: Corporate Objectives and Governance (Chapters 19–20)

Corporate Governance and Stakeholder Capitalism and Responsible Business address the aims of the firm and the structures that direct it.

Part Seven: Options (Chapters 21–23)

Understanding Options, Valuing Options and Real Options present options and their use in corporate decisions.

Part Eight: Debt Financing (Chapters 24–26)

Credit Risk and the Value of Corporate Debt, The Many Different Kinds of Debt and Leasing deal with debt in its varied forms.

Part Nine: Risk Management (Chapters 27–28)

Managing Risk and International Financial Management.

Part Ten: Financial Planning and Working Capital Management (Chapters 29–31)

Financial Analysis, Financial Planning and Working Capital Management.

Part Eleven: Mergers, Corporate Control, and Governance (Chapters 32–33)

Mergers and Corporate Restructuring.

Part Twelve: Conclusion (Chapter 34)

Conclusion: What We Do and Do Not Know about Finance closes the book.

Key Concepts

Parts One to Three

• Present value and NPV: the basis for valuing bonds, stocks and investments.
• Risk, diversification and CAPM: risk and its link to the cost of capital.
• Project analysis: the treatment of projects in capital budgeting.

Parts Four to Six

• Efficient markets and behavioral finance: the market-efficiency debate.
• Payout policy and capital structure: payout and the debt-equity choice.
• Corporate governance and stakeholder capitalism: governance and responsible business.

Parts Seven to Twelve

• Options and real options: valuation of options and of flexibility in investment.
• Credit risk and debt: the value and kinds of corporate debt.
• Risk management, working capital and mergers: later topics, with a closing chapter on what remains uncertain.

Critical Analysis

Strengths

• Theory aimed at unfamiliar situations. The stated purpose is to equip managers to decide in non-routine and changing conditions by understanding why firms and markets behave as they do, so the book is built around reasoning and not recipes.
• Coverage. The thirty-four chapters take in valuation, risk, capital budgeting, financing, payout, options, debt, risk management, planning, working capital and mergers in one book.
• Governance and responsible business. Two chapters in Part Six deal with corporate governance and stakeholder capitalism and responsible business, and a further part covers mergers, control and governance.
• Learning features. The release has "Beyond the Page" chapter features (over 150 interactive applications), "Sense Check" boxes that ask readers to assess financial calculations critically, "Common Confusions" sections, highlighted key terms, and lists reorganised as bullets with short summaries.
• A closing chapter that looks back. The final chapter, on what is and is not known about finance, gives the book a deliberate point of stock-taking.

Limitations

• Size. With thirty-four chapters it is long, so a one-term course must select among its later parts.
• Many features need the publisher's platform. The interactive applications and Connect tools are part of the publisher's digital product, so a reader with only the printed book will use fewer of them.
• Release-based editions. The book is delivered as an evergreen "2025 Release", so page numbers and details may differ between releases and courses should confirm which release they use.
• Explanation over mathematics. The publisher says mathematical explanations were replaced with analogies where appropriate; readers wanting derivations will need other sources, for example for options.

Where It Fits in the Course

Among the course books, Ross, Westerfield and Jordan's Fundamentals of Corporate Finance and the open-access Principles of Finance 2e are introductory texts built on the time value of money, risk and return, and capital budgeting; either is a gentler first course before this book. Berk and DeMarzo's Corporate Finance is a comparable full-length text organised around a single valuation principle, the Law of One Price. Choosing between it and Brealey is a matter of approach: Brealey stresses reasoning from theory to explain behavior and treats controversies in finance.

Atrill's Financial Management for Decision Makers is aimed at readers using finance in management decisions. Brealey fits as the main text for a full corporate finance course or as a reference after an introductory one.

How to Use This Book

The book suits MBA students and advanced undergraduates in a corporate finance course, and practitioners who want a theory-based reference.

• Core: Part One first, since the discounting logic underlies everything; then Parts Two and Three (risk and capital budgeting).
• Second block: Parts Four to Six on financing, payout, capital structure and governance.
• Selective: Parts Seven to Eleven can be chosen by course: options and debt for readers heading into derivatives or credit, risk management and working capital for operations, and mergers for corporate control.
• Close with Chapter 34, which sums up what the book has covered.
• Practice: use the Sense Check and Common Confusions features as self-tests, and work the interactive material if your course provides access.