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page i
page ii
 page iii

Corporate Finance
Third Edition

David Hillier
Stephen Ross, Randolph Westerfield,
Jeffrey Jaffe, Bradford Jordan

London Boston Burr Ridge, IL Dubuque, IA Madison, WI New York San Francisco St. Louis Bangkok
Bogotá Caracas Kuala Lumpur Lisbon Madrid Mexico City Milan Montreal New Delhi Santiago
Seoul Singapore Sydney Taipei Toronto
 page iv

Corporate Finance, 3rd European Edition

David Hillier, Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
ISBN-13 9780077173630
ISBN-10 0077173635

Published by McGraw-Hill Education

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Maidenhead
Berkshire
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Telephone: 44 (0) 1628 502 500
Fax: 44 (0) 1628 770 224
Website: www.mheducation.co.uk

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloguing in Publication Data

The Library of Congress data for this book has been applied for from the Library
of Congress

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Product Developer: Rosie Churchill
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Text Design by Ian Youngs

Cover design by Adam Renvoize
Printed and bound by APP, Lebanon

Published by McGraw-Hill Education. Copyright © 2016 by McGraw-Hill

Education. All rights reserved. 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 McGraw-Hill Education, including,
but not limited to, in any network or other electronic storage or transmission, or
broadcast for distance learning.

Fictitious names of companies, products, people, characters and/or data that may
be used herein (in case studies or in examples) are not intended to represent any
real individual, company, product or event.

ISBN-13 9780077173630
ISBN-10 0077173635
eISBN-10 0077173643
© 2016. Exclusive rights by McGraw-Hill Education for manufacture and export.
This book cannot be re-exported from the country to which it is sold by McGraw-
Hill Education.
 page v

Dedication
To Mary-Jo
 page vi

1
Part 1: Overview
1 Introduction to Corporate Finance 2
2 Corporate Governance 25

63
Part 2: Value and Capital Budgeting
3 Financial Statement Analysis 64
4 Discounted Cash Flow Valuation 93
5 Bond, Equity and Firm Valuation 120
6 Net Present Value and Other Investment Rules 150
7 Making Capital Investment Decisions 177
8 Risk Analysis, Real Options and Capital Budgeting 204

231
Part 3: Risk
9 Risk and Return: Lessons from Market History 232
10 Risk and Return: The Capital Asset Pricing Model 253
11 Factor Models and the Arbitrage Pricing Theory 294
12 Risk, Cost of Capital and Capital Budgeting 315
13 Efficient Capital Markets and Behavioural Finance 343
14 Long-Term Financing: An Introduction 376

395
Part 4: Capital Structure and Dividend Policy
15 Capital Structure: Basic Concepts 396
16 Capital Structure: Limits to the Use of Debt 428
17 Valuation and Capital Budgeting for the Levered Firm 458
18 Dividends and Other Payouts 480

513
Part 5: Long-Term Financing
 19 Equity Financing 514
20 Debt Financing 541
21 Leasing 565

585
Part 6: Options, Futures and Corporate Finance
22 Options and Corporate Finance 586
23 Options and Corporate Finance: Extensions and Applications 619
24 Warrants and Convertibles 648
25 Financial Risk Management with Derivatives 669

697
Part 7: Financial Planning and Short-term Finance
26 Short-term Finance and Planning 698
27 Short-term Capital Management 721

754
Part 8: Special Topics
28 Mergers and Acquisitions 755
29 Financial Distress 794
30 International Corporate Finance 813
Index 839
Appendix A Mathematical Tables
Web Glossary
 page vii

1
Part 1: Overview

1 Introduction to Corporate Finance 2

1.1 What is Corporate Finance? 3
1.2 The Goal of Financial Management 9
1.3 Financial Markets 10
1.4 Corporate Finance in Action: The Case of Google 16
Summary and Conclusions 19
Questions and Problems 19
Exam Question (45 minutes) 23
Practical Case Study 23
References 24
Additional Reading 24
Endnote 24
2 Corporate Governance 25
2.1 The Corporate Firm 26
2.2 The Agency Problem and Control of the Corporation 32
2.3 The Governance Structure of Corporations 42
2.4 The OECD Principles of Corporate Governance 45
2.5 International Corporate Governance 51
2.6 Corporate Governance in Action: Starbucks 54
Summary and Conclusions 55
Questions and Problems 55
Exam Question (45 minutes) 57
Mini Case 57
Practical Case Study 58
Reference 58
Additional Reading 58
 Part 2: Value and Capital Budgeting 63

3 Financial Statement Analysis 64

3.1 The Statement of Financial Position 65
3.2 The Income Statement 66
3.3 Taxes 68
3.4 Net Working Capital 69
3.5 Cash Flow 70
3.6 Financial Statement Analysis 72
3.7 Ratio Analysis 73
3.8 The Du Pont Identity 80
3.9 Using Financial Statement Information 81
Summary and Conclusions 84
Questions and Problems 84
Exam Question (45 minutes) 89
Mini Case 90
Practical Case Study 92
Relevant Accounting Standards 92
Reference 92
Additional Reading 92
Endnote 92
4 Discounted Cash Flow Valuation 93
4.1 Valuation: The One-period Case 94
4.2 Valuation: The Multi-period Case 97
4.3 Compounding Periods 102
4.4 Simplifications 106
Summary and Conclusions 114
Questions and Problems 115
Exam Question (45 minutes) 118
Mini Case 118
Practical Case Study 119
Additional Reading 119

Endnotes 119
5 Bond, Equity and Firm Valuation 120
5.1 Definition and Example of a Bond 121
5.2 How to Value Bonds 122
5.3 Bond Concepts 124
5.4 The Present Value of Equity 125
5.5 Estimates of Parameters in the Dividend Growth Model 129
5.6 Growth Opportunities 132
5.7 The Dividend Growth Model and the NPVGO Model 135
5.8 Stock Market Reporting 136
5.9 Firm Valuation 138
Summary and Conclusions 141
Questions and Problems 142
Exam Question (45 minutes) 146
Mini Case 147
Practical Case Study 148
Relevant Accounting Standards 148
Additional Reading 148
Endnotes 149
6 Net Present Value and Other Investment Rules 150
6.1 Why Use Net Present Value? 151
6.2 The Payback Period Method 152
6.3 The Discounted Payback Period Method 155
6.4 The Average Accounting Return Method 155
6.5 The Internal Rate of Return 157
6.6 Problems with the IRR Approach 159
6.7 The Profitability Index 165
6.8 The Practice of Capital Budgeting 167
Summary and Conclusions 168
Questions and Problems 169
Exam Question (45 minutes) 174
Mini Case 174
Practical Case Study 175
Additional Reading 176
Endnotes 176
7 Making Capital Investment Decisions 177

7.1 Incremental Cash Flows 178

7.2 Energy Renewables Ltd: An Example 180

7.3 Inflation and Capital Budgeting 186
7.4 Alternative Definitions of Operating Cash Flow 189 page viii
7.5 Investments of Unequal Lives: The Equivalent Annual Cost Method 191
Summary and Conclusions 194
Questions and Problems 194
Exam Question (45 minutes) 200
Mini Case 200
Practical Case Study 201
Relevant Accounting Standards 202
Additional Reading 203
Endnote 203
8 Risk Analysis, Real Options and Capital Budgeting 204
8.1 Sensitivity Analysis, Scenario Analysis and Break-even Analysis 205
8.2 Monte Carlo Simulation 211
8.3 Real Options 215
8.4 Decision Trees 218
Summary and Conclusions 220
Questions and Problems 221
Exam Question (45 minutes) 227
Mini Case 228
Practical Case Study 229
Relevant Accounting Standards 230
Reference 230
Additional Reading 230
Endnotes 230

231
Part 3: Risk

9 Risk and Return: Lessons from Market History 232

9.1 Returns 233
9.2 Holding Period Returns 236
9.3 Return Statistics 238
9.4 Average Stock Returns and Risk-free Returns 240
9.5 Risk Statistics 241
9.6 More on Average Returns 244
Summary and Conclusions 246
Questions and Problems 247
Exam Question (45 minutes) 249
 Mini Case 250
Practical Case Study 251
Relevant Accounting Standards 252
References 252
Additional Reading 252
Endnotes 252
10 Risk and Return: The Capital Asset Pricing Model 253
10.1 Individual Securities 254
10.2 Expected Return, Variance and Covariance 254
10.3 The Return and Risk for Portfolios 259
10.4 The Efficient Set for Two Assets 263
10.5 The Efficient Set for Many Securities 266
10.6 Diversification: An Example 269
10.7 Riskless Borrowing and Lending 271
10.8 Market Equilibrium 274
10.9 The Capital Asset Pricing Model 277
10.10 Criticisms of the CAPM 281
10.11 Variations of the CAPM 282
Summary and Conclusions 283
Questions and Problems 284
Exam Question (45 minutes) 290
Mini Case 290
Practical Case Study 291
References 291
Additional Reading 291
Endnotes 292
11 Factor Models and the Arbitrage Pricing Theory 294
11.1 Factor Models: Announcements, Surprises and Expected Returns 295
11.2 Risk: Systematic and Unsystematic 296
11.3 Systematic Risk and Betas 297
11.4 Portfolios and Factor Models 300
11.5 Betas and Expected Returns 303
11.6 The Capital Asset Pricing Model and the Arbitrage Pricing Theory 305

Summary and Conclusions 306

Questions and Problems 307
Exam Question (45 minutes) 313
 Mini Case 313
References 314
Additional Reading 314
Endnotes 314
12 Risk, Cost of Capital and Capital Budgeting 315
12.1 The Cost of Equity Capital 316
12.2 Estimation of Beta 318
12.3 Determinants of Beta 320
12.4 Extensions of the Basic Model 323
12.5 Estimating Carrefour Group’s Cost of Capital 326
12.6 Reducing the Cost of Capital 328
12.7 How Do Corporations Estimate Cost of Capital in Practice? 332
12.8 Economic Value Added and the Measurement of Financial Performance 333
Summary and Conclusions 335
Questions and Problems 335
Exam Question (45 minutes) 340
Mini Case 340
References 341
Additional Reading 341
Endnotes 342
13 Efficient Capital Markets and Behavioural Finance 343
13.1 Can Financing Decisions Create Value? 344
13.2 A Description of Efficient Capital Markets 345
13.3 The Different Types of Efficiency 347
13.4 The Evidence 350
13.5 The Behavioural Challenge to Market Efficiency 355
13.6 Empirical Challenges to Market Efficiency 357 page ix
13.7 Reviewing the Differences 361
13.8 Implications for Corporate Finance 362
Summary and Conclusions 366
Questions and Problems 367
Exam Question (45 minutes) 371
Mini Case 371

Practical Case Study 372

Relevant Accounting Standards 373
373
 References

Additional Reading 374

Endnotes 375
14 Long-term Financing: An Introduction 376
14.1 Ordinary Shares 376
14.2 Corporate Long-term Debt: The Basics 379
14.3 Preference Shares 382
14.4 Patterns of Financing 383
14.5 Hierarchies in Long-term Financing 386
14.6 Long-term Islamic Financing 387
Summary and Conclusions 390
Questions and Problems 390
Exam Question (45 minutes) 392
Mini Case 393
Practical Case Study 393
Relevant Accounting Standard 393
References 393
Additional Reading 393
Endnote 394

395
Part 4: Capital Structure and Dividend Policy

15 Capital Structure: Basic Concepts 396

15.1 The Capital Structure Question and the Pie Theory 397
15.2 Maximizing Firm Value versus Maximizing Shareholder Interests 397
15.3 Financial Leverage and Firm Value: An Example 399
15.4 Modigliani and Miller: Proposition II (No Taxes) 403
15.5 Corporate Taxes 410
15.6 Personal Taxes 416
Summary and Conclusions 419
Questions and Problems 419
Exam Question (45 minutes) 424
Mini Case 424
Practical Case Study 425
References 425
Additional Reading 426
Endnotes 426
 16 Capital Structure: Limits to the Use of Debt 428
16.1 Costs of Financial Distress 429
16.2 Description of Financial Distress Costs 429
16.3 Can Costs of Debt Be Reduced? 434
16.4 Integration of Tax Effects and Financial Distress Costs 435
16.5 Signalling 438
16.6 Shirking, Perquisites and Bad Investments: A Note on Agency Cost of Equity 439
16.7 The Pecking Order Theory 441
16.8 Growth and the Debt–Equity Ratio 443
16.9 Market Timing Theory 445
16.10 How Firms Establish Capital Structure 445
Summary and Conclusions 449
Questions and Problems 450
Exam Question (45 minutes) 453
Mini Case 453
Practical Case Study 454
References 454
Additional Reading 455
Endnotes 456
17 Valuation and Capital Budgeting for the Levered Firm 458
17.1 Adjusted Present Value Approach 459
17.2 Flow to Equity Approach 460
17.3 Weighted Average Cost of Capital Method 461
17.4 A Comparison of the APV, FTE and WACC Approaches 462
17.5 Capital Budgeting When the Discount Rate Must Be Estimated 464
17.6 APV Example 465
17.7 Beta and Leverage 469
Summary and Conclusions 471
Questions and Problems 472
Exam Question (45 minutes) 477
Mini Case 477
Practical Case Study 478
Reference 478
Additional Reading 478
Endnotes 479
18 Dividends and Other Payouts 480
 18.1 Different Types of Dividends 481
18.2 Standard Method of Cash Dividend Payment 481
18.3 The Benchmark Case: An Illustration of the Irrelevance of Dividend Policy 483
18.4 Share Repurchases 486
18.5 Personal Taxes and Dividends 489
18.6 Real-world Factors Favouring a High-dividend Policy 492
18.7 The Clientele Effect 495
18.8 A Catering Theory of Dividends 496
18.9 What We Know and Do Not Know about Dividend Policy 497
18.10 Stock Dividends and Stock Splits 501
Summary and Conclusions 503
Questions and Problems 504
Exam Question (45 minutes) 508
Mini Case 508
Practical Case Study 509
Relevant Accounting Standards 509
References 510
Additional Reading 510
Endnotes 512

513 page x
Part 5: Long-term Financing

19 Equity Financing 514

19.1 The Public Issue 515
19.2 Alternative Issue Methods 515
19.3 The Cash Offer 516
19.4 The Announcement of New Equity and the Value of the Firm 523
19.5 The Cost of New Issues 523
19.6 Rights 524
19.7 Shelf Registration 527
19.8 The Private Equity Market 528
Summary and Conclusions 531
Questions and Problems 532
Exam Question (45 minutes) 536
Mini Case 536

Practical Case Study 537

Relevant Accounting Standard 537
 References 537
Additional Reading 538
Endnotes 540
541
20 Debt Financing
20.1 Bank Loans 542
20.2 Debt Financing 542
20.3 The Public Issue of Bonds 543
20.4 Bond Refunding 547
20.5 Bond Ratings 549
20.6 Some Different Types of Bonds 554
20.7 Private Placement Compared to Public Issues 556
20.8 Long-term Syndicated Bank Loans 557
Summary and Conclusions 557
Questions and Problems 558
Exam Question (45 minutes) 561
Mini Case 561
Practical Case Study 562
Relevant Accounting Standards 562
References 562
Additional Reading 563
Endnotes 564
21 Leasing 565
21.1 Types of Lease Financing 566
21.2 Accounting and Leasing 568
21.3 The Cash Flows of Leasing 568
21.4 A Detour for Discounting and Debt Capacity with Corporate Taxes 570
21.5 NPV Analysis of the Lease versus Buy Decision 572
21.6 Does Leasing Ever Pay? The Base Case 572
21.7 Reasons for Leasing 573
21.8 Some Unanswered Questions about Leasing 578
Summary and Conclusions 579
Questions and Problems 580
Exam Question (45 minutes) 582
Mini Case 583

Practical Case Study 583

Relevant Accounting Standards 584
 References 584
Additional Reading 584
Endnotes 584
585
Part 6: Options, Futures and Corporate Finance

22 Options and Corporate Finance 586

22.1 Options 587
22.2 Call Options 587
22.3 Put Options 588
22.4 Writing Options 589
22.5 Option Quotes 590
22.6 Option Combinations 591
22.7 Valuing Options 594
22.8 An Option Pricing Formula 597
22.9 The ‘Greeks’ 604
22.10 Shares and Bonds as Options 605
Summary and Conclusions 609
Questions and Problems 610
Exam Question (45 minutes) 615
Mini Case 616
Relevant Accounting Standards 617
Reference 617
Additional Reading 617
Endnotes 618
23 Options and Corporate Finance: Extensions and Applications 619
23.1 Executive Share Options 620
23.2 Investment in Real Projects and Options 622
23.3 Valuing a Start-up 624
23.4 More about the Binomial Model 627
23.5 Shutdown and Reopening Decisions 632
23.6 Mergers and Diversification 638
23.7 Options and Capital Budgeting 640
Summary and Conclusions 641
Questions and Problems 642

Exam Question (45 minutes) 644

Mini Case 645
 Practical Case Study 645
Relevant Accounting Standards 646
References 646
Additional Reading 646
Endnotes 647
24 Warrants and Convertibles
648
24.1 Warrants 649
24.2 The Difference between Warrants and Call Options 650
24.3 Warrant Pricing and the Black–Scholes Model 651
24.4 Convertible Bonds 652
24.5 The Value of Convertible Bonds 653
24.6 Reasons for Issuing Warrants and Convertibles 656
24.7 Why Are Warrants and Convertibles Issued? 658
24.8 Conversion Policy 660
Summary and Conclusions 661 page xi
Questions and Problems 662
Exam Question (45 minutes) 664
Mini Case 665
Practical Case Study 666
Relevant Accounting Standard 666
References 666
Additional Reading 667
Endnotes 667
25 Financial Risk Management with Derivatives
669
25.1 Derivatives, Hedging and Risk 670
25.2 Forward Contracts 670
25.3 Futures Contracts 671
25.4 Hedging 674
25.5 Interest Rate Futures Contracts 676
25.6 Duration Hedging 681
25.7 Swaps Contracts 686
25.8 Financial Risk Management in Practice 689
Summary and Conclusions 690
Questions and Problems 690

Exam Question (45 minutes) 694

Mini Case 694
 Practical Case Study 695
Relevant Accounting Standards 695
References 695
Additional Reading 695
Endnotes 696
697
Part 7: Financial Planning and Short-term Finance

26 Short-term Finance and Planning 698

26.1 Tracing Cash and Net Working Capital 699
26.2 Defining Cash in Terms of Other Elements 699
26.3 The Operating Cycle and the Cash Cycle 700
26.4 Some Aspects of Short-term Financial Policy 703
26.5 Cash Budgeting 708
26.6 The Short-term Financial Plan 710
Summary and Conclusions 711
Questions and Problems 712
Exam Question (45 minutes) 718
Mini Case 719
Practical Case Study 719
Relevant Accounting Standards 720
References 720
Additional Reading 720
Endnotes 720
27 Short-term Capital Management
721
27.1 Reasons for Holding Cash 722
27.2 Determining the Target Cash Balance 724
27.3 Managing the Collection and Disbursement of Cash 729
27.4 Investing Idle Cash 734
27.5 Terms of Sale 736
27.6 The Decision to Grant Credit: Risk and Information 739
27.7 Optimal Credit Policy 742
27.8 Credit Analysis 743
27.9 Collection Policy 744
27.10 How to Finance Trade Credit 745

Summary and Conclusions 746

Questions and Problems 747
 Exam Question (45 minutes) 751
Mini Case 751
References 752
Additional Reading 753

754
Part 8: Special Topics
755
28 Mergers and Acquisitions
28.1 The Basic Forms of Acquisition 756
28.2 Synergy 757
28.3 Sources of Synergy 758
28.4 Two ‘Bad’ Reasons for Mergers 762
28.5 A Cost to Shareholders from Reduction in Risk 764
28.6 The NPV of a Merger 766
28.7 Valuation of Mergers in Practice 768
28.8 Friendly versus Hostile Takeovers 770
28.9 Defensive Tactics 771
28.10 The Diary of a Takeover: AbbVie Inc. and Shire plc 773
28.11 Do Mergers Add Value? 775
28.12 Accounting and Tax Considerations 779
28.13 Going Private and Leveraged Buyouts 780
28.14 Divestitures 780
Summary and Conclusions 782
Questions and Problems 782
Exam Question (45 minutes) 788
Mini Case 788
Practical Case Study 789
Relevant Accounting Standards 790
References 790
Additional Reading 790
Endnotes 793
29 Financial Distress 794
29.1 What Is Financial Distress? 795
29.2 What Happens in Financial Distress? 796
29.3 Bankruptcy, Liquidation and Reorganization 799

29.4 Private Workout or Bankruptcy: Which Is Best? 803

29.5 Predicting Financial Distress: The Z-score Model 804
 Summary and Conclusions 806
Questions and Problems 807
Exam Question (45 minutes) 808
Mini Case 809
Practical Case Study 810
Relevant Accounting Standards 811
References 811
Additional Reading 811
Endnotes 812
30 International Corporate Finance
813 page xii
30.1 Terminology 815
30.2 Foreign Exchange Markets and Exchange Rates 816
30.3 Purchasing Power Parity 820
30.4 Interest Rate Parity, Unbiased Forward Rates and the International Fisher Effect 824
30.5 International Capital Budgeting 827
30.6 Exchange Rate Risk 829
30.7 Political Risk 831
Summary and Conclusions 832
Questions and Problems 833
Exam Question (45 minutes) 836
Mini Case 837
Practical Case Study 837
Relevant Accounting Standards 837
Additional Reading 838
Endnote 838
Index 839
Appendix A Mathematical Table
Web Glossary
 page xiii

I’ve been teaching Finance courses since 1994, first as a tutorial assistant in small group classes for
masters and undergraduate students, all the way through to large lecture auditoriums of several
hundred people. During that time, three books formed the basis of all my teaching (Ross, Westerfield
and Jaffe, Corporate Finance; Brealey, Myers and Allen, Principles of Corporate Finance; and
Grinblatt and Titman, Financial Markets and Corporate Strategy). In fact, coming from a
mathematics background, I initially learned about finance through these textbooks.
When McGraw-Hill approached me to work on Corporate Finance, I was at first reluctant. The
book is an institution. What could I do to improve on a text that has gone through so many editions and
been taught in so many places? On reflection, however, I knew that there were many areas where the
book needed to be changed for an international readership. Like many other lecturers, I had slipped
into the habit of recommending RWJ and BMA, but then replacing more than half of the slides and
examples so that the material was appropriate for my students. Differences in depreciation rules,
taxes, accounting standards, and bankruptcy regulations, changed everything except the bare bones.
Now in its third edition, the book has had to change to reflect the enormous developments in the
financial markets and the corporate world. Much has evolved over the past decade and business
practice and economic fundamentals have experienced a major shift. Uncertainty is the keyword and
financial managers are facing tighter financing conditions, very low interest rates and a considerably
more difficult investment environment. Government bonds have negative yields, inflation is near zero
and new economic power blocs are emerging. Now, more than ever, the principles and applications
of corporate finance are needed to ensure companies can steer through these uncharted territories
without taking too many casualties.
I have undertaken major updates of all chapters, introduced real world examples in each topic and
updated the discussion to reflect new research findings. The text has also been sense checked for
relevance and practice through my industry engagements. Finally, the references for each area have
been comprehensively updated to the most recent research in the area.
I’m exceptionally honoured to be part of the RWJ history and very proud of this version in
particular. I’ve thoroughly enjoyed writing the chapters and I sincerely hope you have the same
enjoyment reading them.

David Hillier
5 January 2016
 page xiv

Understanding and Application

The best way to understand corporate finance is to explain it via situations and scenarios you can
relate to.

• Example boxes in every chapter to provide hypothetical examples to illustrate theoretical

concepts.
• Opening chapter vignettes illustrate topical discussions that will be covered in the chapter.
• New to this edition are Real World Insight boxes which use real companies to show how they
have applied corporate finance theories and concepts to their businesses and business decisions.
• Practical case studies, mini cases and additional reading further aid your understanding of
concepts and to practise applying them.

Mastery of Mathematics
Many find the hardest part of learning finance is mastering the jargon, maths, data and standardized
notation. Corporate Finance helps you by:

• Making extensive use of figures and tables which use real data throughout the text.
• Listing the variables and acronyms you will encounter as you read the chapter in key notation
boxes at the start of the chapter.
• Numbering maths equations the first time they appear in full for ease of reference and
understanding.

page xv

Signposting and Navigation

To gain a full understanding of corporate finance it is important to understand how topics are linked
together and how they relate to each other.

• New to this edition are Chapter Links which appear within the margin and are highlighted in the
text; they provide a chapter and page reference for quick cross-referencing for information
discussed in other chapters and they will aid in the enhancement of your understanding and
background to topics.
• Part Openers are also new to this edition and provide a preface for the chapters that are to
follow, linking the chapters together and explaining how and where topics are discussed within
the chapters.
Practice and Proficiency
To obtain a solid understanding of finance it has been proven that practising questions is essential.

• At the end of every chapter there are Questions and Problems; they are presented by topic and
level of difficulty and there are over 1,000 in the book altogether.
• These end of chapter questions and problems are all integrated into Connect.
• Algorithmic versions of the questions appear in Connect to ensure equations and calculations are
not learnt by rote but by thorough understanding and practice.
• Also at the end of the chapters are Exam Questions designed to take 45 minutes and testing you
on material learned in a more formal exam style.
• LearnSmart is also available to help you learn; it adaptively assesses your skill and knowledge
levels to track which topics you have mastered and which require further instruction and practice.
 page xvi

McGraw-Hill Connect Finance is a learning and teaching environment that improves

student performance and outcomes whilst promoting engagement and comprehension of
content.

You can utilize publisher-provided materials, or add your own content to design a
complete course to help your students achieve higher outcomes.

With McGraw-Hill Connect Finance, instructors get:

• Simple assignment management, allowing you to spend more time teaching.
• Auto-graded assignments, quizzes and tests.
• Detailed visual reporting where students and section results can be viewed and
analysed.
• Sophisticated online testing capability.
• A filtering and reporting function that allows you to easily assign and report on
materials that are correlated to learning outcomes, topics, level of difficulty, and
more. Reports can be accessed for individual students or the whole class, as well as
 offering the ability to drill into individual assignments, questions or categories.
• Instructor materials to help supplement your course.

Available online via Connect is a wealth of instructor page xvii

support materials, including:
• Appendices that accompany the textbook
• Access to a wealth of videos discussing topics covered in the textbook on David
Hillier’s YouTube channel.
• Fully updated PowerPoint slides to use in lectures and an instructor’s manual to
support your course preparation.
• A solutions manual providing answers for the end of chapter questions in the
textbook.
• Image library of artwork from the textbook.
• Case studies.
With McGraw-Hill Connect Finance, students get: Assigned content
• Easy online access to homework, tests and quizzes
• Immediate feedback and 24-hour tech support

With McGraw-Hill SmartBook, students can:

• Take control of your own learning with a personalized and adaptive reading
experience.
• Understand what you know and don’t know; SmartBook takes you through the stages
of reading and practice, prompting you to recharge your knowledge throughout the
course for maximum retention.
• Achieve the most efficient and productive study time by adapting to what you do and
don’t know.
• Hone in on concepts you are most likely to forget, to ensure knowledge of key
concepts is learnt and retained.
 Connect is an online assignment and assessment solution that offers a page xviii
number of powerful tools and features that make managing assignments
easier, so faculty can spend more time teaching. With Connect, -students can
engage with their coursework anytime and anywhere, making the learning process
more accessible and efficient.

Excel Simulations
Provide students with an authentic Excel environment and experience which enables
them to practise and learn to use Excel to solve finance problems just like they will in
their future careers. These questions feature animated, narrated Help and Show Me
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Test students’ mathematical understanding with auto-graded calculation questions.
Short-answer questions
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Each question provides a guide answer and allows you to review and mark student
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Assign all of the autogradable end of chapter or test bank material as a ready-made
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SmartBook™ page xix

Fuelled by LearnSmart—the most widely used and intelligent adaptive learning
resource—SmartBook is the first and only adaptive reading experience available
today. Distinguishing what a student knows from what they don’t, and honing in on
concepts they are most likely to forget, SmartBook personalizes content for each
student in a continuously adapting reading experience. Valuable reports provide
instructors with insight as to how students are progressing through textbook content,
and are useful for shaping in-class time or assessment.

LearnSmart™
McGraw-Hill LearnSmart is an adaptive learning program that identifies what an
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 page xx

Adapting Author
David Hillier is a professor of Finance at the University of Strathclyde.
Professor Hillier has published a wide range of peer-reviewed academic articles
on corporate governance, corporate finance, insider trading, asset pricing,
precious metals, auditing, and market microstructure. His research has attracted
an ANBAR citation and a best paper prize from one of the top finance and
management journals in Southeast Asia. He is on the editorial board and reviews
for many of the world’s top finance journals. Professor Hillier is an established
teacher of executive programmes and has conducted courses for a variety of
professional clients, including The World Bank and the UK National Health
Service. Finally, he is a co-author of the European editions of Financial Markets and Corporate
Strategy (McGraw-Hill, 2011) and Fundamentals of Corporate Finance (McGraw-Hill, 2011).

US Authors
Stephen A. Ross is the Franco Modigliani Professor of Finance and Economics at the Sloan School
of Management, Massachusetts Institute of Technology.

Randolph W. Westerfield is Dean Emeritus of the University of Southern California’s Marshall

School of Business and is the Charles B. Thornton Professor of Finance.

Jeffrey F. Jaffe has been a frequent contributor to many finance and economics literatures for a
number of years.

Bradford D. Jordan is Professor of Finance and holder of the Richard W. and Janis H. Furst
Endowed Chair in Finance at the University of Kentucky.
 page xxi

I would like to acknowledge the following individuals who have all contributed in one way or
another to the book.

First mention must go to Tom Hill and Rosie Churchill who worked with me tirelessly on this project
from its inception. Tom and Rosie deserve as much credit as me in putting everything together and I
am extremely grateful for all their support.

The review process has been extensive and many individuals have provided extensive advice and
suggestions on how to make the text much more relevant and current to its intended readership. Every
chapter has been scrutinized by several reviewers, leading to a substantial improvement in the quality
of the text. In particular, I would like to recognize the efforts of

Tom Aabo, Aarhus University

Eser Arisoy, Lancaster University
Shantanu Banerjee, Lancaster University
Christina Bannier, Frankfurt School of Finance and Management
Edel Barnes, University College Cork
Mikael Bask, Uppsala University
Anthony Birts, University of Bath
Jaap Bos, Maastricht University
James Brown, Edinburgh Napier University
Evert Carlsson, University of Gothenburg
Jeremy Cheah, University of Sheffield
Peter Corvi, Warwick Business School
Twm Evans, Swansea University
Maria Gårdängen, Lund University
Peter de Goeij, Tilburg University
Manuel Goudie, Instituto de Estudios Bursatiles, Madrid
Ufuk Gucbilmez, University of Edinburgh
Stefan Hirth, Aarhus University
Jan Lemmen, Erasmus University
Maria-Teresa Marchica, University of Manchester
Kristian Miller, Aarhus University
Tomoe Moore, Brunel University
Arjen Mulder, Erasmus University
James Ryan, University of Limerick
Gert Sandhal, University of Gothenburg
Mohamed Sherif, Heriot-Watt University
Chris Veld, University of Glasgow
Steven Walters, Glasgow Caledonian Univeristy

A book of this type involves more than just writing the main text. The online learning materials have
to be developed, checked and revised, and the drafts are typeset and proofread. The marketing
endeavour is also something that often gets ignored but it is an exceptionally important component of
the book’s production process. Finally, I am truly indebted to the sales representatives who are on the
coalface in raising sales. With this in mind, I would like to thank Jeffrey Egan, David Swift, Federico
Parola, Nick Velander, Carina Boom, Claudia Leenen. I would also like to thank Emma Nugent,
Beverley Shields, Sarah Fleming, Gill Colver, Elaine Bingham, Calum Crichton, Martin Kemmitt,
George Hulene, Iain Clacher and Steve O’Callaghan for their contribution.

The whole project has taken more than a year of exceptionally hard work and my family, friends and
colleagues have taken a lot of the burden in supporting me through this intensive period. I would like
to thank the following colleagues for standing in for me at various meetings, helping with deadlines,
and other sundry support: Emanuele Bajo, Marco Bigelli, Iain Clacher, Mehmet Demirbag, Helyn
Gould, Susan Hart, Allan Hodgson, Suntharee Lhaopadchan, Morag McDonald, Alan McIntyre, Andy
Marshall, Patrick McColgan and Krishna Paudyal.

The following friends deserve a special mention for their advice, support and good times during this
time: Philip and Pauline Church, Anton Colella, Ronnie and Anne Convery, Paul and Clare Lombardi,
Nicky and Ann McLuskey, Peter and Katherine McCudden, Monsignor Tom Monaghan, Kevin Page,
Garry and Stella Stern, and Anne and Frank Walker.

I’m very grateful to my family, who mean everything to me: Benjy, Danny, Con, Maria, Patrick,
Saoirse, Thomas, my mum, Marion, and my mother in law, Mary. Also, special mention must go to
Chris and Bonnie, Margaret, Joe and Cathie, Liam, John and Christine, Patrick, and Quentin and Julie.

Finally, to Mary-Jo, my inspiration.

page xxii

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page xxiii
page xxiv
 page 1

PART 1

Overview
You are at the beginning of a long but exceptionally rewarding journey. In this book, you
will come to understand the decisions financial managers make in their day-to-day
activities and take a large step forward towards being able to make these decisions
yourself. Corporate finance is at the heart of all business activity. Whether you are in
Marketing, Human Resources, Strategy or Communications; whether you are an
entrepreneur setting up a new business, or an engineer or scientist trying to understand how
companies invest in new projects; this book will give you that necessary insight to be a full
member of the team that makes decisions to increase the value of your company.

In this first part of the book, we introduce you to the basic building blocks of corporate
finance. Look on this section as the necessary overview of terms and concepts that form the
foundations of the material covered later in the text. Key terminology and concepts will be
explained and you will appreciate what is actually meant by the title of the book,
‘Corporate Finance’. You will also come to appreciate why companies place financial
management at the core of their business, and the differences between the fields of
Accounting and Finance. Companies don’t operate in a bubble, so we must also discuss the
international environment in which businesses raise cash for their operations and do their
business.

Ultimately, the decisions that financial managers make must be acceptable to the owners of
the firm. However, the intuitive sense of this statement is not necessarily experienced in
practice. In many companies across the world, managers prioritize their own welfare and
personal earnings over that of the firm. In Chapter 2, we discuss in detail how to structure
the leadership of a company so that managers are more likely to maximize firm value and
make the best financial decisions. This is discussed in an international context so that the
cultural variations which exist across countries can be fully understood.
 page 2

CHAPTER

Introduction to Corporate
Finance

The last 10 years have led to a completely new understanding of Corporate Finance. Many
established truths that existed prior to the global financial crisis of 2007 are now fiercely debated.
A common question is ‘Are financial markets rational?’
Classic corporate finance is based on the premise that all decisions are rational and those who
make financial decisions are also rational. Once we drop this fundamental axiom, many financial
theories become much harder to prove. In fact, when we no longer expect decision-makers to be
rational, many observed ‘financial anomalies’ can be easily explained.
Another massive change in finance is the widespread recognition that financial decisions should
not ignore ethics and the wider non-financial impact of those decisions. Even today, with lessons
apparently learned from the 2007 financial crisis, we still see misreporting, corporate fraud,
excessive risk taking, and poor capital expenditure decisions. Fortunately, this has been accompanied
by a concomitant increase in shareholder activism, especially from financial institutions that have
become exceptionally vocal in their criticisms of corporate management when bad decisions are
made.
Another change in finance is the integrated nature of global business, which has become a norm for
every company. The international financial environment is now so central to business decision-
making that any course on Finance must give consideration to the dynamics of currency movements,
geopolitical risk and economics. Financial risk management is an area that has consequently come to
the fore as a result of these changes, and it will remain essential for years to come.
Finally, the role of the corporate executive has also changed. Irrespective of his or her background
(Marketing, Strategy, Human Resources, Consulting, etc.), today’s managers must be fully loaded with
financial tools to enable them to cope with the fast changing economic environment in which their
companies operate. The corporate executive must be an entrepreneur who not only understands risk
but also knows how to use it to his or her advantage. More than that, the executive must be willing
and have the confidence to implement investment and financing decisions that fully incorporate risky
Another random document with
no related content on Scribd:
The Project Gutenberg eBook of Our Christmas
party
This ebook is for the use of anyone anywhere in the United
States and most other parts of the world at no cost and with
almost no restrictions whatsoever. You may copy it, give it away
or re-use it under the terms of the Project Gutenberg License
included with this ebook or online at www.gutenberg.org. If you
are not located in the United States, you will have to check the
laws of the country where you are located before using this
eBook.

Title: Our Christmas party

Author: Edwin Hodder

Release date: January 4, 2024 [eBook #72621]

Language: English

Original publication: London: Jackson, Walford, & Hodder, 1867

Credits: Charlene Taylor and the Online Distributed

Proofreading Team at https://www.pgdp.net (This file
was produced from images generously made available
by The University of Florida, The Internet
Archive/Children's Library)

*** START OF THE PROJECT GUTENBERG EBOOK OUR

CHRISTMAS PARTY ***
 OUR CHRISTMAS PARTY.

BY

Old Merry,
Author of “A Chat with the Boys on New Year’s Eve;” “Fireside Chats with the
Youngsters;” Editor of “Merry and Wise,” &c.

London:
JACKSON, WALFORD, & HODDER,
27, PATERNOSTER ROW.
MDCCCLXVII.

LONDON:
UNWIN BROTHERS, GRESHAM STEAM PRESS,
BUCKLERSBURY, E.C.
 Contents.
PAGE
Preparations 1
The Party 3
The Meandering Musician 9
Great Reform Debate and Demonstration 21
Round the Fire after Supper 32
Frozen up. W. H. G. Kingston 35
A Rescue in the Rocky Mountains. R. M. Ballantyne 60
Lost and Found. Edwin Hodder 74
Castle Connor. Mona B. Bickerstaffe 87
The Black Dragoon. Sidney Daryl 97
A Christmas Dinner at Dr. Lickemwell’s. R. Hope Moncrieff 112
A Wild Yule E’en. Cyntha 129
Conclusion 144
Old Merry’s Christmas Party.

PREPARATIONS.
“Rebecca, I am going to give a party to some young folks on
Christmas Eve, and so you must hold yourself in readiness for the
occasion.”
Rebecca is my housekeeper, the best-hearted old soul that ever
lived; she perfectly agrees with my arrangements in the main, but
feels bound, for some reason which I have never attempted to
fathom, invariably to object to them at the first start, and then to fall
into them enthusiastically afterwards.
“Lor a mussy, Sir! them parties—”
I must here say that Rebecca despises the English Grammar; next
to Baron Munchausen, who she somewhat irreverently calls the
“father of lies,” she objects to Lindley Murray.
It was not very often that she was really “put out” about anything,
but when she was her grammar was much worse than at other
times. Just as when a foreigner, who has lived in England for years,
and knows the language perfectly, gets into a rage, he instinctively
falls back upon his native tongue for expression.
“Lor a mussy, Sir! them parties,” said Rebecca, “is a getting too
much of a good thing, if I may make so bold as to say it. It’s always
parties at this time of the year. You’ll excuse me a mentioning of it,
Mr. Merry,” she continued, “but if I might make so bold again, I
should say why don’t you keep a school, or a sylum, or a hinn, and
so you could have the young people, as you call ’em, always about
you?”
Now you must not think that this was an expression of Rebecca’s
real state of feeling, nor that I was in the least degree alarmed or
vexed at the light in which she viewed my proposition. Faithful old
servants, who have lived in one’s family for a generation or so, do
get queer whims, and contract habits which could not be tolerated in
upstart new comers. Rebecca never gives way to an explosion like
this if anybody else is present, and I have two or three alternatives
always in reserve for pacifying her.
Not wishing to use any of the alternatives on the occasion in
question, I merely said—
“Christmas only comes once a year, Rebecca, and I mean, as long
as I have health and strength, to keep up the good old custom of
giving Christmas parties, and I look to you to carry out the
arrangements this year in the same admirable way you have done
on so many previous occasions.” If Rebecca could have blushed, I
believe she would have done so at this compliment, but her blushing
days have gone by, so she dropped a mild curtsey, and said, “It
shouldn’t be her fault, please ’eving, that should prevent this party
being the best we had ever given.”
So a council of war was held on the spot. Amelia and the cook
were summoned, paper and pencil were called into requisition, and if
a newspaper reporter, or a secretary of a society, had been present,
a summary of the proceedings would have been given in something
like the following style:—
Moved by Mr. Merry, and seconded by Rebecca—
“That the invitations be issued for six o’clock on Christmas Eve,
and that tea be served up in the breakfast room.”—Carried.
Moved by Rebecca, and seconded by Mr. Merry—
“That, in the opinion of this meeting, it is desirable and advisable
that the fun of the evening should take place in the drawing room;
that supper should be laid in the breakfast room; that the dining room
be completely divested of furniture, to allow plenty of room for
dancing, and that the spare bedroom be appropriated for the
necessary costuming required by those who take part in the
charades.”—Carried unanimously.
Moved by the cook, and seconded by Amelia—
“That if false moustachios are required by those who take part in
the charades, young gentlemen be prohibited from using the kitchen
fire for burning the corks necessary for that purpose.”
Moved by Amelia, and seconded by the cook—
“That it is desirable to lock the cupboard in which the gas metre is
kept, and hide the key, as on a previous occasion much
inconvenience was sustained in consequence of one of the visitors
having turned off the gas.”
Moved by Mr. Merry, and seconded by Rebecca—
“That this meeting stands pledged to do its best to make the party
thoroughly pleasant and successful, and that all further
arrangements be left to a sub-committee, to consist of Mr. Merry”—
Carried unanimously.
A vote of thanks having been passed to the Chairman for his
manly and impartial conduct in the chair, the meeting broke up amid
a general feeling of satisfaction.
 THE PARTY.
The clock was yet warm with its vigorous efforts to strike the eventful
hour of six on merry Christmas Eve, when a carriage containing the first
arrivals came rattling down the street. There was no mistaking the
energetic rat-tat-tat at the door; or, if there had been, the buzz of voices
was sufficient to inform those inside that Charlie Stanley and his party
were there. As soon as the door was open there was a rush and a
scramble, for those mad young people had made many rash stakes as to
who should be the first to wish Old Merry the compliments of the season.
All stakes, however, were drawn, for the object of their search was
discovered simultaneously by all the party; discovered, too, in the act of
coming down the stairs, with his frill shirt, bald head, and pumps,
glistening in the light of the hall lamps, and a chorus of voices rang out
the welcome old salutation—“A merry Christmas and a happy New
Year!”
Charlie and Walter Stanley, and Alec Boyce—the lads who went one
summer with Old Merry to Switzerland—had been entrusted with the
preparation of part of the evening’s amusement. They were constituted
masters of the ceremonies, and had been charged to bottle up all their
fun for at least two days before the party, in order that it might explode
and scintillate for the benefit of the company. So, as a host of packages
were put down in the hall, Charlie said—
“Here are our properties, Mr. Merry—wigs, crinolines, whiskers, royal
robes, banners from the camp of King John, feathers from the chief of
the Mohawks, diamonds lent privately by the secretary of Sinbad the
Sailor, the shield of Achilles, kindly contributed by Mr. Barnum; and here
—”
But here he stopped, for the rattle of horses’ feet outside, and a sharp
rap at the door, announced fresh arrivals. Charlie was in a dramatic
humour, so, striking an attitude, he cried—

“By the pricking of my thumbs,

Something wicked this way comes;
 Open, locks, whoever knocks.

And, guards, what ho! bear hence our treasures to some secret place.”
“Such a getting up-stairs you never did see,” as in a twinkling the
impromptu guards obeyed the mandate of their chief.
Tom and Ada Martin, and the fiddle, were the next to arrive. The fiddle
was Tom’s; his special hobby. No party was complete without it, for if it
were not there neither was Tom. His motto was, “Love me, love my
fiddle.” A merry fellow was Tom; he could sing and play, and the proudest
moments in Ada’s life were when she accompanied him in a solo on his
violin. Moreover, he wrote poetry (?), rattling, merry ditties, that broke out
into exuberant choruses of

And it’s heigh, ho, hum,

With a tum, tum, tum,
Fal lal de riddle ho, tum, tum, tum!

Ada Martin was Tom Martin in the feminine; she had all the boy’s
humour, with the girl’s grace and refinement. Everybody who knew her
knew that she could tell them the last new game, or ask the last new
riddle; and if at a party the fun came to a standstill, and somebody asked
“What shall we do next?” the reply would be sure to come in the shape of
a question, “Where’s Ada Martin?” Ada rejoiced in long curls,
treacherous curls, that had made many a lad fall in love with her; in fact,
Frank Edwards was once heard to say that he should like to win her
heart by gallantly rescuing her from the power of some grim tyrant; or,
“Better still,” said he, “if she would fall into the sea off the pier at Margate,
and I could jump in and save her by catching hold of her beautiful curls, it
would be so jolly!”
Frank Edwards! The next rat-tat announced him and his sister, “Little
Flo,” as he called her at home, though in company she was Florence.
Frank was very fond of his sister; he had a weakness for hair, as we
have seen, and hers descended like a cataract, or, as Frank said, like a
Great Flow, over her neck and shoulders. A bright, merry little fairy was
Florence Edwards, and a very popular young lady. Alec Boyce was
nearly on the point of fighting a duel with Walter Stanley one snowy
night, when it was proposed at a party that she should be carried to the
carriage, and it became a question as to who should do it. Fortunately,
however, no blood was spilt, for the boys clasped hands, and carried her
sedan-fashion; and as she had to put an arm over each shoulder, in
order to steady herself, what could be fairer?
Elasticity runs in some families, as gout does in others, and the
Edwards’ were elastic people. Frank could turn himself into a catherine
wheel, imitate Donato on one leg, dance a hornpipe, or stand on his
head and fire off sham pistols with both hands at once; and as his talent
was quite distinct from that of the musical Tom Martin, or the dramatic
Charlie Stanley, he enjoyed a popularity as great in its way as theirs.
Rat-tat-tat!
The Misses Clara and Alice Stanley, with their music.
Mr. Stanley, with his microscopes.
Miss Marianne Layton, with her doll—white tulle, looped up with
spangles.
Mr. Oswald Layton (his first appearance in stand-up collars.)
The Misses Emily and Nelly Cathcart (with their bran new dolls—blue
tarleton, looped with snowdrops).
Master Willie Cathcart, with his dog Leo, who barks for lumps of sugar.
Mr. Cathcart, with a prodigious white vest and a black bâton, “as
leader of the choir.”
Rat-tat-tat!
Misses and Masters, Misters and Mistresses, ad lib., ad infin.
Tea and coffee at six o’clock—and why that should mean from half-
past six to seven, custom must reply—is much better than tea at six
o’clock. A sit-down tea is a mistake; it tries the temperament, terrifies the
timid, and taxes the talkers, whereas tea and coffee implies wandering
about with a cup in your hand, and spilling it as occasion requires; it
makes work for the lads and pleasure for the lassies, and it breaks the
ice between strangers. Little groups form and chat, and when a joke has
taken with effect, it is passed on to a neighbouring group, and so all the
company gets jocular. For instance, Tom Martin was surrounded by his
favourites, and was replying to their questions as to how his violin had
stood the cold journey.
 “Delightfully. But she is now reclining on the couch up-stairs, in order
to get up her strength for the evening.”
“That’s all fiddle de dee, said one.” (Applause.)
“Why do you call the violin she?” asked another.
“Because I have named her Pysche; she has so much life in her,”
answered Tom.
“You are her sycophant, then!” said another. (Renewed applause.)
“It seems to me your violin always has a very guttural sound with it,”
remarked Alec Boyce. (Laughter.)
“Yes,” replied Tom Martin; “and no doubt the poet detected the same
thing in other instruments, when he composed those time-honoured lines
—

“Hey diddle diddle,

The cat and the fiddle.”

Then the applause reached its climax, and of course the little jokes
were retailed to other groups.
By degrees the company in the tea-room began to decrease. In the
cold months, however temperate the atmosphere may be kept, there is
always a chilliness in passing from one room to another, and especially
at parties. When, therefore, the drawing-room began to fill, Charlie
started a proposition—“Had we not better have a dance to warm us?”
and he added, “It used to be the fashion to terminate a concert with God
save the Queen; and now the National Anthem comes first, and it used
to be the fashion to wind up a party with Sir Roger de Coverley, but why
should we not begin with it?” Of course nobody knew of any just cause
or impediment, and so the proposition was carried without a dissentient
voice.
Who can describe a party from beginning to end? It would fill a large
book to criticise all the songs and other performances, to chronicle all the
jokes, and to tell again all the tales. And how tame on paper are the little
stories which are told during a quadrille, when the introduction is given in
La Pantelon, and the plot commences at L’Ete, and the incidents
increase in interest till Trenise, and the dénouement is galloped over in
the Finale. Well, suffice it to say the fun kept up unflaggingly, and as the
evening advanced, and everybody was in high spirits, Charlie Stanley
collected his “troupe,” and began to make preparations for a charade.
While the folding doors were closed for the scenery to be placed in one
room, and while the seats were being adjusted in the other, the actors in
the charade were in the great excitement of dressing for their parts. The
boys had prepared the performances for the evening beforehand, and
supplied copies to all who were to appear in the scenes; and, as Charlie
was good enough to present Old Merry with complete copies, we will
give them for the benefit of our readers, with the condition on which they
were given to us, namely, that they should not be too severely criticised
from a literary point of view.
A brief overture on the piano, and then Charlie came to the front of the
folding doors, and said:—
“Ladies and Gentlemen, I beg to announce that we are about to act a
burlesque charade, and you will be good enough to try and find out our
word. It is in three syllables; the first act will give two syllables used as
one word, the second act will give the remaining syllable, and the third
act will bring in the whole word. The charade is entitled—

THE MEANDERING MUSICIAN;

or,
The Vitch!! The Vow!! and the Voucher!!
And will be supported by the following powerful cast:—

Berlinda The “star” of the Miss Ada Martin.

evening
Roderigo Pipkins The meandering Master Tom Martin.
musician, in
love with
Berlinda
Banquo Belvidere A Rival Master Frank Edwards.
Theophilus Balderdash Another Rival Master Alec Boyce.
Mrs. Thompson The Witch Miss Florence Edwards.
Berlinda’s Pa The Stern Master Walter Stanley.
Parient
 Alonzo Napoleon Smith An American Master Charlie Stanley.
Showman
Police, peasants, wax figures, perambulators, &c. &c.

A burst of applause followed the announcement, and was renewed

when the doors were thrown open and Berlinda was discovered leaning
out of a window overlooking the room, with a candle burning by her side
to assist her in viewing the stars, on which she was supposed to be
gazing.

Berlinda (in a rhapsody addressing the stars).

O! beaming beauties of the broad and boundless abyss,

Whose whirling worlds seem wondrously whiter than is this.
O! vision! vast and various to my view,
Ye stars, which shine “because you’ve nothing else to do.”
I gaze upon your splendours, so superbly spacious—
Good gracious!
A minstrel wanders forth. I’ll quench the light
And hear his music on the airs of night.

(Puts out the candle.)

Enter Roderigo.

I see her! I see her! I see her at the winder,

It is! my beating heart! it is Berlinda!
Come forth, my lute! ye muses, up above,
Smile while it thus amuses her I love!

(Cats are heard on the tiles in chorus.)

O, rapture! ’tis Berlinda’s voice I hear,

Those strains are hers—alas! I feel so queer—
Courage, faint heart! thy mistress thou must please,
Pour forth thy lays upon the lazy breeze.

(Tunes his violin and sings to the air of “Beautiful Star.”)

Loverly girl, on yonder height,

 Sweeter than the (h)owls of night,
Hear thy fond one’s voice to you
Genteely asking, How do you do?
How do you do-oo!

Chanticleer in the distance. Cock-a-doodle-do-oo!

Chorus of Rivals. How do you do-oo?

Lovely Berlinda, how do you do?

Roder. Ha! there are rivals—such arrivals much I fear—

Hist! they are coming, my idea is to hide here.

(Hides.)

Enter Banquo Belvidere. (Anxiously gazes round and then

addresses the window.)

Berlinda! art thou there, my own Berlinda?

My heart is hot with love—a very cinder—
Alas! she’s gone to bed, she cannot hear,
And I shall go to Bedlam soon I fear.
I place these flowers on the sill within thy reach,
They’re better, p’raps, than silly flowers of speech.

(Exit.)

Roderigo (comes forth and takes the flowers).

A sweet expression of my love, but not a dear one.

What, another rival? Yes, I think I hear one.

(Hides.)

Enter Theophilus Balderdash (with a cold in the

head—sneezes violently during his speech).

This is a scene indeed to foster love,

Brick walls around and chimney-pots above;
Yon chanticleer the guardian bird is,
To join his voice with distant hurdy-gurdies.
 All speaks of love, and shall my voice be still?
Nay, perish! Balderdash, an if you will,
But speak!
Addressing the window— Berlinda, dearest;
If walls have ears, surely thou hearest;
Hearest thy lover, though his tones be hoarse,
Hearest by means of love’s detective force,
Warm at the heart, though with a cold i’ the head—

(Sneezes.)

(Aside.) (By Jove, I really ought to be in bed.)

Accept my love, resist it not, be not so cruel—

(Sneezes again.)

(Aside.) (I really must go in for something strong, and gruel.)

I leave this billet-do. Read, loved one, its contents;

(Aside.) (And I’ll go home and seek my night habillements.)

(Exit.)

Enter Roderigo.

A notability, as I’d ability to note. But see,

A witch! a fortune-teller comes! O, criminy!
I’ll bribe the hag to gain Berlinda’s bower,
And then I’ll carry off my love within the hour.
Enter Witch. What ho! midnight marauder.

Roderigo (in a whisper, taking her aside).

Order!
Let’s have no rows that may arouse my bride;
Go you and coax the fair one to my side;
Bid her to fly with me, her lover and her lord,
And you shall have this note[1] as your reward.

Witch (raps at window and Berlinda appears).

 Listen, Berlinda. The stars declare thy destiny is set,
Act now, ’tis well, forbear and you’ll regret.
Thy lover waits to bear thee hence—Away!

Berlinda. Good woman, I have many lovers; say,

Is it Roderigo Pipkins who is near?

Roderigo. I am here!

Berlinda. Bless you, dear! Now help me down and fly!

The sun will soon be mounting up the sky.
Farewell, my home! farewell, my pa and ma!
Accept my last adieu. Ta, ta!

(Roderigo carries her off the stage.)

[1] T. Balderdash’s.

ACT II.
Scene—a wood. Berlinda and Roderigo seated on the ground.

Ber. Alas! I’m hungry, love can’t support itself on air.

Rod. I’m much more hungry; think how much I’ve had to bear.

Ber. Monster! is it for this I left my frugal home in haste,

To fly with you and see this dreadful waste.
Where is our home? where do you mean to go?

Rod. Upon my word, Berlinda, I don’t know;

I think we’ll pic-nic, drink the morning dew,
And eat the berries,—see, I’ve got a few,—
And then we’ll take a quiet stroll to search
For parson, marriage lines, and church,
And then live happy ever after. What d’ye say?

Ber. Why, most emphatically, nay!

I call this treatment shameful, sinful, flagrant—
Rod. Come, come Berlinda, let me have no vague rant;
You wander in your speech. What is’t you need?

Ber. My breakfast! oh, I’m dying for a feed.

Rod. I would I were a bird, and then I might your favour win;
Alas, I can but offer you some scrapings from my violin.

Berlinda bursts into a passionate flood of tears, and

Roderigo
plays pathetically “Home, sweet home.” By-and-by the sound
of voices and the tramp of feet are heard in the distance.

Ber. O! Roderigo, we’re pursued! they’re armed! what shall we do?

Rod. When they’ve mustered, we shall both get peppered, we are in a

stew.
Is’t meet that we should wait, or shall we fly?

Ber. I would I were a bird!

Rod. And so do I.
But, see, your father comes—his passion’s at a pitch,
And he is followed by the rivals; and the witch—

Ber. Which it is. O! goodness, what will now become of me?

I’ll climb—but no, they’ll think I’m “up a tree.”
They come. Down, Roderigo; down upon your knees.

Rod. It’s not an easy place, but anything to please.

(Enter Infuriated Parient, Rivals, Witch, Policeman, and a

Perambulator.)

Berlinda’s Pa. Rogue! villain! rascal! Lend me your ears

That I may pierce them with my taunts and jeers.
I come to claim my daughter you have borne away.

Rod. (aside.) ’Twere better she had not been born, I say.

Ber. Pa. And you shall answer for this day’s affray.
Rod. I’m much afraid I shall; but pray be calm.
My hand upon it—I would never do her harm.

Ber. Pa. Silence, base rogue! My friends, the time is fleeting,

I think we’d better now prorogue this meeting.

Riv. Not till we’ve fought, and thus expressed our hate.

Rod. Good Sirs, I deem that I am fortunate.

I’ll fight you on the morrow—not to-day.
Excuse me if I’m acting in a sordid way;
But—

Ber. Pa. Ho! guards, bring forth the prison van, and bear her hence.

(They carry Berlinda to the perambulator—en route she

says:)

Dear Roderigo, dreadful is suspense;

But write to me, prepaid, and when you see your way
All clear, be good enough to name the day.

Rod. (weeping.) Farewell, Berlinda, fairest of the fair!

Ber. Good-bye, cheer up, old chap, and take that ere (hair).

(Door closes while Roderigo kisses the ringlet flung to him by

Berlinda from the perambulator.)

ACT III.
Before the doors are open a servant in livery enters the room, in which
the company are seated, and puts up a placard with the following notice:
—

“GREAT ATTRACTION FOR ONE NIGHT ONLY!!

Mr. Alonzo Napoleon Smith, of the Boundless Prairie, America,
begs to announce that he will exhibit his unrivalled