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ideas are discussed first in very general terms and then by way of examples that illustrate in
more concrete terms how a financial manager might proceed in a given situation.

A Unified Valuation Approach We treat net present value (NPV) as the basic concept
underlying corporate finance. Many texts stop well short of consistently integrating this
important principle. The most basic and important notion, that NPV represents the excess
of market value over cost, often is lost in an overly mechanical approach that emphasizes
computation at the expense of comprehension. In contrast, every subject we cover is firmly
rooted in valuation, and care is taken throughout to explain how particular decisions have
valuation effects.

A Managerial Focus Students shouldn’t lose sight of the fact that financial manage-
ment concerns management. We emphasize the role of the financial manager as decision
maker, and we stress the need for managerial input and judgment. We consciously avoid
“black box” approaches to finance, and, where appropriate, the approximate, pragmatic
nature of financial analysis is made explicit, possible pitfalls are described, and limitations
are discussed.
Today, as we prepare to once again enter the market, our goal is to stick with and build
on the principles that have brought us this far. However, based on an enormous amount of
feedback we have received from you and your colleagues, we have made this edition and
its package even more flexible than previous editions. We offer flexibility in coverage and
pedagogy by providing a wide variety of features in the book to help students learn about
corporate finance. We also provide flexibility in package options by offering the most ex-
tensive collection of teaching, learning, and technology aids of any corporate finance text.
Whether you use just the textbook, or the book in conjunction with other products, we
believe you will find a combination with this edition that will meet your current as well as
your changing needs.
Stephen A. Ross
Randolph W. Westerfield
Bradford D. Jordan

vii
 Organization of the Text
W e designed Essentials of Corporate Finance to be as flexible and modular as pos-
sible. There are a total of nine parts, and, in broad terms, the instructor is free to
decide the particular sequence. Further, within each part, the first chapter generally con-
tains an overview and survey. Thus, when time is limited, subsequent chapters can be omit-
ted. Finally, the sections placed early in each chapter are generally the most important, and
later sections frequently can be omitted without loss of continuity. For these reasons, the
instructor has great control over the topics covered, the sequence in which they are covered,
and the depth of coverage.
Just to get an idea of the breadth of coverage in the eighth edition of Essentials, the
following grid presents for each chapter some of the most significant new features, as well
as a few selected chapter highlights. Of course, in every chapter, figures, opening vignettes,
boxed features, and in-chapter illustrations and examples using real companies have been
thoroughly updated as well. In addition, the end-of-chapter material has been completely
revised.

Chapters Selected Topics Benefits to Users

PART ONE Overview of Financial Management
Chapter 1 Updated opener on “Say on Pay.” Highlights important development regarding the
very current question of appropriate executive
compensation.
Updated corporate ethics box. Describes ethical issues in the context of recent insider
trading scandals.
Goal of the firm and agency problems. Stresses value creation as the most fundamental aspect
of management and describes agency issues that can
arise.
Ethics, financial management, and Brings in real-world issues concerning conflicts of
executive compensation. interest and current controversies surrounding ethical
conduct and management pay.

PART TWO Understanding Financial Statements and Cash Flow

Chapter 2 Cash flow vs. earnings. Clearly defines cash flow and spells out the differences
between cash flow and earnings.
Market values vs. book values. Emphasizes the relevance of market values over book
values.
New box on tax rates. Discusses controversy surrounding tax rates paid by
Warren Buffett, Greg Mankiw, and Mitt Romney.

viii
Chapters Selected Topics Benefits to Users
Chapter 3 Additional explanation of alternative Expanded explanation of growth rate formulas clears up
formulas for sustainable and internal a common misunderstanding about these formulas and
growth rates. the circumstances under which alternative formulas are
correct.
New ratio discussion. Introduces and discusses the EBITDA/enterprise
value ratio.

PART THREE Valuation of Future Cash Flows

Chapter 4 First of two chapters on time value of Relatively short chapter introduces just the basic ideas
money. on time value of money to get students started on this
traditionally difficult topic.
Chapter 5 Second of two chapters on time value Covers more advanced time value topics with numerous
of money. examples, calculator tips, and Excel spreadsheet
exhibits. Contains many real-world examples.

PART FOUR Valuing Stocks and Bonds

Chapter 6 New opener on bond ratings. Discusses the downgrade of U.S. Treasury debt from
AAA to AA.
Bond valuation. Thorough coverage of bond price/yield concepts.
Interest rates and inflation. Highly intuitive discussion of inflation, the Fisher effect,
and the term structure of interest rates.
“Clean” vs. “dirty” bond prices and Clears up the pricing of bonds between coupon
accrued interest. payment dates and also bond market quoting
conventions.
FINRA’s TRACE system and Up-to-date discussion of new developments in fixed
transparency in the corporate income with regard to price, volume, and transactions
bond market. reporting.
“Make-whole” call provisions. Up-to-date discussion of relatively new type of call
provision that has become very common.
Chapter 7 Stock valuation. Thorough coverage of constant and nonconstant growth
models.
New section on stock valuation. Covers valuation using multiples.
NYSE and Nasdaq Market operations. Up-to-date description of major stock market
operations.

PART FIVE Capital Budgeting

Chapter 8 Updated opener on GE’s Illustrates the growing importance of “green” business.
“Ecomagination” program.
First of two chapters on capital Relatively short chapter introduces key ideas on an
budgeting. intuitive level to help students with this traditionally
difficult topic.
NPV, IRR, MIRR, payback, Consistent, balanced examination of advantages and
discounted payback, accounting rate disadvantages of various criteria.
of return.
Chapter 9 Project cash flow. Thorough coverage of project cash flows and the relevant
numbers for a project analysis.
Scenario and sensitivity “what-if” Illustrates how to actually apply and interpret these tools
analyses. in a project analysis.

ix
 Chapters Selected Topics Benefits to Users

PART SIX Risk and Return

Chapter 10 New material on the 2008–2011 Discusses the dramatic collapse and equally dramatic
period. rebound in equity prices over this period.
Capital market history. Extensive coverage of historical returns, volatilities, and
risk premiums.
Market efficiency. Efficient markets hypothesis discussed along with
common misconceptions.
Geometric vs. arithmetic returns. Discusses calculation and interpretation of geometric
returns. Clarifies common misconceptions regarding
appropriate use of arithmetic vs. geometric average
returns.
Chapter 11 Diversification, systematic, and Illustrates basics of risk and return in a straightforward
unsystematic risk. fashion.
Beta and the security market line. Develops the security market line with an intuitive
approach that bypasses much of the usual portfolio
theory and statistics.

PART SEVEN Long-Term Financing

Chapter 12 Cost of capital estimation. Intuitive development of the WACC and a complete,
web-based illustration of cost of capital for a real
company.
Geometric vs. arithmetic growth rates. Both approaches are used in practice. Clears up issues
surrounding growth rate estimates.

Chapter 13 Basics of financial leverage. Illustrates effect of leverage on risk and return.
Optimal capital structure. Describes the basic trade-offs leading to an optimal
capital structure.
Financial distress and bankruptcy. Briefly surveys the bankruptcy process.
Chapter 14 Updated to reflect latest research on Brings students the latest thinking and evidence
dividend policy. on dividend policy and also the results of a natural
experiment—the 2003 dividend tax cut.
Dividends and dividend policy. Describes dividend payments and the factors
favoring higher and lower payout policies.
Includes recent survey results on setting dividend
policy.
Chapter 15 IPO valuation. Extensive, up-to-date discussion of IPOs,
including the 1999–2000 period and the recent
Facebook IPO.
Dutch auctions. Explains uniform price (“Dutch”) auctions using Google
IPO as an example.
New coverage on the “partial Explains the well-known relation between
adjustment” phenomenon. IPO underpricing and offer prices relative to file
ranges.

PART EIGHT Short-Term Financial Management

Chapter 16 Operating and cash cycles. Stresses the importance of cash flow timing.
Short-term financial planning. Illustrates creation of cash budgets and potential need
for financing.

x
Chapters Selected Topics Benefits to Users
Chapter 17 Cash collection and disbursement. Examination of systems used by firms to handle cash
inflows and outflows.
Credit management. Analysis of credit policy and implementation.
Inventory management. Brief overview of important inventory concepts.

PART NINE Topics in Business Finance

Chapter 18 Foreign exchange. Covers essentials of exchange rates and their
determination.
International capital budgeting. Shows how to adapt the basic DCF approach to handle
exchange rates.
Exchange rate and political risk. Discusses hedging and issues surrounding sovereign risk.

xi
 Learning Solutions
I n addition to illustrating relevant concepts and presenting up-to-date coverage, Essen-
tials of Corporate Finance strives to present the material in a way that makes it engag-
ing and easy to understand. To meet the varied needs of the intended audience, Essentials
of Corporate Finance is rich in valuable learning tools and support.
Each feature can be categorized by the benefit to the student:
■ Real financial decisions
■ Application tools
■ Study aids

REAL FINANCIAL DECISIONS

We have included two key features that help students connect chapter concepts to how
decision makers use this material in the real world.

PART FO U R Valuing Stocks and Bonds

6 Interest Rates and

Bond Valuation
CHAPTER-OPENING VIGNETTES
Each chapter begins with a contemporary
I
n modern history, about the safest investment available has

been U.S. Treasury bonds. And low risk meant that U.S. Treasury
real-world event to introduce students to learning objectives bonds paid a lower return, or “yield,” than other bonds. However,
chapter concepts. After studying this chapter, you should
in February 2010, insurer Berkshire Hathaway issued bonds with a
be able to: lower promised yield than Treasury bonds. Berkshire Hathaway was

LO 1 Identify important bond features not alone: Proctor & Gamble, Johnson & Johnson, and Lowe’s all
and types of bonds. were able to sell bonds with lower promised yields.
LO 2 Describe bond values and why
So what happened? Apparently, the bond market was saying
they fluctuate.
LO 3 Discuss bond ratings and what that these four corporations had lower risk than the U.S. govern-
they mean. ment. In August 2011, credit rating agency S&P agreed when it
LO 4 Evaluate the impact of inflation on
lowered the credit rating on U.S. Treasury bonds from the vaunted
interest rates.
LO 5 Explain the term structure of AAA. Other countries had similar experiences. About the same time,
interest rates and the determinants Japan’s government debt was downgraded, and on a single day
of bond yields

For the latest

FINANCE M AT T ER S CHA PTER 4 Introduction to Valuation: The Time Value of Money news on the 111
topics covered
in this chapter,
scan here.

Collectibles as Investments?

I t used to be that trading in collectibles such as base-

ball cards, art, and old toys occurred mostly at auctions,
swap meets, and collectible shops, all of which were lim-
too bad, but nowhere near the return most people expect
from looking at the sales price.
Comic books have recently grown in popularity among
FINANCE MATTERS BOXES
ited to regional traffic. However, with the growing popularity
of online auctions such as eBay, trading in collectibles has
collectors. Spiderman, who first appeared in Amazing Fan-
tasy No. 15, is an extremely popular superhero. The comic
Most chapters include at least one
expanded to an international arena. The most visible form
of collectible is probably the baseball card, but Furbies,
book sold in August 1963 at a cover price of 12 cents. In
2011, a copy of this issue had mutated to a price of $1.1 mil-
Finance Matters box, which takes a
Beanie Babies, and Pokémon cards have been extremely
hot collectibles in the recent past. However, it’s not just fad
lion at auction, the first Marvel Comics superhero to hit the
million dollar mark. This seems like a very high return to
chapter issue and shows how it is being
items that spark interest from collectors; virtually anything the untrained eye, and indeed it is! Check for yourself that used right now in everyday financial de-
of sentimental value from days gone by is considered col- the return was about 39.65 percent per year.
lectible, and, more and more, collectibles are being viewed Stamp collecting (or philately) is a another popular ac- cision making.
as investments. tivity. Possibly the most desirable stamp in the world is the
Collectibles typically provide no cash flows until they Mauritius “Post Office” stamp, issued in 1847. One thousand
are sold, and condition and buyer sentiment are the major of the stamps were originally printed, and many were used
determinants of value. The rates of return have been amaz- on invitations by the wife of the Governor of Mauritius for a
ing at times, but care is needed in interpreting them. For ex- ball she was holding. Only 27 ofros34752_ch06_166-206.indd
the stamps are confirmed 166
to 12/11/12 5:42 PM

ample, in 2011, an 1855-S Indian Head gold $3 coin sold for remain in existence. In 2011, a blue two pence version of the
$1,322,500. While that looks like a whopping price increase stamp sold for £1,053,090 (about $1,645,000). Assuming two
to the untrained eye, check for yourself that the actual return pence is equal to two cents, see for yourself that this repre-
on the investment was only about 8.69 percent per year. Not sents an annual return of about 11.75 percent.

xii
CHAPTER CASES
Located at the end of most chapters, these cases focus on hy-
APPLICATION TOOLS
pothetical company situations that embody corporate finance
topics. Each case presents a new scenario, data, and a dilemma.
Because there is more than one way to
Several questions at the end of each case require students to
analyze and focus on all of the material they learned from the solve problems in corporate finance, we
chapters in that part. Great for homework or in-class exercises include many sections that encourage
and discussions! students to learn or brush up on
different problem-solving methods,
including financial calculator and Excel
CHAPTER CASE spreadsheet skills.
FINANCING S&S AIR’S EXPANSION
PLANS WITH A BOND ISSUE

M ark Sexton and Todd Story, the owners of S&S

Air, have decided to expand their operations.
They instructed their newly hired financial analyst,
Although Chris is aware of the bond features, he
is uncertain as to the costs and benefits of some fea-
tures, so he isn’t clear on how each feature would
Chris Guthrie, to enlist an underwriter to help sell $20 affect the coupon rate of the bond issue. You are Re-
www.m h h e . com/rw j

million in new 10-year bonds to finance construc- nata’s assistant, and she has asked you to prepare
tion. Chris has entered into discussions with Renata a memo to Chris describing the effect of each of the
Harper, an underwriter from the firm of Crowe & Mal- following bond features on the coupon rate of the
lard, about which bond features S&S Air should con- bond. She would also like you to list any advantages
sider and what coupon rate the issue will likely have. or disadvantages of each feature.

QUESTIONS

1. The security of the bond, that is, whether the 6. A make-whole call provision.
bond has collateral. 7. Any positive covenants. Also, discuss several pos-
2. The seniority of the bond. sible positive covenants S&S Air might consider.
3. The presence of a sinking fund. 8. Any negative covenants. Also, discuss several pos-
4. A call provision with specified call dates and call sible negative covenants S&S Air might consider.
prices. 9. A conversion feature (note that S&S Air is not a
5. A deferred call accompanying the above call publicly traded company).
provision. 10. A floating rate coupon.

WORK THE WEB

B ond quotes have become more available with the rise of the web. One site where you can find
current bond prices (from TRACE) is cxa.marketwatch.com/finra/BondCenter. We went to the
site and entered “Dell” for the well-known computer manufacturer. We found a total of 14 bond
issues outstanding. Below you will see the information we pulled up.

WORK THE WEB

These in-chapter boxes show students how
to research financial issues using the web and
how to use the information they find to make
ros34752_ch06_166-206.indd 206 12/11/12 5:42 PM

business decisions. All the Work the Web boxes

also include interactive follow-up
questions and exercises.

Most of the information is self-explanatory. The price and yield columns show the price and
yield to maturity of the issues based on their most recent sales. If you need more information
about a particular issue, clicking on it will give you more details such as coupon dates and call
dates.

Questions
1. Go to this website and find the last bond shown above. When was this bond issued?
What was the size of the bond issue? What were the yield to maturity and price when
the bond was issued?
2. When you search for Chevron bonds (CVX), you will find bonds for several com-
panies listed. Why do you think Chevron has bonds issued with different corporate
names?

Bond Price Reporting

To learn more about In 2002, transparency in the corporate bond market began to improve dramatically.
TRACE, visit Under new regulations, corporate bond dealers are now required to report trade informa-
EXPLANATORY WEB LINKS www.finra.org. tion through what is known as the Trade Reporting and Compliance Engine (TRACE). A
nearby Work the Web box shows how to get TRACE prices.
These web links are provided in the margins As we mentioned before, the U.S. Treasury market is the largest securities market in
the world. As with bond markets in general, it is an OTC market, so there is limited trans-
of the text. They are specifically selected to parency. However, unlike the situation with bond markets in general, trading in Treasury
issues, particularly recently issued ones, is very heavy. Each day, representative prices for
accompany text material and provide students outstanding Treasury issues are reported.
and instructors with a quick way to check for To purchase newly
issued corporate
Figure 6.3 shows a portion of the daily Treasury note and bond listings from The Wall
Street Journal online. The only difference between a Treasury note and a Treasury bond is
additional information using the Internet. bonds, go to
ros34752_ch06_166-206.indd
www.internotes.com.
that
189 notes have 10 years or less to maturity at the time of issuance. The entry that begins 12/11/12 5:42 PM
“05/15/2030” is highlighted. Reading from left to right, the “05/15/2030” tells us that the
bond’s maturity is May 15, 2030. The 6.250 is the bond’s coupon rate. Treasury bonds all
make semiannual payments and have a face value of $1,000, so this bond will pay $31.25
i th til it t
xiii
 14.1 Dividend Reinvestment Plans. Dividend reinvestment plans (DRIPs) permit
shareholders to automatically reinvest cash dividends in the company. To find out WHAT’S ON
WHAT’S ON THE WEB? more about DRIPs, go to www.fool.com and answer the following questions about
DRIPS. What are the advantages Motley Fool lists for DRIPs? What are the different
THE WEB?
These end-of-chapter activi- types of DRIPs? What is a direct purchase plan? How does a direct purchase plan
differ from a DRIP?
ties show students how to 14.2 Dividends. Go to www.earnings.com and find the list of dividends. How many
use and learn from the vast companies went “ex” today? What is the largest declared dividend? For the stocks
going “ex” today, what is the longest time until the payable date?
amount of financial resources 14.3 Stock Splits. Go to www.earnings.com and find the stock splits. How many
available on the Internet. stock splits are listed? How many are reverse splits? What is the largest split and the
largest reverse split in terms of shares? Pick a company and follow the link. What
type of information do you find?

How to Calculate Present Values with Multiple Future CALCULATOR CALCULATOR HINTS
Cash Flows Using a Financial Calculator HINTS
Calculator Hints is a self-
To calculate the present value of multiple cash flows with a financial calculator, we will simply discount
the individual cash flows one at a time using the same technique we used in our previous chapter, so contained section occurring
this is not really new. There is a shortcut, however, that we can show you. We will use the numbers in
Example 5.3 to illustrate.
in various chapters that first
To begin, of course, we first remember to clear out the calculator! Next, from Example 5.3, the introduces students to calcula-
first cash flow is $200 to be received in one year and the discount rate is 12 percent, so we do the
following:
ros34752_ch14_451-480.indd 479
tor basics and then illustrates 12/11/12 6:36 PM

Enter 1 12 200
how to solve problems with the
N I/ Y PMT PV FV calculator. Appendix D goes
Solve for 2178.57 into more detailed instructions
Now, you can write down this answer to save it, but that’s inefficient. All calculators have a memory by solving problems with two
where you can store numbers. Why not just save it there? Doing so cuts way down on mistakes be-
cause you don’t have to write down and/or rekey numbers, and it’s much faster. specific calculators.

EXCEL MASTER ICONS

Topics covered in the comprehensive Investing for a Single Period
ros34752_ch05_122-165.indd 129 12/11/12 5:33 PM
Suppose you were to invest $100 in a savings account that pays 10 percent interest per year.
Excel Master supplement (found on the How much would you have in one year? You would have $110. This $110 is equal to your
ExcelMaster original principal of $100 plus $10 in interest that you earn. We say that $110 is the future
Online Learning Center) are indicated by coverage online value of $100 invested for one year at 10 percent, and we simply mean that $100 today is
an icon in the margin

How to Calculate Present Values with Multiple Future Cash SPREADSHEET

Flows Using a Spreadsheet STRATEGIES
Just as we did in our previous chapter, we can set up a basic spreadsheet to calculate the present val-
ues of the individual cash flows as follows. Notice that we have simply calculated the present values
one at a time and added them up.

A B C D E F
1
2 Using a spreadsheet to value multiple cash flows
SPREADSHEET STRATEGIES 3
4 What is the present value of $200 in one year, $400 the next year, $600 the next year, and
The unique Spreadsheet Strategies fea- 5 $800 the last year if the discount rate is 12 percent?
6
ture is also in a self-contained section, 7 Rate: .12

showing students how to set up spread- 8

9 Year Cash flows Present values Formula used

sheets to solve problems—a vital part of 10 1 $200 $178.57 5PV($B$7, A10,0,-B10)

$318.88 5PV($B$7, A11,0,-B11)
11 2 $400
every business student’s education. 12
ros34752_ch04_097-121.indd 98
3 $600 $427.07 5PV($B$7, A12,0,-B12)
12/11/12 5:27 PM
13 4 $800 $508.41 5PV($B$7, A13,0,-B13)
14
15 Total PV: $1,432.93 5SUM(C10:C13)
16
17 Notice the negative signs inserted in the PV formulas. These just make the present values have
18 positive signs. Also, the discount rate in cell B7 is entered as $B$7 (an “absolute” reference)
19 because it is used over and over. We could have just entered “.12” instead, but our approach is
20 more flexible.
21
22

the discount rate is 6 percent? If the discount rate is 22 percent?

LO 1 3. Future Value and Multiple Cash Flows. Havana, Inc., has identified an
investment project with the following cash flows. If the discount rate is 8 percent,
SPREADSHEET TEMPLATES
what is the future value of these cash flows in Year 4? What is the future value at an
interest rate of 11 percent? At 24 percent? Indicated by an Excel icon next to applicable
end-of-chapter questions and problems, spread-
Year Cash Flow
sheet templates are available for selected
1 $ 1,075
2
3
1,235
1,510
problems on the Student Edition of the book’s
4 1,965
website, www.mhhe.com/rwj. For even more
spreadsheet examples, check out Excel Master,
LO 1 4. Calculating Annuity Present Values. An investment offers $6,700 per year
for 15 years, with the first payment occurring 1 year from now. If the required return
ros34752_ch05_122-165.indd 131 also available on the website. 12/11/12 5:33 PM
is 8 percent, what is the value of the investment? What would the value be if the

xiv
 STUDY AIDS
LEARNING OBJECTIVES learning objectives
Each chapter begins with a After studying this chapter, you should
number of learning objectives be able to: We want students to get the most from
that are key to the student’s LO 1 Standardize financial statements
for comparison purposes.
this book and this course, and we realize
understanding of the chapter. LO 2 Compute and, more important, that students have different learning
Learning objectives are also interpret some common ratios.
LO 3 Assess the determinants of a styles and study needs. We therefore
linked to end-of-chapter firm’s profitability and growth.
problems and test bank LO 4 Identify and explain some of the
present a number of study features to
questions.
problems and pitfalls in financial
statement analysis. appeal to a wide range of students.

PEDAGOGICAL USE OF COLOR FIGURE 14.1

We continue to use a full-color palette Thursday, Wednesday, Friday, Monday,
Example of the
January January January February
in Essentials not only to make the text procedure for
15 28 30 16
dividend payment
more inviting, but, more important, as Declaration Ex-dividend Record Payment
date date date date
a functional element to help students
1. Declaration date: The board of directors declares a payment of dividends.
follow the discussion. In almost every 2. Ex-dividend date: A share of stock goes ex dividend on the date the seller
is entitled to keep the dividend; under NYSE rules, shares are traded ex
chapter, color plays an important, dividend on and after the second business day before the record date.
3. Record date: The declared dividends are distributable to those who are
largely self-evident role. A guide to shareholders of record as of this specific date.
the use of color is found on the back 4. Payment date: The dividend checks are mailed to shareholders of record.

endsheets.

ros34752_ch03_052-096.indd 52 12/11/12 5:16 PM

CRITICAL THINKING AND CONCEPTS REVIEW

LO 2 3.1 Current Ratio. What effect would the following actions have on a firm’s
current ratio? Assume that net working capital is positive.
CRITICAL THINKING a. Inventory is purchased.
b. A supplier is paid.
QUESTIONS c. A short-term bank loan is repaid.
Every chapter ends with a set d. A long-term debt is paid off early.
of critical thinking questions e. A customer pays off a credit account.
f. Inventory is sold at cost.
that challenge the students g. Inventory is sold for a profit.
to apply the concepts they LO 2 3.2 Current Ratio and Quick Ratio. In recent years, Dixie Co. has greatly
learned in the chapter to new increased its current ratio. At the same time, the quick ratio has fallen. What has
happened? Has the liquidity of the company improved?
situations. LO 2 3.3 Current Ratio. Explain what it means for a firm to have a current ratio equal
to .50. Would the firm be better off if the current ratio were 1.50? What if it were
15.0? Explain your answers.
LO 2 3.4 Financial Ratios. Fully explain the kind of information the following financial
ratios provide about a firm:

CONCEPT QUESTIONS
Chapter sections are intentionally kept short to
promote a step-by-step, building-block approach to
ros34752_ch03_052-096.indd 85
CONCEPT QUESTIONS
12/11/12 5:16 PM

learning. Each section is then followed by a ros34752_ch14_451-480.indd

series 454 3.4a What does a firm’s internal growth rate tell us? 12/11/12 6:36 PM

of short concept questions that highlight the key 3.4b What does a firm’s sustainable growth rate tell us?
3.4c Why is the sustainable growth rate likely to be larger than the internal growth rate?
ideas just presented. Students use these questions
to make sure they can identify and understand the
most important concepts as they read.

xv
 EXAMPLE 11.4 PORTFOLIO VARIANCE AND STANDARD DEVIATION
NUMBERED EXAMPLES In Example 11.3, what are the standard deviations on the two portfolios? To answer, we first have
to calculate the portfolio returns in the two states. We will work with the second portfolio, which has
Separate numbered and titled examples are 50 percent in Stock A and 25 percent in each of Stocks B and C. The relevant calculations can be
extensively integrated into the chapters. These summarized as follows:

examples provide detailed applications and State of Probability

Returns

illustrations of the text material in a step- Economy of State Stock A Stock B Stock C Portfolio

by-step format. Each example is completely Boom

Bust
.40
.60
10%
8
15%
4
20%
0
13.75%
5.00
self-contained so that students don’t have to
search for additional information. Based on our The portfolio return when the economy booms is calculated as:

.50 3 10% 1 .25 3 15% 1 .25 3 20% 5 13.75%

classroom testing, these examples are among
The return when the economy goes bust is calculated the same way. The expected return on the
the most useful learning aids because they portfolio is .085. The variance is thus:

provide both detail and explanation. s2 5 .40 3 (.1375 − .085)2 1 .60 3 (.05 − .085)2
5 .0018375

I. Internal growth rate TABLE 3.9

ROA 3 b
Internal growth rate 5 _____________ Summary of internal
1 2 ROA 3 b
and sustainable
where
growth rates
ROA 5 Return on assets 5 Net income / Total assets
b 5 Plowback (retention) ratio
5 Addition to retained earnings / Net income SUMMARY TABLES
5 1 2 Dividend payout ratio
The internal growth rate is the maximum growth rate that can be achieved with no These tables succinctly restate
external financing of any kind. key principles, results, and equa-
II. Sustainable growth rate
ROE 3 b
tions. They appear whenever it is
Sustainable growth rate 5 _____________
1 2 ROE 3 b useful to emphasize and summa-
where
ROE 5 Return on equity 5 Net income / Total equity rize a group of related concepts.
b 5 Plowback (retention) ratio
5 Addition to retained earnings / Net income
5 1 2 Dividend payout ratio
The sustainable growth rate is the maximum growth rate that can be achieved with no
external equity financing while maintaining a constant debt-equity ratio.

ros34752_ch11_350-387.indd 358 12/11/12 6:21 PM

3.2 RATIO ANALYSIS

KEY TERMS Another way of avoiding the problems involved in comparing companies of different sizes
financial ratios is to calculate and compare financial ratios. Such ratios are ways of comparing and inves-
These are printed in blue Relationships determined tigating the relationships between different pieces of financial information. We cover some
from a firm’s financial
the first time they appear, information and used for
of the more common ratios next, but there are many others that we don’t touch on.
One problem with ratios is that different people and different sources frequently don’t
and are defined within the comparison purposes.
compute them in exactly the same way, and this leads to much confusion. The specific
text and in the margin. definitions we use here may or may not be the same as ones you have seen or will see else-
where. If you are ever using ratios as a tool for analysis, you should be careful to document
how you calculate each one, and, if you are comparing your numbers to those of another
source, be sure you know how their numbers are computed.

Total Debt Ratio The total debt ratio takes into account all debts of all maturities to KEY EQUATIONS
all creditors. It can be defined in several ways, the easiest of which is:
Total assets 2 Total equity These are called out in the text and identi-
Total debt ratio 5 ____________________________
Total assets
$3,588 2 2,591
[3.4] fied by equation numbers. Appendix B
5 _________________ 5 .28 times
$3,588 shows the key equations by chapter.

ros34752_ch03_052-096.indd 56 12/11/12 5:16 PM

HIGHLIGHTED PHRASES
Throughout the text, important ideas are presented The goal of financial management is to maximize the current value per share of
ros34752_ch03_052-096.indd 73 the existing stock. 12/11/12 5:16 PM
separately and printed in boxes to indicate their im-
portance to the students.

xvi

ros34752_ch01_001-021.indd 10 12/11/12 5:01 PM

 ®

POP QUIZ!
finance
Can you answer the following questions? If your class is using Connect
Finance, log on to the Self-Quiz and Study feature in the Library tab to see
CONNECT POP QUIZ if you know the answers to these and other questions, check out the study
New to this edition, this end-of-chapter tools, and find out what topics require additional practice!

feature gives students a quick glimpse into Section 4.1 If you deposit $4,500 in an IRA, earn a 10.55 percent rate of
return, and make no additional contributions, how much will that account be
how close they are to mastering the mate- worth in 44 years?
rial. Students test their knowledge with Section 4.2 If you want to be a millionaire upon your retirement in 45 years,
practice questions from McGraw-Hill’s how much do you need to invest today? Assume an 11.20 percent annual
return, and no additional contributions.
Self-Quiz and Study program. This can be Section 4.3 At 4.75 percent interest, how long does it take to double your money?
a great way to engage your Connect-using
students!

SUMMARY AND CONCLUSIONS

This chapter has described how to go about putting together a discounted cash flow analy-
Think you’ve
mastered the sis and evaluating the results. In it, we covered:
material? Scan
here to take a 1. The identification of relevant project cash flows. We discussed project cash flows
chapter quiz.
and described how to handle some issues that often come up, including sunk costs,
opportunity costs, financing costs, net working capital, and erosion.
CHAPTER SUMMARY AND 2. Preparing and using pro forma, or projected, financial statements. We showed how pro
CONCLUSIONS forma financial statement information is useful in coming up with projected cash flows.
3. The use of scenario and sensitivity analysis. These tools are widely used to evaluate
These paragraphs review the chapter’s the impact of assumptions made about future cash flows and NPV estimates.
key points and provide closure to the 4. Additional issues in capital budgeting. We examined the managerial options implicit
chapter. in many capital budgeting situations. We also discussed the capital rationing problem.

ros34752_ch04_097-121.indd 116 The discounted cash flow analysis we’ve covered here is a standard tool in the business12/11/12 5:27 PM
world. It is a very powerful tool, so care should be taken in its use. The most important
thing is to get the cash flows identified in a way that makes economic sense. This chapter
gives you a good start on learning to do this.

CHAPTER REVIEW AND

SELF-TEST PROBLEMS
Review and self-test problems appear
CHAPTER REVIEW AND SELF-TEST PROBLEMS
9.1 Calculating Operating Cash Flow. Mater Pasta, Inc., has projected a sales
after the chapter summaries. Detailed ros34752_ch09_275-309.indd 300 volume of $1,432 for the second year of a proposed expansion project. Costs 12/11/12 5:57 PM

answers to the self-test problems im- normally run 70 percent of sales, or about $1,002 in this case. The depreciation
expense will be $80, and the tax rate is 34 percent. What is the operating cash
mediately follow. These questions and flow? (See Problem 9.)
9.2 Scenario Analysis. A project under consideration costs $500,000, has a
answers allow students to test their abili- five-year life, and has no salvage value. Depreciation is straight-line to zero. The
ties in solving key problems related to required return is 15 percent, and the tax rate is 34 percent. Sales are projected at
www.mhhe.com/ r wj

400 units per year. Price per unit is $3,000, variable cost per unit is $1,900, and
the content of the chapter. New to this fixed costs are $250,000 per year. No net working capital is required.
edition, these problems are mapped to Suppose you think the unit sales, price, variable cost, and fixed cost projections
are accurate to within 5 percent. What are the upper and lower bounds for these pro-
similar problems in the end-of-chapter jections? What is the base-case NPV? What are the best- and worst-case scenario
NPVs? (See Problem 19.)
material. The aim is to help students work
through difficult problems using the au-
■ Answers to Chapter Review and Self-Test Problems
thors’ work as an example.
9.1 First, we can calculate the project’s EBIT, its tax bill, and its net income.
EBIT 5 $1,432 − 1,002 – 80 5 $350
Taxes 5 $350 3 .34 5 $119
Net income 5 $350 − 119 5 $231
With these numbers, operating cash flow is:
OCF 5 EBIT 1 Depreciation − Taxes
END-OF-CHAPTER QUESTIONS 5 $350 1 80 − 119
5 $311
AND PROBLEMS
We have found that many students learn
www.mh he.c

® Select problems are available in McGraw-Hill

better when they have plenty of opportunity QUESTIONS AND PROBLEMS finance
Connect. Please see the packaging options
section of the preface for more information.

to practice. We therefore provide extensive LO 1 1. Relevant Cash Flows. Kenny, Inc., is looking at setting up a new manufacturing
Basic
end-of-chapter questions and problems— (Questions 1–20)
plant in South Park. The company bought some land six years ago for $7.5 million
in anticipation of using it as a warehouse and distribution site, but the company has
now linked to Learning Objectives. The since decided to rent facilities elsewhere. The land would net $10.3 million if it were
sold today. The company now wants to build its new manufacturing plant on this
questions and problems are generally sepa- land; the plant will cost $24 million to build, and the site requires $975,000 worth of
rated into three levels—Basic, Intermediate, grading before it is suitable for construction. What is the proper cash flow amount to
use as the initial investment in fixed assets when evaluating this project? Why?
and Challenge. All problems are fully anno- LO 1 2. Relevant Cash Flows. Winnebagel Corp. currently sells 28,000 motor homes
per year at $73,000 each and 7,000 luxury motor coaches per year at $115,000 each.
tated so that students and instructors can The company wants to introduce a new portable camper to fill out its product line;
readily identify particular types. Throughout it hopes to sell 29,000 of these campers per year at $18,500 each. An independent
consultant has determined that if Winnebagel introduces the new campers, it should
the text, we have worked to supply interest- boost the sales of its existing motor homes by 2,500 units per year and reduce the
sales of its motor coaches by 750 units per year. What is the amount to use as the
ing problems that illustrate real-world ap- annual sales figure when evaluating this project? Why?
plications of chapter material. Answers to LO 2 3. Calculating Projected Net Income. A proposed new investment has projected
sales of $750,000. Variable costs are 55 percent of sales, and fixed costs are $182,500;
selected end-of-chapter problems appear depreciation is $86,000. Prepare a pro forma income statement assuming a tax rate of
in Appendix C. 35 percent. What is the projected net income?

ros34752_ch09_275-309.indd 302 12/11/12 5:57 PM

xvii
 Comprehensive Teaching
and Learning Package
T his edition of Essentials has more options than ever in terms of the textbook, instruc-
tor supplements, student supplements, and multimedia products. Mix and match to
create a package that is perfect for your course!

INSTRUCTOR SUPPLEMENTS
Assurance of Learning Ready
Assurance of learning is an important element of many accreditation standards. Essentials
of Corporate Finance, 8e, is designed specifically to support your assurance of learning
initiatives. Each chapter in the book begins with a list of numbered learning objectives
which appear throughout the chapter, as well as in the end-of-chapter problems and ex-
ercises. Every test bank question is also linked to one of these objectives, in addition to
level of difficulty, topic area, Bloom’s Taxonomy level, and AACSB skill area. Connect,
McGraw-Hill’s online homework solution, and EZ Test, McGraw-Hill’s easy-to-use test
bank software, can search the test bank by these and other categories, providing an engine
for targeted Assurance of Learning analysis and assessment.

AACSB Statement
The McGraw-Hill Companies is a proud corporate member of AACSB International.
Understanding the importance and value of AACSB Accreditation, Essentials of Corpo-
rate Finance, 8e, has sought to recognize the curricula guidelines detailed in the AACSB
standards for business accreditation by connecting selected questions in the test bank to the
general knowledge and skill guidelines found in the AACSB standards.
The statements contained in Essentials of Corporate Finance, 8e, are provided only
as a guide for the users of this text. The AACSB leaves content coverage and assessment
within the purview of individual schools, the mission of the school, and the faculty. While
Essentials of Corporate Finance, 8e, and the teaching package make no claim of any spe-
cific AACSB qualification or evaluation, we have, within the test bank, labeled selected
questions according to the six general knowledge and skills areas.

Instructor Supplements
■ Instructor’s Manual (IM)
Prepared by Denver Travis, Eastern Kentucky University
A great place to find new lecture ideas! This annotated outline for each chapter
includes Lecture Tips, Real-World Tips, Ethics Notes, suggested PowerPoint slides,
and, when appropriate, a video synopsis.
■ Solutions Manual (SM)
Prepared by Joseph Smolira, Belmont University
The Essentials Solutions Manual provides detailed solutions to the extensive end-
of-chapter material, including concept review questions, quantitative problems, and
cases. Select chapters also contain calculator solutions.

xviii
■ Test Bank
Prepared by LaDoris Baugh and Michael Essary, Athens State University
Great format for a better testing process! All questions closely link with the text
material, listing section number, Learning Objective, Bloom’s Taxonomy Question
Type, and AACSB topic when applicable. Each chapter is divided into five parts.
Part I contains questions that test the understanding of the key terms in the book.
Part II includes questions patterned after the learning objectives, concept questions,
chapter-opening vignettes, boxes, and highlighted phrases. Part III contains multiple-
choice and true/false problems patterned after the end-of-chapter questions, in basic,
intermediate, and challenge levels. Part IV provides essay questions to test problem-
solving skills and more advanced understanding of concepts. Part V is a new section
that picks up questions directly from the end-of-chapter material and converts them
into parallel test bank questions. For your reference, each test bank question in this
part is linked with its corresponding question in the end-of-chapter section. Also
included are ready-made quizzes to hand out in class.
■ Computerized Test Bank (Windows)
Create your own tests in a snap! These additional questions are found in a
computerized test bank utilizing McGraw-Hill’s EZ Test testing software to quickly
create customized exams. This user-friendly program allows instructors to sort
questions by format, edit existing questions or add new ones, and scramble questions
for multiple versions of the same test.
■ PowerPoint Presentation System
Prepared by Denver Travis, Eastern Kentucky University
Customize our content for your course! This presentation has been thoroughly
revised to include more lecture-oriented slides, as well as exhibits and examples
both from the book and from outside sources. Applicable slides have web links that
take you directly to specific Internet sites or spreadsheet links to show an example
in Excel. You can also go to the Notes Page function for more tips in presenting the
slides. New to this edition, additional PPT slides work through example problems
for instructors to show in class. If you already have PowerPoint installed on your
PC, you have the ability to edit, print, or rearrange the complete presentation to meet
your specific needs.

Videos (DVD Format)

Current set of videos on hot topics! McGraw-Hill/Irwin has produced a series of finance
videos that are 10-minute case studies on topics such as Financial Markets, Careers, Right-
sizing, Capital Budgeting, EVA (Economic Value Added), Mergers and Acquisitions, and
International Finance.

ONLINE SUPPORT
Online Learning Center at www.mhhe.com/rwj
The Online Learning Center (OLC) contains free access to additional web-based study and
teaching aids created for this text, such as:
■ Student Support
A great resource for those seeking additional practice, students can access self-
grading quizzes, Excel template problems, and the Excel Master tutorial designed by
Brad Jordan and Joe Smolira.

xix
 ■ Premium Content Access
Narrated PowerPoint Slides Updated by Kay Johnson. The narrated PowerPoints
provide real-world examples accompanied by step-by-step instructions and
explanations for solving problems presented in the chapter. The Concept Checks
from the text are also integrated into the slides to reinforce the key topics in the
chapter. Designed specifically to appeal to different learning styles, the slides provide
a visual and audio explanation of topics and problems. Click on the slide and listen
to the accompanying narration! You can view this slide via computer or download it
onto your mobile device.
■ Teaching Support
Along with having access to all of the same material your students can view on the
book’s OLC, you also have password-protected access to the Instructor’s Manual,
solutions to end-of-chapter problems and cases, Instructor’s Excel Master, Instructor’s
PowerPoint, Excel template solutions, video clips, and video projects and questions.
WebCT and Blackboard course cartridges allow instructors to manage their course
and administer examinations online. Increase ease, organization, and efficiency and
ask your representative for more details about course cartridges today!

McGraw-Hill Connect Finance

Less Managing. More Teaching. Greater Learning.
McGraw-Hill’s Connect Finance is an online assignment and assessment solution that con-
nects students with the tools and resources they’ll need to achieve success.
Connect helps prepare students for their future by enabling faster learning, more ef-
ficient studying, and better retention of knowledge.

McGraw-Hill Connect Finance Features Connect Finance offers powerful tools and
features to make managing assignments easier, so faculty can spend more time teaching.
With Connect Finance, students can engage with their coursework anytime and anywhere,
making the learning process more accessible and efficient. Connect Finance offers you the
features described below.

Simple Assignment Management With Connect Finance, creating assignments is easier

than ever, so you can spend more time teaching and less time managing. The assignment
management function enables you to:
■ Create and deliver assignments easily with selectable end-of-chapter questions and
test bank items.
■ Streamline lesson planning, student progress reporting, and assignment grading to
make classroom management more efficient than ever.
■ Go paperless with the eBook and online submission and grading of student
assignments.

Smart Grading When it comes to studying, time is precious. Connect Finance helps
students learn more efficiently by providing feedback and practice material when they need
it, where they need it. When it comes to teaching, your time is also precious. The grading
function enables you to:
■ Have assignments scored automatically, giving students immediate feedback on their
work and side-by-side comparisons with correct answers.

xx
■ Access and review each response; manually change grades or leave comments for
students to review.
■ Reinforce classroom concepts with practice tests and instant quizzes.

Instructor Library The Connect Finance Instructor Library is your repository for ad-
ditional resources to improve student engagement in and out of class. You can select and
use any asset that enhances your lecture.

Student Study Center The Connect Finance Student Study Center is the place for stu-
dents to access additional resources. The Student Study Center:
■ Offers students quick access to lectures, practice materials, eBooks, and more.
■ Provides instant practice material and study questions, easily accessible on the go.
■ Gives students access to the Self-Quiz and Study plan described below.

Connect Self-Quiz and Study Feature This Study Feature connects each student to the
learning resources needed for success in the course. For each chapter, students:
■ Take a practice test to gauge understanding of the material.
■ Immediately upon completing the practice test, see how their performance compares
to the chapter objectives to be achieved within each section of the chapters.
■ Receive a personal learning plan that recommends specific readings from the text,
supplemental study material, and practice work that will improve their understanding
and mastery of each learning objective.

Student Progress Tracking Connect Finance keeps instructors informed about how
each student, section, and class is performing, allowing for more productive use of lecture
and office hours. The progress-tracking function enables you to:
■ View scored work immediately and track individual or group performance with
assignment and grade reports.
■ Access an instant view of student or class performance relative to learning objectives.

Lecture Capture through Tegrity Campus For an additional charge, Lecture Capture
offers new ways for students to focus on the in-class discussion, knowing they can revisit
important topics later. This can be delivered through Connect or separately. See below for
more details.

McGraw-Hill Connect Plus Finance McGraw-Hill reinvents the textbook learning ex-
perience for the modern student with Connect Plus Finance. A seamless integration of an
eBook and Connect Finance, Connect Plus Finance provides all of the Connect Finance
features plus the following:
■ An integrated eBook, allowing for anytime, anywhere access to the textbook.
■ Dynamic links between the problems or questions you assign to your students and
the location in the eBook where that problem or question is covered.
■ A powerful search function to pinpoint and connect key concepts in a snap.

Diagnostic and Adaptive Learning of Concepts: LearnSmart

Students want to make the best use of their study time. The LearnSmart adaptive self-study
technology within Connect Finance provides students with a seamless combination of

xxi
 practice, assessment, and remediation for every concept in the textbook. LearnSmart’s intel-
ligent software adapts to every student response and automatically delivers concepts that
advance the student’s understanding while reducing time devoted to the concepts already
mastered. The result for every student is the fastest path to mastery of the chapter concepts.
LearnSmart:
■ Applies an intelligent concept engine to identify the relationships between concepts
and to serve new concepts to each student only when he or she is ready.
■ Adapts automatically to each student, so students spend less time on the topics they
understand and practice more those they have yet to master.
■ Provides continual reinforcement and remediation, but gives only as much guidance
as students need.
■ Integrates diagnostics as part of the learning experience.
■ Enables you to assess which concepts students have efficiently learned on their own,
thus freeing class time for more applications and discussion.

In short, Connect Finance offers you and your students powerful tools and features that
optimize your time and energies, enabling you to focus on course content, teaching, and
student learning. Connect Finance also offers a wealth of content resources for both in-
structors and students. This state-of-the-art, thoroughly tested system supports you in pre-
paring students for the world that awaits.

For more information about Connect, go to www.mcgrawhillconnect.com, or contact

your McGraw-Hill sales representative.

Tegrity Campus: Lectures 24/7

Tegrity Campus is a service that makes class time available 24/7
by automatically capturing every lecture in a searchable format
for students to review when they study and complete assignments. With a simple one-click
start-and-stop process, you capture all computer screens and corresponding audio. Students
can replay any part of any class with easy-to-use browser-based viewing on a PC or Mac.
Educators know that the more students can see, hear, and experience class resources,
the better they learn. In fact, studies prove it. With Tegrity Campus, students quickly recall
key moments by using Tegrity Campus’s unique search feature. This search helps students
efficiently find what they need, when they need it, across an entire semester of class record-
ings. Help turn all your students’ study time into learning moments immediately supported
by your lecture.
To learn more about Tegrity watch a 2-minute Flash demo at http://tegritycampus
.mhhe.com.

McGraw–Hill Customer Care Contact Information

At McGraw-Hill, we understand that getting the most from new technology can be chal-
lenging. That’s why our services don’t stop after you purchase our products. You can
e-mail our Product Specialists 24 hours a day to get product training online. Or you can
search our knowledge bank of Frequently Asked Questions on our support website. For
Customer Support, call 800-331-5094, e-mail [email protected], or visit
www.mhhe.com/support. One of our Technical Support Analysts will be able to assist
you in a timely fashion.

xxii
 Acknowledgments
C learly, our greatest debt is to our many colleagues (and their students) around the
world who, like us, wanted to try an alternative to what they were using and made the
switch to our text. Our plan for developing and improving Essentials, 8e, revolved around
the detailed feedback we received from many of our colleagues who had an interest in the
book and regularly teach the introductory course. These dedicated scholars and teachers to
whom we are very grateful are:
Vaughn S. Armstrong, Utah Valley University
Juan Avendano, Augsburg College
R. Brian Balyeat, Xavier University
John Barkoulas, Georgia Southern University
Laura Beal, University of Nebraska at Omaha
Stephen G. Buell, Lehigh University
Manfen Chen, University of Southern Indiana
Su-Jane Chen, Metropolitan State College of Denver
Ingyu Chiou, Eastern Illinois University
Paul Chiou, Shippensburg University
Brandon Cline, Clemson University
Susan Coleman, University of Hartford
Bruce A. Costa, University of Montana
Maria E. de Boyrie, New Mexico State University
David Dineen, Seton Hall University
Alan Eastman, Indiana University of Pennsylvania
David Eckmann, University of Miami
Dan Ervin, Salisbury University
Jocelyn Evans, College of Charleston
Ramon T. Franklin, Clemson University
Sharon H. Garrrison, University of Arizona
Victoria Geyfman, Bloomsburg University of Pennsylvania
Kimberly R. Goodwin, University of Southern Mississippi
Michael Gunderson, University of Florida
Karen L. Hamilton, Georgia Southern University
Mahfuzul Haque, Indiana State University
John J. Harrington Jr., Seton Hall University
John Hatem, Georgia Southern University
Rodrigo Hernandez, Radford University
Keith Jakob, University of Montana
Abu Jalal, Suffolk University
Marlin Jensen, Auburn University
Samuel Kyle Jones, Stephen F. Austin State University

xxiii
xxiv A C K N O WL E D G M E NT S

Douglas Jordan, Sonoma State University

Ashok K. Kapoor, Augsburg College
Howard Keen, Temple University
Marvin Keene, Coastal Carolina University
James D. Keys, Florida International University
Dr. Ladd Kochman, Kennesaw State University
Denise Letterman, Robert Morris University–Pittsburgh, PA
Seongyeon (Sonya) Lim, DePaul University
Alethea Lindsay, Grambling State University
Qingfeng “Wilson” Liu, James Madison University
Angelo Luciano, Columbia College—Chicago
Suzan Murphy, University of Tennessee
Ohaness Paskelian, University of Houston Downtown
Milena Petrova, Syracuse University
Ted Pilger, Southern Illinois University–Carbondale
Alexandros P. Prezas, Suffolk University
Charles Reback, USC Upstate
Thomas A. Rhee, California State University–Long Beach
Jong C. Rhim, University of Southern Indiana
Clarence C. Rose, Radford University
Camelia S. Rotaru, St. Edward’s University
Andrew Saporoschenko, St. Louis University
Michael J. Seiler, Old Dominion University
Roger Severns, Minnesota State University–Mankato
Gowri Shankar, University of Washington–Bothell
Luke Sparvero, SUNY–Oswego
Carolyn Spencer, Dowling College
Andrew Spieler, Hofstra University
Glenn Tanner, Texas State University
John Thornton, Kent State University
Hiep Tran, California State University–Sacramento
Cathyann Tully, Kean University
James A. Turner, Weber State University
John B. White, United States Coast Guard Academy
Susan White, University of Maryland
Fred Yeager, Saint Louis University
Tarek Saad Zaher, Indiana State University
We owe a special debt to our colleagues for their dedicated work on the many supple-
ments that accompany this text: Denver Travis, Eastern Kentucky University, for his de-
velopment of the Instructor’s Manual and PowerPoint slides; LaDoris Baugh and Michael
Essary, Athens State University, for their extensive revision and improvement of the Test
Bank; and Kay Johnson, for her revision of the Narrated PowerPoints, Self-Study quizzes,
and the Test Bank quizzes.
Another random document with
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 Spheres unknown below our feet; spheres still more unknown and
still more unexplored above us; between the two a handful of moles,
blind to God’s great light, and deaf to the whispers of the invisible
world, boasting that they lead mankind. Where? Onward, they claim;
but we have a right to doubt it. The greatest of our physiologists,
when placed side by side with a Hindu fakir, who knows neither how
to read nor write, will very soon find himself feeling as foolish as a
school-boy who has neglected to learn his lesson. It is not by
vivisecting living animals that a physiologist will assure himself of the
existence of man’s soul, nor on the blade of the knife can he extract
it from a human body. “What sane man,” inquires Sergeant Cox, the
President of the London Psychological Society, “what sane man who
knows nothing of magnetism or physiology, who had never
witnessed an experiment nor learned its principles, would proclaim
himself a fool by denying its facts and denouncing its theory?” The
truthful answer to this would be, “two-thirds of our modern-day
scientists.” The impertinence, if truth can ever be impertinent, must
be laid at the door of him who uttered it—a scientist of the number of
those few who are brave and honest enough to utter wholesome
truths, however disagreeable. And there is no mistaking the real
meaning of the imputation, for immediately after the irreverent
inquiry, the learned lecturer remarks as pointedly: “The chemist
takes his electricity from the electrician, the physiologist looks to the
geologist for his geology—each would deem it an impertinence in the
other if he were to pronounce judgment in the branch of knowledge
not his own. Strange it is, but true as strange, that this rational rule is
wholly set at naught in the treatment of psychology. Physical
scientists deem themselves competent to pronounce a dogmatic
judgment upon psychology and all that appertains to it, without
having witnessed any of its phenomena, and in entire ignorance of
its principles and practice.”[907]
We sincerely hope that the two eminent biologists, Mr.
Mendeleyeff, of St. Petersburg, and Mr. Ray Lankester, of London
fame, will bear themselves under the above as unflinchingly as their
living victims do when palpitating under their dissecting knives.
 For a belief to have become universal, it must have been founded
on an immense accumulation of facts, tending to strengthen it, from
one generation to another. At the head of all such beliefs stands
magic, or, if one would prefer—occult psychology. Who, of those who
appreciate its tremendous powers even from its feeble, half-
paralyzed effects in our civilized countries, would dare disbelieve in
our days the assertions of Porphyry and Proclus, that even
inanimate objects, such as statues of gods, could be made to move
and exhibit a factitious life for a few moments? Who can deny the
allegation? Is it those who testify daily over their own signatures that
they have seen tables and chairs move and walk, and pencils write,
without contact? Diogenes Laërtius tells us of a certain philosopher,
Stilpo, who was exiled from Athens by the Areopagus, for having
dared to deny publicly that the Minerva of Pheidias was anything
else than a block of marble. But our own age, after having mimicked
the ancients in everything possible, even to their very names, such
as “senates,” “prefects,” and “consuls,” etc.; and after admitting that
Napoleon the Great conquered three-fourths of Europe by applying
the principles of war taught by the Cæsars and the Alexanders,
knows so much better than its preceptors about psychology, that it
would vote every believer in “animated tables” into Bedlam.
Be this as it may, the religion of the ancients is the religion of the
future. A few centuries more, and there will linger no sectarian
beliefs in either of the great religions of humanity. Brahmanism and
Buddhism, Christianity and Mahometanism will all disappear before
the mighty rush of facts. “I will pour out my spirit upon all flesh,”
writes the prophet Joel. “Verily I say unto you ... greater works than
these shall you do,” promises Jesus. But this can only come to pass
when the world returns to the grand religion of the past; the
knowledge of those majestic systems which preceded, by far,
Brahmanism, and even the primitive monotheism of the ancient
Chaldeans. Meanwhile, we must remember the direct effects of the
revealed mystery. The only means by which the wise priests of old
could impress upon the grosser senses of the multitudes the idea of
the Omnipotency of the Creative will or First Cause; namely, the
divine animation of inert matter, the soul infused into it by the
potential will of man, the microcosmic image of the great Architect,
and the transportation of ponderous objects through space and
material obstacles.
Why should the pious Roman Catholic turn away in disgust at the
“heathen” practices of the Hindu Tamil, for instance? We have
witnessed the miracle of San Gennaro in good old Naples, and we
have seen the same in Nârgercoil, in India. Where is the difference?
The coagulated blood of the Catholic saint is made to boil and fume
in its crystal bottle, to the gratification of the lazzaroni; and from its
jewelled shrine the martyr’s idol beams radiant smiles and blessings
at the Christian congregation. On the other hand, a ball of clay filled
with water, is stuffed into the open breast of the god Sûran; and
while the padre shakes his bottle and produces his “miracle” of
blood, the Hindu priest plunges an arrow into the god’s breast, and
produces his “miracle,” for the blood gushes forth in streams, and the
water is changed into blood. Both Christians and Hindus fall in
raptures at the sight of such a miracle. So far, we do not see the
slightest difference. But can it be that the Pagan learned the trick
from San Gennaro.
“Know, O, Asclepius,” says Hermes, “that as the Highest One is
the father of the celestial gods, so is man the artisan of the gods who
reside in the temples, and who delight in the society of mortals.
Faithful to its origin and nature, humanity perseveres in this imitation
of the divine powers; and, if the Father Creator has made in His
image the eternal gods, mankind in its turn makes its gods in its own
image.” “And, dost thou speak of statues of gods; O, Trismegistus?”
“Verily, I do, Asclepius, and however great thy defiance, perceivest
thou not that these statues are endowed with reason, that they are
animated with a soul, and that they can operate the greatest
prodigies. How can we reject the evidence, when we find these gods
possessing the gift of predicting the future, which they are compelled
to tell, when forced to it by magic spells, as through the lips of the
divines and their visions?... It is the marvel of marvels that man could
have invented and created gods.... True, the faith of our ancestors
has erred, and in their pride they fell into error as to the precise
essence of these gods ... but they have still found out that art
themselves. Powerless to create soul and spirit, they evoke the souls
of angels and demons in order to introduce them into the
consecrated statues; and so make them preside at their Mysteries,
by communicating to idols their own faculty to do good as well as
evil.”
It is not antiquity alone which is full of evidence that the statues
and idols of the gods at times exhibited intelligence and locomotive
powers. Full in the nineteenth century, we see the papers recording
the capers played by the statue of the Madonna of Lourdes. This
gracious lady, the French Notre Dame, runs away several times to
the woods adjoining her usual residence, the parish church. The
sexton is obliged to hunt after the runaway, and bring her home more
than once.[908] After this begins a series of “miracles,” healing,
prophesying, letter-dropping from on high, and what not. These
“miracles” are implicitly accepted by millions and millions of Roman
Catholics; numbers of these belonging to the most intelligent and
educated classes. Why, then, should we disbelieve in testimony of
precisely the same character, given as to contemporary phenomena
of the same kind, by the most accredited and esteemed historians—
by Titus Livy, for instance? “Juno, would you please abandon the
walls of Veii, and change this abode for that of Rome?” inquires of
the goddess a Roman soldier, after the conquest of that city. Juno
consents, and nodding her head in token of acquiescence, her
statue answers: “Yes, I will.” Furthermore, upon their carrying off the
figure, it seems to instantly “lose its immense weight,” adds the
historian, and the statue seems rather to follow them than
otherwise.[909]
With naïveté, and a faith bordering on the sublime, des
Mousseaux, bravely rushes into the dangerous parallels, and gives a
number of instances of Christian as well as “heathen” miracles of
that kind. He prints a list of such walking statues of saints and
Madonnas, who lose their weight, and move about as so many living
men and women; and presents unimpeachable evidence of the
same, from classical authors, who described their miracles.[910] He
has but one thought, one anxious and all-overpowering desire—to
prove to his readers that magic does exist, and that Christianity
beats it flat. Not that the miracles of the latter are either more
numerous, or more extraordinary, or suggestive than those of the
Pagans. Not at all; and he is a fair historian as to facts and evidence.
But, it is his arguments and reflections that are priceless: one kind of
miracle is produced by God, the other by the Devil; he drags down
the Deity and placing Him face to face with Satan, allows the arch-
enemy to beat the Creator by long odds. Not a word of solid, evident
proof to show the substantial difference between the two kinds of
wonders.
Would we inquire the reason why he traces in one the hand of
God and in the other the horn and hoof of the Devil? Listen to the
answer: “The Holy Roman Catholic and Apostolical Church declares
the miracles wrought by her faithful sons produced by the will of
God; and all others the work of the spirits of Hell.” Very well, but on
what ground? We are shown an endless list of holy writers; of saints
who fought during their whole lives with the fiends; and of fathers
whose word and authority are accepted as “word of God” by the
same Church. “Your idols, your consecrated statues are the abode of
demons,” exclaims St. Cyprian. “Yes, it is these spirits who inspire
your divines, who animate the bowels of your victims, who govern
the flight of birds, and who, mixing incessantly falsehood with truth,
render oracles, and ... operate prodigies, their object being to bring
you invincibly to their worship.”[911]
Fanaticism in religion, fanaticism in science, or fanaticism in any
other question becomes a hobby, and cannot but blind our senses. It
will ever be useless to argue with a fanatic. And here we cannot help
admiring once more the profound knowledge of human nature which
dictated to Mr. Sergeant Cox the following words, delivered in the
same address as before alluded to: “There is no more fatal fallacy
than that the truth will prevail by its own force, that it has only to be
seen to be embraced. In fact the desire for the actual truth exists in
very few minds, and the capacity to discern it in fewer still. When
men say that they are seeking the truth, they mean that they are
looking for evidence to support some prejudice or prepossession.
Their beliefs are moulded to their wishes. They see all, and more
than all, that seems to tell for that which they desire; they are blind
as bats to whatever tells against them. The scientists are no more
exempt from this common failing than are others.”
We know that from the remotest ages there has existed a
mysterious, awful science, under the name of theopœa. This science
taught the art of endowing the various symbols of gods with
temporary life and intelligence. Statues and blocks of inert matter
became animated under the potential will of the hierophant. The fire
stolen by Prometheus had fallen down in the struggle to earth; it
embraced the lower regions of the sky, and settled in the waves of
the universal ether as the potential Akâsa of the Hindu rites. We
breathe and imbibe it into our organic system with every mouthful of
fresh air. Our organism is full of it from the instant of our birth. But it
becomes potential only under the influx of will and spirit.
Left to itself, this life-principle will blindly follow the laws of nature;
and, according to conditions, will produce health and an exuberance
of life, or cause death and dissolution. But, guided by the will of the
adept, it becomes obedient; its currents restore the equilibrium in
organic bodies, they fill the waste, and produce physical and
psychological miracles, well-known to mesmerizers. Infused in
inorganic and inert matter, they create an appearance of life, hence
motion. If to that life an individual intelligence, a personality, is
wanting, then the operator must either send his scin-lecca, his own
astral spirit, to animate it; or use his power over the region of nature-
spirits to force one of them to infuse his entity into the marble, wood,
or metal; or, again, be helped by human spirits. But the latter—
except the vicious, earth-bound class[912]—will not infuse their
essence into these inanimate objects. They leave the lower kinds to
produce the similitude of life and animation, and only send their
influence through the intervening spheres like a ray of divine light,
when the so-called “miracle” is required for a good purpose. The
condition—and this is a law in spiritual nature—is purity of motive,
purity of the surrounding magnetic atmosphere, personal purity of
the operator. Thus is it, that a Pagan “miracle” may be by far holier
than a Christian one.
 Who that has seen the performance of the fakirs of Southern India,
can doubt the existence of theopœa in ancient times? An inveterate
skeptic, though more than anxious to attribute every phenomenon to
jugglery, still finds himself compelled to testify to facts; and facts that
are to be witnessed daily if one chooses. “I dare not,” he says,
speaking of Chibh-Chondor, a fakir of Jaffna-patnam, “describe all
the exercises which he performed. There are things one dares not
say even after having witnessed them, for fear of being charged with
having been under an inexplicable hallucination! And yet, ten, nay,
twenty times, I saw and saw again the fakir obtain similar results
over inert matter.... It was but child’s play for our ‘charmer’ to make
the flame of candles which had, by his directions, been placed in the
remotest corners of the apartment, pale and become extinguished at
will; to cause the furniture to move, even the sofas on which we sat,
the doors to open and shut repeatedly: and all this without quitting
the mat upon which he sat on the floor.
“Perhaps I will be told that I saw imperfectly. Possibly; but I will say
that hundreds and thousands of persons have seen and do see what
I have, and things more wonderful; has one of all these discovered
the secret, or been able to duplicate these phenomena? And I can
never repeat too often that all this does not occur on a stage,
supplied with mechanical contrivances for the use of the operator.
No, it is a beggar crouched, naked, on the floor, who thus sports with
your intelligence, your senses, and all that which we have agreed
among ourselves to style the immutable laws of nature, but which he
appears to alter at will!
“Does he change its course? ‘No, but he makes it act by using
forces which are yet unknown to us,’ say the believers. However that
may be, I have found myself twenty times at similar performances in
company with the most distinguished men of British India—
professors, physicians, officers. Not one of them but thus
summarized his impressions upon quitting the drawing-room. ‘This is
something terrifying to human intelligence!’ Every time that I saw
repeated by a fakir the experiment of reducing serpents to a
cataleptic state, a condition in which these animals have all the
rigidity of the dry branch of a tree, my thoughts have reverted to the
biblical fable (?) which endows Moses and the priests of Pharaoh
with the like power.”[913]
Assuredly, the flesh of man, beast, and bird should be as easily
endowed with magnetic life-principle as the inert table of a modern
medium. Either both wonders are possible and true, or both must fall
to the ground, together with the miracles of Apostolic days, and
those of the more modern Popish Church. As for vital proofs
furnished to us in favor of such possibilities, we might name books
enough to fill a whole library. If Sixtus V. cited a formidable array of
spirits attached to various talismans, was not his threat of
excommunication for all those who practiced the art, uttered merely
because he would have the knowledge of this secret confined within
the precincts of the Church? How would it do for his “divine” miracles
to be studied and successfully reproduced by every man endowed
with perseverance, a strong positive magnetic power, and an
unflinching will? Recent events at Lourdes (of course, supposing
them to have been truthfully reported) prove that the secret is not
wholly lost; and if there is no strong magician-mesmerizer concealed
under frock and surplice, then the statue of Notre-Dame is moved by
the same forces which move every magnetized table at a spiritual
seance; and the nature of these “intelligences,” whether they belong
to the classes of human, human elementary, or elemental spirits
depends on a variety of conditions. With one who knows anything of
mesmerism, and at the same time of the charitable spirit of the
Roman Catholic Church, it ought not to be difficult to comprehend
that the incessant curses of the priests and monks; and the bitter
anathemas so freely pronounced by Pius IX.—himself a strong
mesmerizer, and believed to be a jetattore (evil eye)—have drawn
together legions of elementaries and elementals under the
leadership of the disembodied Torquemadas. These are the “angels”
who play pranks with the statue of the Queen of Heaven. Any one
who accepts the “miracle” and thinks otherwise blasphemes.
Although it would seem as if we had already furnished sufficient
proofs that modern science has little or no reason to boast of
originality, yet before closing this volume we will adduce a few more
to place the matter beyond doubt. We have but to recapitulate, as
briefly as possible, the several claims to new philosophies and
discoveries, the announcement of which has made the world open
its eyes so wide within these last two centuries. We have pointed to
the achievements in arts, sciences, and philosophy of the ancient
Egyptians, Greeks, Chaldeans, and Assyrians; we will now quote
from an author who has passed long years in India studying their
philosophy. In the famous and recent work of Christna et le Christ,
we find the following tabulation:
“Philosophy.—The ancient Hindus have created from the
foundation the two systems of spiritualism and materialism, of
metaphysical philosophy and of positive philosophy. The first taught
in the Vedantic school, whose founder was Vyasa; the second taught
in the Sankya school, whose founder was Kapila.
“Astronomical Science.—They fixed the calendar, invented the
zodiac, calculated the precession of the equinoxes, discovered the
general laws of the movements, observed and predicted the
eclipses.
“Mathematics.—They invented the decimal system, algebra, the
differential, integral, and infinitesimal calculi. They also discovered
geometry and trigonometry, and in these two sciences they
constructed and proved theorems which were only discovered in
Europe as late as the seventeenth and eighteenth centuries. It was
the Brahmans in fact who first deduced the superficial measure of a
triangle from the calculation of its three sides, and calculated the
relations of the circumference to the diameter. Furthermore, we must
restore to them the square of the hypotenuse and the table so
improperly called Pythagorean, which we find engraved on the
gôparama of the majority of great pagodas.
“Physics.—They established the principle which is still our own to-
day, that the universe is a harmonious whole, subject to laws which
may be determined by observation and experiment. They discovered
hydrostatics; and the famous proposition that every body plunged in
water loses of its own weight a weight equal to the volume which it
displaces, is only a loan made by the Brahmans to the famous Greek
architect, Archimedes. The physicists of the pagodas calculated the
velocity of light, fixed in a positive manner the laws which it follows in
its reflection. And finally, it is beyond doubt, from the calculations of
Surya-Sidhenta, that they knew and calculated the force of steam.
“Chemistry.—They knew the composition of water, and formulated
for gases the famous law, which we know only from yesterday, that
the volumes of gas are in inverse ratio to the pressures that they
support. They knew how to prepare sulphuric, nitric, and muriatic
acids; the oxides of copper, iron, lead, tin, and zinc; the sulphurets of
iron, copper, mercury, antimony, and arsenic; the sulphates of zinc
and iron; the carbonates of iron, lead, and soda; nitrate of silver; and
powder.
“Medicine.—Their knowledge was truly astonishing. In Tcharaka
and Sousruta, the two princes of Hindu medicine, is laid down the
system which Hippocrates appropriated later. Sousruta notably
enunciates the principles of preventive medicine or hygiene, which
he places much above curative medicine—too often, according to
him, empyrical. Are we more advanced to-day? It is not without
interest to remark that the Arab physicians, who enjoyed a merited
celebrity in the middle ages—Averroès among others—constantly
spoke of the Hindu physicians, and regarded them as the initiators of
the Greeks and themselves.
“Pharmacology.—They knew all the simples, their properties, their
use, and upon this point have not yet ceased to give lessons to
Europe. Quite recently we have received from them the treatment of
asthma, with the datura.
“Surgery.—In this they are not less remarkable. They made the
operation for the stone, succeeded admirably in the operation for
cataract, and the extraction of the fœtus, of which all the unusual or
dangerous cases are described by Tcharaka with an extraordinary
scientific accuracy.
“Grammar.—They formed the most marvellous language in the
world—the Sanscrit—which gave birth to the greater part of the
idioms of the Orient, and of Indo-European countries.
 “Poetry.—They have treated all the styles, and shown themselves
supreme masters in all. Sakuntala, Avrita, the Hindu Phædra,
Saranga, and a thousand other dramas have their superiors neither
in Sophocles nor Euripides, in Corneille nor Shakspere. Their
descriptive poetry has never been equalled. One must read, in the
Megadata, “The Plaint of an Exile,” who implores a passing cloud to
carry his remembrances to his cottage, his relatives and friends,
whom he will never see more, to form an idea of the splendor to
which this style has been carried in India. Their fables have been
copied by all modern and ancient peoples, who have not even given
themselves the trouble to color differently the subject of these little
dramas.
“Music.—They invented the gamut with its differences of tones and
half-tones much before Gui d’ Arezzo. Here is the Hindu scale:
Sa—Ri—Ga—Ma—Pa—Da—Ni—Sa.
“Architecture.—They seem to have exhausted all that the genius
of man is capable of conceiving. Domes, inexpressibly bold; tapering
cupolas; minarets, with marble lace; Gothic towers; Greek
hemicycles; polychrome style—all kinds and all epochs are there,
betokening the origin and date of the different colonies, which, in
emigrating, carried with them their souvenirs of their native art.”
Such were the results attained by this ancient and imposing
Brahmanical civilization. What have we to offer for comparison?
Beside such majestic achievements of the past, what can we place
that will seem so grandiose and sublime as to warrant our boast of
superiority over an ignorant ancestry? Beside the discoverers of
geometry and algebra, the constructors of human speech, the
parents of philosophy, the primal expounders of religion, the adepts
in psychological and physical science, how even the greatest of our
biologists and theologians seem dwarfed! Name to us any modern
discovery, and we venture to say, that Indian history need not long
be searched before the prototype will be found of record. Here we
are with the transit of science half accomplished, and all our ideas in
process of readjustment to the theories of force-correlation, natural
selection, atomic polarity, and evolution. And here, to mock our
conceit, our apprehensions, and our despair, we may read what
Manu said, perhaps 10,000 years before the birth of Christ:
“The first germ of life was developed by water and heat” (Manu,
book i., sloka 8).
“Water ascends toward the sky in vapors; from the sun it descends
in rain, from the rain are born the plants, and from the plants,
animals” (book iii., sloka 76).
“Each being acquires the qualities of the one which immediately
precedes it, in such a manner that the farther a being gets away from
the primal atom of its series, the more he is possessed of qualities
and perfections” (book i., sloka 20).
“Man will traverse the universe, gradually ascending, and passing
through the rocks, the plants, the worms, insects, fish, serpents,
tortoises, wild animals, cattle, and higher animals.... Such is the
inferior degree” (Ibid.).
“These are the transformations declared, from the plant up to
Brahma, which have to take place in his world” (Ibid.).
“The Greek,” says Jacolliot, “is but the Sanscrit. Pheidias and
Praxiteles have studied in Asia the chefs-d’œuvre of Daonthia,
Ramana, and Aryavosta. Plato disappears before Dgeminy and
Veda-Vyasa, whom he literally copies. Aristotle is thrown into the
shade by the Pourva-Mimansa and the Outtara-Mimansa, in which
one finds all the systems of philosophy which we are now occupied
in re-editing, from the Spiritualism of Socrates and his school, the
skepticism of Pyrrho, Montaigne, and Kant, down to the positivism of
Littré.”
Let those who doubt the exactness of the latter assertion read this
phrase, extracted textually from the Outtara-Mimansa, or Vedanta, of
Vyasa, who lived at an epoch which the Brahmanical chronology
fixes at 10,400 years before our era:
 “We can only study phenomena, verify them, and hold them to be
relatively true, but nothing in the universe, neither by perception nor
by induction, nor by the senses, nor by reasoning, being able to
demonstrate the existence of a Supreme Cause, which could, at a
fixed point of time, have given birth to the universe, Science has to
discuss neither the possibility nor impossibility of this Supreme
Cause.”
Thus, gradually but surely, will the whole of antiquity be vindicated.
Truth will be carefully sifted from exaggeration; much that is now
considered fiction may yet be proved fact, and the “facts and laws” of
modern science found to belong to the limbo of exploded myths.
When, centuries before our era, the Hindu Bramaheupto affirmed
that the starry sphere was immovable, and that the daily rising and
setting of stars confirms the motion of the earth upon its axis; and
when Aristarchus of Samos, born 267 years b.c., and the
Pythagorean philosopher Nicetè, the Syracusan, maintained the
same, what was the credit given to their theories until the days of
Copernicus and Galileo? And the system of these two princes of
science—a system which has revolutionized the whole world—how
long will it be allowed to remain as a complete and undisturbed
whole? Have we not, at the present moment, in Germany, a learned
savant, a Professor Shoëpfer, who, in his public lectures at Berlin,
tries to demonstrate, 1, that the earth is immovable; 2, the sun is but
a little bigger than it seems; and 3, that Tycho-Brahe was perfectly
right and Galileo perfectly wrong?[914] And what was Tycho-Brahe’s
theory? Why, that the earth stands immovable in the centre of the
universe, and that around it, as around its centre, the whole of the
celestial vault gravitates every twenty-four hours; and finally, that the
sun and moon, apart from this motion, proceed on curved lines
peculiar to themselves, while Mercury, with the rest of the planets,
describes an epicycloid.
We certainly have no intention to lose time nor devote space to
either combating or supporting this new theory, which suspiciously
resembles the old ones of Aristotle and even the Venerable Bede.
We will leave the learned army of modern Academicians to “wash
their family linen among themselves,” to use an expression of the
great Napoleon. But we will, nevertheless, avail ourselves of such a
good opportunity as this defection affords to demand once more of
science her diploma or patents of infallibility. Alas! are these, then,
the results of her boasted progress?
It was hardly more than yesterday when, upon the strength of facts
within our own observation, and corroborated by the testimony of a
multitude of witnesses, we timidly ventured the assertion that tables,
mediums, and Hindu fakirs were occasionally levitated. And when
we added that, if such a phenomenon should happen but once in a
century, “without a visible mechanical cause, then that rising is a
manifestation of a natural law of which our scientists are yet
ignorant,” we were called “iconoclastic,” and charged, in our turn, by
the newspapers, with ignorance of the law of gravitation. Iconoclastic
or not, we never thought of charging science with denying the
rotation of the earth on its axis, or its revolution around the sun.
Those two lamps, at least, in the beacon of the Academy, we thought
would be kept trimmed and burning to the end of time. But, lo! here
comes a Berlin professor and crushes our last hopes that Science
should prove herself exact in some one particular. The cycle is truly
at its lowest point, and a new era is begun. The earth stands still,
and Joshua is vindicated!
In days of old—in 1876—the world believed in centrifugal force,
and the Newtonian theory, which explained the flattening of the poles
by the rotatory motion of the earth around its axis, was orthodox.
Upon this hypothesis, the greater portion of the globular mass was
believed to gravitate toward the equator; and in its turn the
centrifugal force, acting on the mass with its mightiest power, forced
this mass to concentrate itself on the equator. Thus is it that the
credulous scientists believed the earth to rotate around its axis; for,
were it otherwise, there would exist no centrifugal force, and without
this force there could be no gravitation toward the equatorial
latitudes. It has been one of the accepted proofs of the rotation of the
earth, and it is this deduction, with several others, that the Berlin
professor declares that, “in common with many other scientists,” he
“rejects.”
 “Is this not ridiculous, gentlemen,” he concludes, “that we,
confiding in what we were taught at school, have accepted the
rotation of the earth around its axis as a fact fully demonstrated,
while there is nothing at all to prove it, and it cannot be
demonstrated? Is it not cause of astonishment that the scientists of
the whole educated world, commencing with Copernicus and Kepler,
should have begun by accepting such a movement of our planet,
and then three and a half centuries later be searching for such
proofs? But, alas! though we search, we find none, as was to be
expected. All, all is vain!”
And thus it is that at one stroke the world loses its rotation, and the
universe is bereaved of its guardians and protectors, the centrifugal
and centripetal forces! Nay, ether itself, blown out of space, is but a
“fallacy,” a myth born of a bad habit of using empty words; the sun is
a pretender to dimensions to which it was never entitled; the stars
are twinkling dots, and “were so expressly disposed at considerable
distances from one another by the Creator of the universe, probably
with the intention that they should simultaneously illumine the vast
spaces on the face of our globe” says Dr. Shoëpfer.
And is it so that even three centuries and a half have not sufficed
the men of exact science to construct one theory that not a single
university professor would dare challenge? If astronomy, the one
science built on the adamantine foundation of mathematics, the one
of all others deemed as infallible and unassailable as truth itself, can
be thus irreverently indicted for false pretences, what have we
gained by cheapening Plato to the profit of the Babinets? How, then,
do they venture to flout at the humblest observer who, being both
honest and intelligent, may say he has seen a mediumistic, or
magical phenomenon? And how dare they prescribe the “limits of
philosophical inquiry,” to pass beyond which is not lawful? And these
quarrelling hypothesists still arraign as ignorant and superstitious
those giant intellects of the past, who handled natural forces like
world-building Titans, and raised mortality to an eminence where it
allied itself with the gods! Strange fate of a century boasting to have
elevated exact science to its apex of fame, and now invited to go
back and begin its A B C of learning again!
 Recapitulating the evidence contained in this work, if we begin
with the archaic and unknown ages of the Hermetic Pimander, and
come down to 1876, we find that one universal belief in magic has
run through all these centuries. We have presented the ideas of
Trismegistus in his dialogue with Asclepius; and without mentioning
the thousand and one proofs of the prevalence of this belief in the
first centuries of Christianity, to achieve our purpose we have but to
quote from an ancient and a modern author. The first will be the
great philosopher Porphyry, who several thousand years after the
days of Hermes, remarks in relation to the prevailing skepticism of
his century, the following: “We need not be amazed in seeing the
vulgar masses (οἱ πολλοι) perceive in statues merely stone and
wood. Thus it is generally with those who, ignorant in letters, find
naught in stylæ covered with inscriptions but stone, and in written
books naught but the tissue of the papyrus.” And 1,500 years later,
we see Mr. Sergeant Cox, in stating the case of the shameful
prosecution of a medium by just such a blind materialist, thus
expressing his ideas: “Whether the medium is guilty or guiltless ...
certain it is that the trial has had the unlooked-for effect of directing
the attention of the whole public to the fact that the phenomena are
asserted to exist, and by a great number of competent investigators
are declared to be true, and of the reality of which every person may,
if he pleases, satisfy himself by actual inspection, thus sweeping
away, thus and for ever, the dark and debasing doctrines of the
materialists.”
Still, in harmony with Porphyry and other theurgists, who affirmed
the different natures of the manifesting “spirits” and the personal
spirit or will of man, Mr. Sergeant Cox adds, without committing
himself any further to a personal decision: “True, there are
differences of opinions ... and perhaps ever will be, as to the sources
of the power that is exhibited in these phenomena; but whether they
are the product of the psychic force of the circle ... or, if spirits of the
dead be the agents, as others say, or elemental spirits (whatever it
may be) as asserted by a third party, this fact at least is established
—that man is not wholly material, that the mechanism of man is
moved and directed by some non-material—that is, some non-
molecular structure, which possesses not merely intelligence, but
can exercise also a force upon matter, that something to which, for
lack of a better title, we have given the name of soul. These glad
tidings have by this trial been borne to thousands and tens of
thousands, whose happiness here, and hopes of a hereafter, have
been blighted by the materialists, who have preached so persistently
that soul was but a superstition, man but an automaton, mind but a
secretion, present existence purely animal, and the future—a blank.”
“Truth alone,” says Pimander, “is eternal and immutable; truth is
the first of blessings; but truth is not and cannot be on earth: it is
possible that God sometimes gifts a few men together with the
faculty of comprehending divine things with that of rightly
understanding truth; but nothing is true on earth, for everything has
matter on it, clothed with a corporeal form subject to change, to
alteration, to corruption, and to new combinations. Man is not the
truth, for only that which has drawn its essence from itself, and
remains itself, and unchangeable, is true. How can that which
changes so as not to finally be recognized, be ever true? Truth, then,
is that only which is immaterial and not enclosed within a corporeal
envelope, that which is colorless and formless, exempt from change
and alteration; that which is eternal. All of that which perishes is a lie;
earth is but dissolution and generation; every generation proceeds
from a dissolution; the things of earth are but appearances and
imitations of truth; they are what the picture is to reality. The things of
earth are not the truth!... Death, for some persons, is an evil which
strikes them with profound terror. This is ignorance.... Death is the
destruction of the body; the being in it dies not.... The material body
loses its form, which is disintegrated in course of time; the senses
which animated it return to their source and resume their functions;
but they gradually lose their passions and their desires, and the spirit
ascends to heaven to become a harmony. In the first zone, it leaves
behind itself the faculty of increasing and decreasing; in the second,
the power of doing evil and the frauds of idleness; in the third,
deceptions and concupiscence; in the fourth, insatiable ambition; in
the fifth, arrogance, audacity, and temerity; in the sixth, all yearning
after dishonest acquisitions; and in the seventh, untruthfulness. The
spirit thus purified by the effect on him of the celestial harmonies,
returns once more to its primitive state, strong of a merit and power
self-acquired, and which belongs to it properly; and only then he
begins to dwell with those that sing eternally their praises of the
Father. Hitherto, he is placed among the powers, and as such has
attained to the supreme blessing of knowledge. He is become a
GOD!... No, the things of earth are not the truth.”
After having devoted their whole lives to the study of the records of
the old Egyptian wisdom, both Champollion-Figeac and
Champollion, Junior, publicly declared, notwithstanding many
biassed judgments hazarded by certain hasty and unwise critics, that
the Books of Hermes “truly contain a mass of Egyptian traditions
which are constantly corroborated by the most authentic records and
monuments of Egypt of the hoariest antiquity.”[915]
Closing up his voluminous summary of the psychological doctrines
of the Egyptians, the sublime teachings of the sacred Hermetic
books, and the attainments of the initiated priests in metaphysical
and practical philosophy, Champollion-Figeac inquires—as he well
may, in view of the then attainable evidence—“whether there ever
was in the world another association or caste of men which could
equal them in credit, power, learning, and capability, in the same
degree of good or evil? No, never! And this caste was subsequently
cursed and stigmatized only by those who, under I know not what
kind of modern influences, have considered it as the enemy of men
and—science.”[916]
At the time when Champollion wrote these words, Sanscrit was,
we may say, almost an unknown tongue for science. But little in the
way of a parallel could have been drawn between the respective
merits of the Brahmans and the Egyptian philosophers. Since then,
however, it has been discovered that the very same ideas,
expressed in almost identical language, may be read in the
Buddhistic and Brahmanical literature. This very philosophy of the
unreality of mundane things and the illusion of the senses—whose
whole substance has been plagiarized in our own times by the
German metaphysicians—forms the groundwork of Kapila’s and
Vyasa’s philosophies, and may be found in Gautama Buddha’s
enunciation of the “four truths,” the cardinal dogmas of his doctrine.
Pimander’s expression “he is become a god” is epitomized in the
one word, Nirvana, which our learned Orientalists most incorrectly
consider as the synonym of annihilation!
This opinion of the two eminent Egyptologists is of the greatest
value to us if it were only as an answer to our opponents. The
Champollions were the first in Europe to take the student of
archæology by the hand, and, leading him on into the silent crypts of
the past, prove that civilization did not begin with our generations; for
“though the origins of ancient Egypt are unknown, she is found to
have been at the most distant periods within the reach of historical
research, with her great laws, her established customs, her cities,
her kings, and gods;” and behind, far behind, these same epochs we
find ruins belonging to other still more distant and higher periods of
civilization. “At Thebes, portions of ruined buildings allow us to
recognize remnants of still anterior structures, the materials of which
had served for the erection of the very edifices which have now
existed for thirty-six centuries!”[917] “Everything told us by Herodotus
and the Egyptian priests is found to be exact, and has been
corroborated by modern scientists,” adds Champollion.[918]
Whence the civilization of the Egyptians came, will be shown in
volume II., and in this respect it will be made to appear that our
deductions, though based upon the traditions of the Secret Doctrine,
run parallel with those of a number of most respected authorities.
There is a passage in a well-known Hindu work which may well be
recalled in this connection.
“Under the reign of Viswamitra, first king of the Dynasty of Soma-
Vanga. in consequence of a battle which lasted five days, Manu-
Vina, heir of the ancient kings, being abandoned by the Brahmans,
emigrated with all his companions, passing through Arya, and the
countries of Barria, till he came to the shores of Masra” (History of
India, by Collouca-Batta). Unquestionably this Manu-Vina and
Menes, the first Egyptian King, are identical.
 Arya, is Eran (Persia); Barria, is Arabia, and Masra, was the name
of Cairo, which to this day is called, Masr, Musr, and Misro.
Phœnician history names Maser as one of the ancestors of Hermes.
And now we will bid farewell to thaumatophobia and its advocates,
and consider thaumatomania under its multifarious aspects. In vol.
II., we intend to review the “miracles” of Paganism and weigh the
evidence in their favor in the same scales with Christian theology.
There is a conflict not merely impending but already begun between
science and theology, on the one hand, and spirit and its hoary
science, magic, on the other. Something of the possibilities of the
latter have already been displayed, but more is to come. The petty,
mean world, for whose approving nod scientists and magistrates,
priests and Christians compete, have begun their latter-day crusade
by sentencing in the same year two innocent men, one in France,
the other in London, in defiance of law and justice. Like the apostle
of circumcision, they are ever ready to thrice deny an unpopular
connection for fear of ostracism by their own fellows. The
Psychomantics and the Psychophobists must soon meet in fierce
conflict. The anxiety to have their phenomena investigated and
supported by scientific authorities has given place with the former to
a frigid indifference. As a natural result of so much prejudice and
unfairness as have been exhibited, their respect for scientists is
waning fast, and the reciprocal epithets bandied between the two
parties are becoming far from complimentary to either. Which of
them is right and which wrong, time will soon show and future
generations understand. It is at least safe to prophesy that the Ultima
Thulè of God’s mysteries, and the key to them are to be sought
elsewhere than in the whirl of Avogadro’s molecules.
People who either judge superficially, or, by reason of their natural
impatience would gaze at the blazing sun before their eyes are well
fitted to bear lamp-light, are apt to complain of the exasperating
obscurity of language which characterizes the works of the ancient
Hermetists and their successors. They declare their philosophical
treatises on magic incomprehensible. Over the first class we can
afford to waste no time; the second, we would beg to moderate their
anxiety, remembering those sayings of Espagnet—“Truth lies hid in