ADVANCED GRADUATE FINANCE: From First Principles to the Financing of Firm

This book is a course in finance written to be read from first principles: no step in any derivation is omitted, no result is invoked before it is earned, and the reader who begins at Chapter 1 owing the subject nothing will end at Chapter 23 owing it only attention. It is built in five Parts. The first four lay the foundation - the nature of value, time, money, risk, and the claims of debt and equity; the mathematics of finance; the language of accounting and the reading of financial statements; and the theory and practice of valuation, the four roads by which a firm is priced. The fifth builds upon that foundation the theory of the firm's own financing: the Modigliani-Miller propositions that establish when capital structure cannot matter, and the four frictions - taxes, distress, agency, and information - whose admission, one at a time, is the whole of why it does. Certain threads run the whole length of the book and are worth naming at the door. The half-variance σ²/2 appears in Chapter 2 as the drag on compound growth, reverses its sign in Chapter 20 to become the wellspring of option value, and returns in Chapter 23 as the very quantity distressed shareholders covet when they gamble with the lender's money. The law of one price, planted in Chapter 1, disciplines every valuation of Part IV and proves the Modigliani-Miller propositions by homemade leverage. And the discipline of estimation - that value is estimated, never measured, and held always with a margin of safety - governs every number the book produces. Finance, the book argues by demonstration, is a small number of deep principles endlessly applied. The conventions are uniform throughout. Every chapter opens on a presentation page bearing its number and name, then begins with a single italic sentence - an epigraph in the old style, 'in which...' - that promises what the chapter will deliver, and closes with a paragraph, 'The compass, consulted', that verifies the promise kept. Every figure is the author's own. Every chapter ends in graded exercises, from basic to research level, each with a complete worked solution; and the keystroke boxes for the HP 30b Business Professional accompany the arithmetic throughout, for the reader who would follow every number by hand. References are given in the style of the American Psychological Association. The reader is addressed not as a passive recipient but as a fellow inquirer, and invited to derive, to doubt, and to check. Finance rewards the sceptic who reasons over the believer who accepts, and this book is written for the former. R. M. M., Edinburgh, 2026 Front Matter i