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Fundamentals of Corporate Finance 8th Canadian
Edition Stephen A. Ross Digital Instant Download
Author(s): Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan,
Gordon S. Roberts
ISBN(s): 9780071051606, 0071051600
Edition: 8th Canadian
File Details: PDF, 15.20 MB
Year: 2013
Language: english
 Eighth Canadian Edition

Fundamentals of
Corporate Finance

S T E P H E N A. R O S S
Massac h u se t t s In st it u t e o f Te ch n o lo g y

R A N D O L P H W. W E S T E R F I E L D
Univ e r sit y o f S o u t h e r n C a lif o r n ia

B R A D F O R D D. J O R D A N
U n iv e r sit y o f Ke n t u cky

GORDON S. ROBERTS
Schulich Sch o o l o f B u sin e ss, Yo r k U n iv e r sit y

00Ross_FrontMatter_FIN.indd i 12-12-20 13:00

 Fundamentals of Corporate Finance
Eighth Canadian Edition

Copyright © 2013, 2010, 2007, 2005, 2002, 1999 by McGraw-Hill Ryerson Limited, a Subsidiary of The McGraw-Hill
Companies. Copyright © 1996, 1993 by Richard D. Irwin, a Times Mirror Higher Education Group, Inc. company. All
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ISBN-13: 978-0-07-105160-6
ISBN-10: 0-07-105160-0

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Library and Archives Canada Cataloguing in Publication

Fundamentals of corporate finance / Stephen A. Ross … [et al.].—8th Canadian ed.

Includes bibliographical references and indexes.

ISBN 978-0-07-105160-6

1. Corporations—Finance—Textbooks. I. Ross,
Stephen A

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00Ross_FrontMatter_FIN.indd ii 12-12-20 13:00

 ABOUT THE AUTHORS

Stephen A. Ross Bradford D. Jordan

Sloan School of Management, Franco Modigliani Professor Gatton College of Business and Economics, Professor of
of Finance and Economics, Massachusetts Institute of Finance and holder of the Richard W. and Janis H. Furst
Technology Endowed Chair in Finance, University of Kentucky
Stephen A. Ross is the Franco Modigliani Professor Bradford D. Jordan is Professor of Finance and holder
of Finance and Economics at the Sloan School of of the Richard W. and Janis H. Furst Endowed Chair in
Management, Massachusetts Institute of Technology. Finance at the University of Kentucky. He has a long-
One of the most widely published authors in finance standing interest in both applied and theoretical issues
and economics, Professor Ross is recognized for his in corporate finance and has extensive experience
work in developing the Arbitrage Pricing Theory and teaching all levels of corporate finance and financial
his substantial contributions to the discipline through management policy. Professor Jordan has published nu-
his research in signalling, agency theory, option pricing, merous articles on issues such as cost of capital, capital
and the theory of the term structure of interest rates, structure, and the behaviour of security prices. He is a
among other topics. A past president of the American past president of the Southern Finance Association,
Finance Association, he currently serves as an associate and he is co-author (with Thomas W. Miller, Jr.) of
editor of several academic and practitioner journals. He Fundamentals of Investments: Valuation and
is a trustee of CalTech. Management, 4e, a leading investments text, published
by McGraw-Hill/Irwin.
Randolph W. Wester field
Marshall School of Business, University of Southern
Gordon S. Roberts
California Schulich School of Business, York University, Canadian
Imperial Bank of Commerce Professor of Financial Services
Randolph W. Westerfield is Dean Emeritus of the
University of Southern California’s Marshall School Gordon S. Roberts is Canadian Imperial Bank of
of Business and is the Charles B. Thornton Professor Commerce Professor of Financial Services at the
of Finance. Schulich School of Business, York University. His exten-
He came to USC from the Wharton School, sive teaching experience includes finance classes for un-
University of Pennsylvania, where he was the chairman dergraduate and MBA students, executives, and bankers
of the finance department and a member of the finance in Canada and internationally. Professor Roberts con-
faculty for 20 years. He is a member of several public ducts research on the pricing of bank loans and the reg-
company boards of directors, including Health ulation of financial institutions. He has served on the
Management Associates, Inc., William Lyons Homes, editorial boards of several Canadian and international
and the Nicholas Applegate growth fund. His areas of academic journals. Professor Roberts has been a consul-
expertise include corporate financial policy, investment tant to a number of regulatory bodies responsible for
management, and stock market price behaviour. the oversight of financial institutions and utilities.

00Ross_FrontMatter_FIN.indd iii 12-12-20 13:00

 BRIEF CONTENTS

PREFACE xvii PAR T 6

COST OF CAPITAL AND LONG-TERM
PA RT 1 FINANCIAL POLICY 387
OVERVIEW OF CORPORATE FINANCE 1 14 Cost of Capital 387
15 Raising Capital 423
1 Introduction to Corporate Finance 1
16 Financial Leverage and Capital
2 Financial Statements, Cash Flow, and Taxes 25 Structure Policy 454
17 Dividends and Dividend Policy 490
PA RT 2
FINANCIAL STATEMENTS AND PAR T 7
LONG-TERM FINANCIAL PLANNING 53 SHORT-TERM FINANCIAL PLANNING
3 Working with Financial Statements 53 AND MANAGEMENT 519
4 Long-Term Financial Planning and 18 Short-Term Finance and Planning 519
Corporate Growth 84
19 Cash and Liquidity Management 552
20 Credit and Inventory Management 572
PA RT 3
VALUATION OF FUTURE CASH FLOWS 111 PAR T 8
5 Introduction to Valuation: The Time TOPICS IN CORPORATE FINANCE 606
Value of Money 111
6 Discounted Cash Flow Valuation 129 21 International Corporate Finance 606
7 Interest Rates and Bond Valuation 165 22 Leasing 634
8 Stock Valuation 196 23 Mergers and Acquisitions 655

PA RT 4 PAR T 9

CAPITIAL BUDGETING 220 DERIVATIVE SECURITIES AND

CORPORATE FINANCE 685
9 Net Present Value and Other
Investment Criteria 220 24 Enterprise Risk Management 685
10 Making Capital Investment Decisions 250 25 Options and Corporate Securities 711
11 Project Analysis and Evaluation 288 26 Behavioural Finance: Implications for
Financial Management 750

PA RT 5 Glossary 773
RISK AND RETURN 317 Appendix A: Mathematical Tables (available on Connect)
Appendix B: Answers to Selected End-of-Chapter
12 Lessons from Capital Market History 317
Problems (available on Connect)
13 Return, Risk, and the Security Market Line 346
Subject Index 781
Name Index 800
Equation Index 802

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 CONTENTS

PREFACE xvii 1.8 Outline of the Text 21

1.9 Summary and Conclusions 22
PA R T 1
CHAPTER 2
OVERVIEW OF CORPORATE FINANCE 1
FINANCIAL STATEMENTS, CASH FLOW,
CHAPTER 1 AND TAXES 25
INTRODUCTION TO CORPORATE FINANCE 1 2.1 Statement of Financial Position 25
1.1 Corporate Finance and the Assets 26
Financial Manager 1 Liabilities and Owners’ Equity 26
What Is Corporate Finance? 2 Net Working Capital 27
The Financial Manager 2 Liquidity 28
Financial Management Decisions 2 Debt versus Equity 28
Value versus Cost 28
1.2 Forms of Business Organization 4
Sole Proprietorship 4 2.2 Statement of Comprehensive Income 30
Partnership 5 International Financial Reporting
Standards (IFRS) 30
Corporation 5
Non-Cash Items 31
Income Trust 6
Time and Costs 31
Co-operative (Co-op) 7
2.3 Cash Flow 32
1.3 The Goal of Financial Management 8
Cash Flow from Assets 32
Possible Goals 8
Cash Flow to Creditors and Shareholders 34
The Goal of Financial Management 8
Net Capital Spending 36
A More General Goal 9
Change in NWC and Cash Flow from Assets 36
1.4 The Agency Problem and Control
of the Corporation 10 2.4 Taxes 37
Agency Relationships 10 Individual Tax Rates 37
Management Goals 10 Average versus Marginal Tax Rates 37
Do Managers Act in the Shareholders’ Interests? 10 Taxes on Investment Income 39
Corporate Social Responsibility and Corporate Taxes 39
Ethical Investing 12 Taxable Income 39
Global Tax Rates 40
1.5 Financial Markets and the Corporation 14
Capital Gains and Carry-forward and Carry-back 40
Cash Flows to and from the Firm 15
Income Trust Income and Taxation 41
Money versus Capital Markets 15
Primary versus Secondary Markets 16 2.5 Capital Cost Allowance 42
Asset Purchases and Sales 43
1.6 Financial Institutions 18
2.6 Summary and Conclusions 45
1.7 Trends in Financial Markets and
Financial Management 20

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 vi Contents

PA RT 2 4.4 External Financing and Growth 95

FINANCIAL STATEMENTS AND External Financing Needed and Growth 95
LONG-TERM FINANCIAL PLANNING 53 Internal Growth Rate 97
Financial Policy and Growth 98
CHAPTER 3 Determinants of Growth 100
WORKING WITH FINANCIAL STATEMENTS 53 A Note on Sustainable Growth Rate Calculations 101

3.1 Cash Flow and Financial Statements: 4.5 Some Caveats on Financial
A Closer Look 54 Planning Models 103
Sources and Uses of Cash 54
4.6 Summary and Conclusions 103
The Statement of Cash Flows 56
Appendix 4 (available on Connect)
3.2 Standardized Financial Statements 57
Common-Size Statements 57
Common-Base-Year Financial Statements: PAR T 3
Trend Analysis 59 VALUATION OF FUTURE CASH FLOWS 111
3.3 Ratio Analysis 60
CHAPTER 5
Short-Term Solvency or Liquidity Measures 61
Other Liquidity Ratios 63
INTRODUCTION TO VALUATION:
THE TIME VALUE OF MONEY 111
Long-Term Solvency Measures 64
Asset Management, or Turnover, Measures 65 5.1 Future Value and Compounding 112
Profitability Measures 67 Investing for a Single Period 112
Market Value Measures 68 Investing for More than One Period 112
A Note on Compound Growth 118
3.4 The Du Pont Identity 71
5.2 Present Value and Discounting 118
3.5 Using Financial Statement Information 73
The Single-Period Case 119
Why Evaluate Financial Statements? 73
Present Values for Multiple Periods 119
Choosing a Benchmark 74
Problems with Financial Statement Analysis 75 5.3 More on Present and Future Values 121
Present versus Future Value 121
3.6 Summary and Conclusions 75
Determining the Discount Rate 122
CHAPTER 4 Finding the Number of Periods 124

LONG-TERM FINANCIAL PLANNING 5.4 Summary and Conclusions 126

AND CORPORATE GROWTH 84
CHAPTER 6
4.1 What Is Financial Planning? 85
Growth as a Financial Management Goal 85
DISCOUNTED CASH FLOW VALUATION 129
Dimensions of Financial Planning 86 6.1 Future and Present Values of
What Can Planning Accomplish? 86 Multiple Cash Flows 129
Future Value with Multiple Cash Flows 129
4.2 Financial Planning Models:
Present Value with Multiple Cash Flows 131
A First Look 88
A Note on Cash Flow Timing 134
A Financial Planning Model: The Ingredients 88
A Simple Financial Planning Model 89 6.2 Valuing Level Cash Flows: Annuities
and Perpetuities 135
4.3 The Percentage of Sales Approach 90
Present Value for Annuity Cash Flows 135
An Illustration of the Percentage of Sales Approach 90

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 Contents vii

Future Value for Annuities 140 7.5 Bond Markets 181

A Note on Annuities Due 141 How Bonds Are Bought and Sold 181
Perpetuities 142 Bond Price Reporting 182
Growing Perpetuities 143 A Note on Bond Price Quotes 182
Formula for Present Value of Growing Perpetuity 144 Bond Funds 184
Growing Annuity 145
7.6 Inflation and Interest Rates 184
Formula for Present Value of Growing Annuity 145
Real versus Nominal Rates 184
6.3 Comparing Rates: The Effect of The Fisher Effect 185
Compounding 145 Inflation and Present Values 186
Effective Annual Rates and Compounding 146
Calculating and Comparing Effective
7.7 Determinants of Bond Yields 186
Annual Rates 146 The Term Structure of Interest Rates 187
Mortgages 147 Bond Yields and the Yield Curve:
EARs and APRs 148 Putting It All Together 188
Taking It to the Limit: A Note on Conclusion 189
Continuous Compounding 149 7.8 Summary and Conclusions 190
6.4 Loan Types and Loan Amortization 150 Appendix 7A: On Duration 194
Pure Discount Loans 150
Interest-Only Loans 150 Appendix 7B (available on Connect)
Amortized Loans 151
CHAPTER 8
6.5 Summary and Conclusions 155 STOCK VALUATION 196
Appendix 6A: Proof of Annuity Present 8.1 Common Stock Valuation 196
Value Formula 164
Common Stock Cash Flows 196
Common Stock Valuation: Some Special Cases 198
CHAPTER 7
Changing the Growth Rate 202
INTEREST RATES AND BOND VALUATION 165
Components of the Required Return 203
7.1 Bonds and Bond Valuation 165
8.2 Common Stock Features 205
Bond Features and Prices 165
Shareholders’ Rights 205
Bond Values and Yields 166
Dividends 206
Interest Rate Risk 169
Classes of Stock 206
Finding the Yield to Maturity 170
8.3 Preferred Stock Features 207
7.2 More on Bond Features 173
Stated Value 207
Is It Debt or Equity? 173
Cumulative and Non-Cumulative Dividends 207
Long-Term Debt: The Basics 174
Is Preferred Stock Really Debt? 208
The Indenture 174
Preferred Stock and Taxes 209
7.3 Bond Ratings 177 Beyond Taxes 209

7.4 Some Different Types of Bonds 178 8.4 Stock Market Reporting 210
Financial Engineering 178 Growth Opportunities 211
Stripped Bonds 179 Application: The Price-Earnings Ratio 211
Floating-Rate Bonds 180
8.5 Summary and Conclusions 213
Other Types of Bonds 180
Appendix 8A: Corporate Voting 218

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 viii Contents

PA RT 4 Capital Budgeting and Business Taxes in Canada 254

Other Issues 254
CAPITAL BUDGETING 220
10.3 Pro Forma Financial Statements
CHAPTER 9 and Project Cash Flows 254
NET PRESENT VALUE AND OTHER Getting Started: Pro Forma Financial Statements 254
INVESTMENT CRITERIA 220 Project Cash Flows 255
9.1 Net Present Value 221 Project Total Cash Flow and Value 256
The Basic Idea 221 10.4 More on Project Cash Flow 257
Estimating Net Present Value 222 A Closer Look at Net Working Capital 257
9.2 The Payback Rule 225 Depreciation and Capital Cost Allowance 258
Defining the Rule 225 An Example: The Majestic Mulch and Compost
Company (MMCC) 259
Analyzing the Payback Period Rule 225
Redeeming Qualities 226 10.5 Alternative Definitions of Operating
Summary of the Rule 226 Cash Flow 263
The Discounted Payback Rule 227 The Bottom-Up Approach 263
The Top-Down Approach 264
9.3 The Average Accounting Return 228
The Tax Shield Approach 264
Analyzing the Average Accounting Return
Conclusion 265
Method 229

9.4 The Internal Rate of Return 230 10.6 Applying the Tax Shield Approach
to the Majestic Mulch and Compost
Problems with the IRR 233
Company Project 265
Redeeming Qualities of the IRR 237
Present Value of the Tax Shield on CCA 266
9.5 The Profitability Index 238 Salvage Value versus UCC 268

9.6 The Practice of Capital Budgeting 239 10.7 Some Special Cases of Discounted
Cash Flow Analysis 269
9.7 Summary and Conclusions 241
Evaluating Cost-Cutting Proposals 269
Appendix 9A: The Modified Internal Replacing an Asset 270
Rate of Return 248 Evaluating Equipment with Different Lives 272
Setting the Bid Price 273
CHAPTER 10
10.8 Summary and Conclusions 276
MAKING CAPITAL INVESTMENT
DECISIONS 250 Appendix 10A: More on Inflation and
10.1 Project Cash Flows: A First Look 251 Capital Budgeting 285
Relevant Cash Flows 251 Appendix 10B: Capital Budgeting with
The Stand-Alone Principle 251 Spreadsheets 286
10.2 Incremental Cash Flows 251 CHAPTER 11
Sunk Costs 251
PROJECT ANALYSIS AND EVALUATION 288
Opportunity Costs 252
Side Effects 252 11.1 Evaluating NPV Estimates 288
Net Working Capital 253 The Basic Problem 289
Financing Costs 253 Projected versus Actual Cash Flows 289
Inflation 253 Forecasting Risk 289
Sources of Value 289

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 Contents ix

11.2 Scenario and Other What-If Analyses 290 12.4 The Variability of Returns:
Getting Started 290 The Second Lesson 326
Scenario Analysis 291 Frequency Distributions and Variability 326
Sensitivity Analysis 293 The Historical Variance and Standard Deviation 326
Simulation Analysis 295 The Historical Record 328
Normal Distribution 329
11.3 Break-Even Analysis 296
Value at Risk 331
Fixed and Variable Costs 296
The Second Lesson 331
Accounting Break-Even 297
2008 The Bear Growled and Investors Howled 331
Accounting Break-Even: A Closer Look 299
Using Capital Market History 332
Uses for the Accounting Break-Even 299
12.5 More on Average Returns 333
11.4 Operating Cash Flow, Sales Volume,
Arithmetic versus Geometric Averages 333
and Break-Even 300
Calculating Geometric Average Returns 333
Accounting Break-Even and Cash Flow 300
Arithmetic Average Return or Geometric
Cash Flow and Financial Break-Even Points 302
Average Return? 335
11.5 Operating Leverage 304 12.6 Capital Market Efficiency 335
The Basic Idea 304
Price Behaviour in an Efficient Market 336
Implications of Operating Leverage 305
The Efficient Markets Hypothesis 337
Measuring Operating Leverage 305
Market Efficiency—Forms and Evidence 339
Operating Leverage and Break-Even 306
12.7 Summary and Conclusions 341
11.6 Managerial Options 307
11.7 Capital Rationing 310 CHAPTER 13
RETURN, RISK, AND THE SECURITY
11.8 Summary and Conclusions 311 MARKET LINE 346
13.1 Expected Returns and Variances 347
PA R T 5 Expected Return 347
RISK AND RETURN 317 Calculating the Variance 349

CHAPTER 12 13.2 Portfolios 351

Portfolio Weights 351
LESSONS FROM CAPITAL MARKET
HISTORY 317 Portfolio Expected Returns 351
Portfolio Variance 352
12.1 Returns 318
Portfolio Standard Deviation and Diversification 353
Dollar Returns 318
The Efficient Set 355
Percentage Returns 319
Correlations in the Financial Crisis of 2007–2009 357
12.2 The Historical Record 321 13.3 Announcements, Surprises, and
A First Look 323 Expected Returns 359
A Closer Look 324 Expected and Unexpected Returns 359
12.3 Average Returns: The First Lesson 324 Announcements and News 359
Calculating Average Returns 324 13.4 Risk: Systematic and Unsystematic 360
Average Returns: The Historical Record 324 Systematic and Unsystematic Risk 360
Risk Premiums 325 Systematic and Unsystematic Components
The First Lesson 325 of Return 361

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 x Contents

13.5 Diversification and Portfolio Risk 361 14.4 The Weighted Average Cost of Capital 394
The Effect of Diversification: Another The Capital Structure Weights 395
Lesson from Market History 362 Taxes and the Weighted Average Cost of Capital 396
The Principle of Diversification 363 Solving the Warehouse Problem and
Diversification and Unsystematic Risk 364 Similar Capital Budgeting Problems 396
Diversification and Systematic Risk 364 Performance Evaluation: Another Use of
Risk and the Sensible Investor 364 the WACC 398

13.6 Systematic Risk and Beta 365 14.5 Divisional and Project Costs
of Capital 399
The Systematic Risk Principle 366
The SML and the WACC 399
Measuring Systematic Risk 366
Divisional Cost of Capital 401
Portfolio Betas 367
The Pure Play Approach 401
13.7 The Security Market Line 368 The Subjective Approach 402
Beta and the Risk Premium 368
14.6 Flotation Costs and the Weighted
Calculating Beta 372
Average Cost of Capital 403
The Security Market Line 374
The Basic Approach 403
13.8 Arbitrage Pricing Theory And Flotation Costs and NPV 404
Empirical Models 377
14.7 Calculating WACC for Loblaw 406
13.9 Summary and Conclusions 379 Estimating Financing Proportions 406
Appendix 13A: Derivation of the Capital Market Value Weights for Loblaw 406
Asset Pricing Model 384 Cost of Debt 407
Cost of Preferred Shares 408
Cost of Common Stock 408
PA RT 6
CAPM 408
COST OF CAPITAL AND LONG-TERM Dividend Valuation Model Growth Rate 409
FINANCIAL POLICY 387 Loblaw’s WACC 409

CHAPTER 14 14.8 Summary and Conclusions 409

COST OF CAPITAL 387 Appendix 14A: Adjusted Present Value 414
14.1 The Cost of Capital:
Appendix 14B: Economic Value Added and
Some Preliminaries 388
the Measurement of
Required Return versus Cost of Capital 388 Financial Performance 419
Financial Policy and Cost of Capital 388
CHAPTER 15
14.2 The Cost of Equity 389
The Dividend Growth Model Approach 389 RAISING CAPITAL 423
The SML Approach 391 15.1 The Financing Life Cycle of a Firm:
The Cost of Equity in Rate Hearings 392 Early-Stage Financing and
Venture Capital 423
14.3 The Costs of Debt and Preferred Stock 393
Venture Capital 424
The Cost of Debt 393
Some Venture Capital Realities 424
The Cost of Preferred Stock 394
Choosing a Venture Capitalist 424
Conclusion 425

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 Contents xi

15.2 The Public Issue 425 CHAPTER 16

15.3 The Basic Procedure for a New Issue 426 FINANCIAL LEVERAGE AND CAPITAL
STRUCTURE POLICY 454
Securities Registration 427
Alternative Issue Methods 427 16.1 The Capital Structure Question 455
Firm Value and Stock Value: An Example 455
15.4 The Cash Offer 427
Capital Structure and the Cost of Capital 456
Types of Underwriting 428
Bought Deal 428 16.2 The Effect of Financial Leverage 456
Dutch Auction Underwriting 429 The Basics of Financial Leverage 456
The Selling Period 429 Corporate Borrowing and Homemade Leverage 460
The Overallotment Option 430 16.3 Capital Structure and the Cost
Lockup Agreements 430 of Equity Capital 462
The Quiet Period 430 M&M Proposition I: The Pie Model 462
The Investment Dealers 430 The Cost of Equity and Financial Leverage:
M&M Proposition II 462
15.5 IPOs and Underpricing 431
Business and Financial Risk 463
IPO Underpricing: The 1999–2000 Experience 431
Evidence on Underpricing 432 16.4 M&M Propositions I and II with
Why Does Underpricing Exist? 435 Corporate Taxes 466
The Interest Tax Shield 466
15.6 New Equity Sales and the Value
Taxes and M&M Proposition I 466
of the Firm 436
Taxes, the WACC, and Proposition II 468
15.7 The Cost of Issuing Securities 437
16.5 Bankruptcy Costs 470
IPOs in Practice: The Case of Athabasca
Oil Sands 439 Direct Bankruptcy Costs 470
Indirect Bankruptcy Costs 470
15.8 Rights 439
Agency Costs of Equity 471
The Mechanics of a Rights Offering 439
Number of Rights Needed to Purchase a Share 440 16.6 Optimal Capital Structure 472
The Value of a Right 441 The Static Theory of Capital Structure 472
Theoretical Value of a Right 442 Optimal Capital Structure and the Cost
of Capital 473
Ex Rights 443
Optimal Capital Structure: A Recap 473
Value of Rights after Ex-Rights Date 444
Capital Structure: Some Managerial
The Underwriting Arrangements 444
Recommendations 475
Effects on Shareholders 444
Cost of Rights Offerings 445 16.7 The Pie Again 475
The Extended Pie Model 475
15.9 Dilution 446
Marketed Claims versus Non-Marketed Claims 476
Dilution of Proportionate Ownership 446
Dilution of Value: Book versus Market Values 446 16.8 The Pecking-Order Theory 477
Internal Financing and the Pecking Order 477
15.10 Issuing Long-term Debt 448
Implications of the Pecking Order 477
15.11 Summary and Conclusions 449
16.9 Observed Capital Structures 478

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 xii Contents

16.10 Long-Term Financing Under Financial Dividend Stability 505

Distress and Bankruptcy 479 A Compromise Dividend Policy 507
Liquidation and Reorganization 480 Some Survey Evidence on Dividends 507
Agreements to Avoid Bankruptcy 481
17.7 Stock Repurchase: An Alternative
16.11 Summary and Conclusions 482 to Cash Dividends 508
Cash Dividends versus Repurchase 508
Appendix 16A: Capital Structure and
Real-World Considerations in a Repurchase 510
Personal Taxes 487
Share Repurchase and EPS 510
Appendix 16B: Derivation of Proposition II
(Equation 16.4) 489 17.8 Stock Dividends and Stock Splits 510
Some Details on Stock Splits and Stock Dividends 511
CHAPTER 17 Value of Stock Splits and Stock Dividends 512
DIVIDENDS AND DIVIDEND POLICY 490 Reverse Splits 512

17.1 Cash Dividends and Dividend 17.9 Summary and Conclusions 513
Payment 491
Cash Dividends 491 PAR T 7
Standard Method of Cash Dividend Payment 492
SHORT-TERM FINANCIAL PLANNING
Dividend Payment: A Chronology 492
AND MANAGEMENT 519
More on the Ex-Dividend Date 492

17.2 Does Dividend Policy Matter? 494 CHAPTER 18

An Illustration of the Irrelevance of SHORT-TERM FINANCE AND PLANNING 519
Dividend Policy 494
18.1 Tracing Cash and Net Working Capital 520
17.3 Real-World Factors Favouring
a Low Payout 496 18.2 The Operating Cycle and the
Cash Cycle 521
Taxes 496
Defining the Operating and Cash Cycles 522
Some Evidence on Dividends and Taxes
in Canada 497 Calculating the Operating and Cash Cycles 524

Flotation Costs 498 Interpreting the Cash Cycle 525

Dividend Restrictions 498 18.3 Some Aspects of Short-Term

Financial Policy 526
17.4 Real-World Factors Favouring a High
Payout 499 The Size of the Firm’s Investment in
Current Assets 526
Desire for Current Income 499
Alternative Financing Policies for Current Assets 528
Uncertainty Resolution 499
Which Financing Policy is Best? 531
Tax and Legal Benefits from High Dividends 500
Current Assets and Liabilities in Practice 531
Conclusion 500
18.4 The Cash Budget 533
17.5 A Resolution of Real-World Factors? 500
Sales and Cash Collections 533
Information Content of Dividends 501
Cash Outflows 534
Dividend Signalling in Practice 501
The Cash Balance 534
The Clientele Effect 502
18.5 A Short-Term Financial Plan 536
17.6 Establishing a Dividend Policy 503
Short-Term Planning and Risk 537
Residual Dividend Approach 503

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 Contents xiii

18.6 Short-Term Borrowing 537 CHAPTER 20

Operating Loans 537 CREDIT AND INVENTORY MANAGEMENT 572
Letters of Credit 539
20.1 Credit and Receivables 572
Secured Loans 539
Components of Credit Policy 573
Factoring 540
The Cash Flows from Granting Credit 573
Securitized Receivables—A Financial Innovation 541
The Investment in Receivables 573
Inventory Loans 541
Trade Credit 542 20.2 Terms of the Sale 574
Money Market Financing 543 Why Trade Credit Exists 574
The Basic Form 575
18.7 Summary and Conclusions 545
The Credit Period 575
CHAPTER 19 Cash Discounts 576

CASH AND LIQUIDITY MANAGEMENT 552 Credit Instruments 578

19.1 Reasons for Holding Cash 552 20.3 Analyzing Credit Policy 578
Speculative and Precautionary Motives 553 Credit Policy Effects 578

The Transaction Motive 553 Evaluating a Proposed Credit Policy 579

Costs of Holding Cash 553 20.4 Optimal Credit Policy 581

Cash Management versus Liquidity Management 553 The Total Credit Cost Curve 581
19.2 Determining the Target Cash Balance 554 Organizing the Credit Function 581

The Basic Idea 554 20.5 Credit Analysis 583

Other Factors Influencing the Target When Should Credit Be Granted? 583
Cash Balance 555
Credit Information 584
19.3 Understanding Float 556 Credit Evaluation and Scoring 585
Disbursement Float 556 20.6 Collection Policy 588
Collection Float and Net Float 557
Monitoring Receivables 588
Float Management 557
Collection Effort 589
Accelerating Collections 560
Credit Management in Practice 589
Over-the-Counter Collections 561
Controlling Disbursements 563 20.7 Inventory Management 590
The Financial Manager and Inventory Policy 590
19.4 Investing Idle Cash 564
Inventory Types 590
Temporary Cash Surpluses 564
Inventory Costs 591
Characteristics of Short-Term Securities 565
Some Different Types of Money 20.8 Inventory Management Techniques 591
Market Securities 567 The ABC Approach 592
The Economic Order Quantity (EOQ) Model 592
19.5 Summary and Conclusions 568
Extensions to the EOQ Model 595
Appendix 19A (available on Connect) Managing Derived-Demand Inventories 596
Materials Requirements Planning (MRP) 597
Just-In-Time Inventory 598

20.9 Summary and Conclusions 600

Appendix 20A (available on Connect)

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 xiv Contents

PA RT 8 CHAPTER 22
TOPICS IN CORPORATE FINANCE 606 LEASING 634
22.1 Leases and Lease Types 634
CHAPTER 21
Leasing versus Buying 635
INTERNATIONAL CORPORATE FINANCE 606 Operating Leases 635
21.1 Terminology 607 Financial Leases 636

21.2 Foreign Exchange Markets and 22.2 Accounting and Leasing 637
Exchange Rates 608
22.3 Taxes, Canada Revenue Agency (CRA),
Exchange Rates 609 and Leases 639
Types of Transactions 611
22.4 The Cash Flows from Leasing 639
21.3 Purchasing Power Parity 613
The Incremental Cash Flows 640
Absolute Purchasing Power Parity 613
Relative Purchasing Power Parity 614 22.5 Lease or Buy? 641
Currency Appreciation and Depreciation 615 A Preliminary Analysis 641
NPV Analysis 642
21.4 Interest Rate Parity, Unbiased
A Misconception 643
Forward Rates, and the Generalized
Fisher Effect 616 Asset Pool and Salvage Value 643

Covered Interest Arbitrage 616 22.6 A Leasing Paradox 644

Interest Rate Parity (IRP) 617 Resolving the Paradox 645
Forward Rates and Future Spot Rates 617 Leasing and Capital Budgeting 647
Putting It All Together 618
22.7 Reasons for Leasing 649
21.5 International Capital Budgeting 620 Good Reasons for Leasing 649
Method 1: The Home Currency Approach 620 Bad Reasons for Leasing 649
Method 2: The Foreign Currency Approach 621 Other Reasons for Leasing 650
Unremitted Cash Flows 621 Leasing Decisions in Practice 650

21.6 Financing International Projects 622 22.8 Summary and Conclusions 651
The Cost of Capital for International Firms 622
International Diversification and Investors 622 CHAPTER 23
Sources of Short- and Intermediate-Term MERGERS AND ACQUISITIONS 655
Financing 623
23.1 The Legal Forms of Acquisitions 656
21.7 Exchange Rate Risk 624 Merger or Consolidation 656
Transaction Exposure 624 Acquisition of Stock 657
Economic Exposure 625 Acquisition of Assets 657
Translation Exposure 626 Acquisition Classifications 657
Managing Exchange Rate Risk 627 A Note on Takeovers 658
21.8 Political and Governance Risks 627 Alternatives to Merger 659

Corporate Governance Risk 628 23.2 Taxes and Acquisitions 659

21.9 Summary and Conclusions 629 Determinants of Tax Status 659
Taxable versus Tax-Free Acquisitions 660

00Ross_FrontMatter_FIN.indd xiv 12-12-20 13:00

 Contents xv

23.3 Accounting for Acquisitions 660 The Risk Profile 688

Reducing Risk Exposure 688
23.4 Gains from Acquisition 661
Hedging Short-Run Exposure 689
Synergy 661
Cash Flow Hedging: A Cautionary Note 690
Revenue Enhancement 662
Hedging Long-Term Exposure 690
Cost Reductions 663
Conclusion 690
Tax Gains 664
Changing Capital Requirements 665 24.3 Hedging with Forward Contracts 691
Avoiding Mistakes 665 Forward Contracts: The Basics 691
A Note on Inefficient Management and The Payoff Profile 691
Opportunistic Takeover Offers 666 Hedging with Forwards 692
The Negative Side of Takeovers 666
24.4 Hedging with Futures Contracts 694
23.5 Some Financial Side Effects of Trading in Futures 694
Acquisitions 667 Futures Exchanges 694
EPS Growth 667 Hedging with Futures 698
Diversification 668
24.5 Hedging with Swap Contracts 698
23.6 The Cost of an Acquisition 668 Currency Swaps 699
Case I: Cash Acquisition 669 Interest Rate Swaps 699
Case II: Stock Acquisition 669 Commodity Swaps 699
Cash versus Common Stock 670 The Swap Dealer 699
23.7 Defensive Tactics 670 Interest Rate Swaps: An Example 700
The Control Block and the Corporate Charter 671 Credit Default Swaps (CDS) 701
Repurchase ∕ Standstill Agreements 671 24.6 Hedging with Option Contracts 701
Exclusionary Offers and Dual Class Stock 672 Option Terminology 701
Share Rights Plans 672 Options versus Forwards 702
Going Private and Leveraged Buyouts 673 Option Payoff Profiles 702
LBOs to Date: The Record 674 Option Hedging 703
Other Defensive Devices 674 Hedging Commodity Price Risk with Options 703
23.8 Some Evidence on Acquisitions 676 Hedging Exchange Rate Risk with Options 704
Hedging Interest Rate Risk with Options 704
23.9 Divestitures and Restructurings 678 Actual Use of Derivatives 706
23.10 Summary and Conclusions 679 24.7 Summary and Conclusions 707

PA R T 9 CHAPTER 25
DERIVATIVE SECURITIES AND OPTIONS AND CORPORATE SECURITIES 711
CORPORATE FINANCE 685 25.1 Options: The Basics 711
Puts and Calls 712
CHAPTER 24
Stock Option Quotations 712
ENTERPRISE RISK MANAGEMENT 685 Option Payoffs 713
24.1 Insurance 686 Put Payoffs 716
Long-Term Options 716
24.2 Managing Financial Risk 687
The Impact of Financial Risk: The Credit
Crisis of 2007–2009 687

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 xvi Contents

25.2 Fundamentals of Option Valuation 716 25.10 Summary and Conclusions 740
Value of a Call Option at Expiration 717
Appendix 25A: The Black–Scholes Option
The Upper and Lower Bounds on a Call Pricing Model 745
Option’s Value 718
A Simple Model: Part I 719 CHAPTER 26
Four Factors Determining Option Values 720
BEHAVIOURAL FINANCE: IMPLICATIONS
25.3 Valuing a Call Option 721 FOR FINANCIAL MANAGEMENT 750
A Simple Model: Part II 721 26.1 Introduction to Behavioural Finance 751
The Fifth Factor 722
26.2 Biases 751
A Closer Look 723
Overconfidence 751
25.4 Employee Stock Options 724 Overoptimism 751
ESO Features 725 Confirmation Bias 752
ESO Repricing 725
26.3 Framing Effects 752
25.5 Equity as a Call Option on the Loss Aversion 753
Firm’s Assets 726 House Money 754
Case I: The Debt Is Risk-Free 726
Case II: The Debt Is Risky 727 26.4 Heuristics 755
The Affect Heuristic 755
25.6 Warrants 729 The Representativeness Heuristic 756
The Difference between Warrants and Representativeness and Randomness 756
Call Options 729
The Gambler’s Fallacy 757
Warrants and the Value of the Firm 730
26.5 Behavioural Finance and Market
25.7 Convertible Bonds 732 Efficiency 758
Features of a Convertible Bond 732
Limits to Arbitrage 758
Value of a Convertible Bond 732
Bubbles and Crashes 761
25.8 Reasons for Issuing Warrants and 26.6 Market Efficiency and the Performance of
Convertibles 734 Professional Money Managers 766
The Free Lunch Story 735
The Expensive Lunch Story 735 26.7 Summary and Conclusions 770
A Reconciliation 735
Glossary 773
25.9 Other Options 736 Appendix A: Mathematical Tables (available on Connect)
The Call Provision on a Bond 736
Appendix B: Answers to Selected End-of-Chapter
Put Bonds 736
Problems (available on Connect)
The Overallotment Option 736
Subject Index 781
Insurance and Loan Guarantees 737
Managerial Options 737 Name Index 800
Equation Index 802

00Ross_FrontMatter_FIN.indd xvi 12-12-20 13:00

 P REFACE

Fundamentals of Corporate Finance continues on its tradition of excellence that has earned it its
status as market leader. The rapid and extensive changes in financial markets and instruments has
placed new burdens on the teaching of Corporate Finance in Canada. As a result, every chapter
has been updated to provide the most current examples that reflect Corporate Finance in today’s
world. This best-selling text is written with one strongly held principle—that Corporate Finance
should be developed and taught in terms of a few integrated powerful ideas: Emphasis on
Intuition, Unified Valuation Approach, and Managerial Focus.

An Emphasis on Intuition We are always careful to separate and explain the principles at
work on an intuitive level before launching into any specifics. The underlying 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 un-
derlying corporate finance. Many texts stop well short of consistently integrating this important
principle. The most basic notion—that NPV represents the excess of market value over cost—
tends to get lost in an overly mechanical approach to NPV that emphasizes computation at the
expense of understanding. Every subject covered in Fundamentals of Corporate Finance is firmly
rooted in valuation, and care is taken throughout the text to explain how particular decisions
have valuation effects.

A Managerial Focus Students will not lose sight of the fact that financial management con-
cerns management. Throughout the text, the role of the financial manager as decision maker is
emphasized, and the need for managerial input and judgement is stressed. “Black box” approaches
to finance are consciously avoided.

These three themes work together to provide a sound foundation, and a practical and work-
able understanding of how to evaluate and make financial decisions.

New to This Edition In addition to retaining the coverage that has characterized Fundamen-
tals of Corporate Finance from the beginning, the Eighth Canadian Edition features enhanced
Canadian content on current issues such as:
• Perspective on the financial crisis of 2007–2009 and its aftermath, in particular, the Euro-
pean government debt credit crisis (Chapters 1, 12, and 24, among others).
• Updated and expanded coverage of corporate governance, social responsibility, ethical in-
vesting, and shareholder activism (Chapters 1, 8, and 23).
• Addition of a new chapter on Behavioural Finance (Chapter 26).
• Refocusing of the derivatives coverage on Enterprise Risk Management (Chapter 24).

00Ross_FrontMatter_FIN.indd xvii 12-12-20 13:00

 C OVERAGE

This book was designed and developed explicitly for a first course in business or corporate
finance, for both finance majors and non-majors alike. In terms of background or prerequisites,
the book is nearly self-contained, assuming some familiarity with basic algebra and accounting
concepts, while still reviewing important accounting principles very early on. The organization of
this text has been developed to give instructors the flexibility they need.
Just to give an idea of the breadth of coverage in the Eighth Canadian Edition, the following
grid presents, for each chapter, some of the most significant features, as well as a few selected
chapter highlights. Of course, in every chapter, opening vignettes, boxed features, in-chapter
illustrated examples using real companies, and end-of-chapter materials have been thoroughly
updated as well.

Chapters Selected Topics of Interest Benefits to You

PART ONE OVERVIEW OF CORPORATE FINANCE
Chapter 1 • New material: Perspective on the financial crisis of • Links to headlines on financial crisis.
Introduction to 2007–2009 and its aftermath, in particular, the
Corporate Finance European government debt credit crisis
• 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 executive • Brings in real-world issues concerning conflicts of interest
compensation and current controversies surrounding ethical conduct and
management pay.
Chapter 2 • New material: Financial statements conforming to IFRS • Links to current practice.
Financial Statements, Cash • Cash flow vs. earnings • Defines cash flow and the differences between cash flow and
Flow, and Taxes earnings.
• Market values vs. book values • Emphasizes the relevance of market values over book values.

PART TWO FINANCIAL STATEMENTS AND LONG-TERM FINANCIAL PLANNING

Chapter 3 • Using financial statement information • Discusses the advantages and disadvantages of using
Working with Financial financial statements.
Statements
Chapter 4 • Explanation of alternative formulas for sustainable • Explanation of growth rate formulas clears up a common
Long-Term Financial and internal growth rates misunderstanding about these formulas and the circumstances
Planning and Corporate under which alternative formulas are correct.
Growth • Thorough coverage of sustainable growth as a • Provides a vehicle for examining the interrelationships
planning tool among operations, financing, and growth.

PART THREE VALUATION OF FUTURE CASH FLOWS

Chapter 5 • First of two chapters on time value of money • Relatively short chapter introduces the basic ideas on time
Introduction to Valuation: value of money to get students started on this traditionally
The Time Value of Money difficult topic.
Chapter 6 • Second of two chapters on time value of money • Covers more advanced time value topics with numerous
Discounted Cash Flow examples, calculator tips, and Excel spreadsheet exhibits.
Valuation Contains many real-world examples.
Chapter 7 • New material: Discussion of bond fund strategies at • Links chapter material to current events.
Interest Rates and Bond time of European government debt crisis
Valuation • “Clean” vs. “dirty” bond prices and accrued • Clears up the pricing of bonds between coupon payment
interest dates and also bond market quoting conventions.
• Bond ratings • Up-to-date discussion of bond rating agencies and ratings
given to debt. Includes the latest descriptions of ratings used
by DBRS.
Chapter 8 • New material: Stock valuation using multiples • Broadens coverage of valuation techniques.
Stock Valuation • New material: Examples of shareholder activism at • Expands governance coverage and links chapter material to
Canadian Pacific and Magna International current events.

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 Coverage xix

Chapters Selected Topics of Interest Benefits to You

PART FOUR CAPITAL BUDGETING
Chapter 9 • New material: Enhanced discussion of multiple IRRs • Clarifies properties of IRR.
Net Present Value and and modified IRR
Other Investment Criteria • New material: Practice of capital budgeting in Canada • Current Canadian material demonstrates relevance of
techniques presented.
• First of three chapters on capital budgeting • Relatively short chapter introduces key ideas on an intuitive
level to help students with this traditionally difficult topic.
• NPV, IRR, payback, discounted payback, and • Consistent, balanced examination of advantages and
accounting rate of return disadvantages of various criteria.
Chapter 10 • Project cash flow • Thorough coverage of project cash flows and the relevant
Making Capital Investment numbers for a project analysis.
Decisions
• Alternative cash flow definitions • Emphasizes the equivalence of various formulas, thereby
removing common misunderstandings.
• Special cases of DCF analysis • Considers important applications of chapter tools.
Chapter 11 • New material: Detailed examples added of scenario • Brings technique to life in real-world example.
Project Analysis and analysis in gold mining and managerial options in
Evaluation zoo management
• Sources of value • Stresses the need to understand the economic basis for
value creation in a project.
• Scenario and sensitivity “what-if” analyses • Illustrates how to apply and interpret these tools in a
project analysis.
• Break-even analysis • Covers cash, accounting, and financial break-even levels.

PART FIVE RISK AND RETURN

Chapter 12 • New material: Capital market history updated • Extensively covers historical returns, volatilities, and risk
Lessons from Capital through 2011, new section on market volatility in premiums.
Market History 2008, In Their Own Words box on the crash of
2008 and the efficient markets hypothesis
• Geometric vs. arithmetic returns • Discusses calculation and interpretation of geometric returns.
Clarifies common misconceptions regarding appropriate use of
arithmetic vs. geometric average returns.
• Market efficiency • Discusses efficient markets hypothesis along with common
misconceptions.
Chapter 13 • New material: Correlations in the financial crisis • Explains instability in correlations with a current example.
Return, Risk, and the • Diversification, systematic and unsystematic risk • Illustrates basics of risk and return in straightforward fashion.
Security
• Beta and the security market line • Develops the security market line with an intuitive approach
Market Line
that bypasses much of the usual portfolio theory and statistics.

PART SIX COST OF CAPITAL AND LONG-TERM FINANCIAL POLICY

Chapter 14 • Cost of capital estimation • Contains a complete step-by-step illustration of cost of
Cost of Capital capital for publicly traded Loblaw Companies.

Chapter 15 • Dutch auction IPOs • Explains uniform price auctions using Google IPO as
Raising Capital an example.
• IPO “quiet periods” • Explains the OSC’s and SEC’s quiet period rules.
• Lockup agreements • Briefly discusses the importance of lockup agreements.
• IPOs in practice • Takes in-depth look at IPOs of Facebook and Athabasca
Oil Sands.
Chapter 16 • New material: Pecking order theory • Expands coverage of capital structure.
Financial Leverage and • Basics of financial leverage • Illustrates the effect of leverage on risk and return.
Capital Structure Policy
• Optimal capital structure • Describes the basic trade-offs leading to an optimal capital
structure.
• Financial distress and bankruptcy • Briefly surveys the bankruptcy process.
Chapter 17 • New material: Recent Canadian survey evidence on • Survey results show the most important (and least
Dividends and Dividend dividend policy important) factors that financial managers consider when
Policy setting dividend policy.
• Dividends and dividend policy • Describes dividend payments and the factors favouring
higher and lower payout policies.

00Ross_FrontMatter_FIN.indd xix 12-12-20 13:00

 xx Coverage

Chapters Selected Topics of Interest Benefits to You

PART SEVEN SHORT-TERM FINANCIAL PLANNING AND MANAGEMENT
Chapter 18 • Operating and cash cycles • Stresses the importance of cash flow timing.
Short-Term Finance and
• Short-term financial planning • Illustrates creation of cash budgets and potential need
Planning
for financing.
Chapter 19 • Float management • Covers float management thoroughly.
Cash and Liquidity
• Cash collection and disbursement • Examines systems that firms use to handle cash inflows
Management
and outflows.
Chapter 20 • Credit management • Analysis of credit policy and implementation.
Credit and Inventory
• Inventory management • Briefly surveys important inventory concepts.
Management

PART EIGHT TOPICS IN CORPORATE FINANCE

Chapter 21 • Exchange rate, political, and governance risks • Discusses hedging and issues surrounding sovereign and
International Corporate governance risks.
Finance • Foreign exchange • Covers essentials of exchange rates and their determination.
• International capital budgeting • Shows how to adapt basic DCF approach to handle
exchange rates.
Chapter 22 • Synthetic leases • Discusses controversial practice of financing off the
Leasing statement of financial position (also referred to as off-balance
sheet financing).
• Leases and lease valuation • Discusses essentials of leasing.
Chapter 23 • New material: Expanded discussion of dual class stock, • Presents topical issues with Canadian examples.
Mergers and Acquisitions investor activism, and ownership and control
• Alternatives to mergers and acquisitions • Covers strategic alliances and joint ventures and explains
why they are important alternatives.
• Divestitures and restructurings • Examines important actions such as equity carve-outs,
spins-offs, and split-ups.
• Mergers and acquisitions • Develops essentials of M&A analysis, including financial,
tax, and accounting issues.

PART NINE DERIVATIVE SECURITIES AND CORPORATE FINANCE

Chapter 24 • New material: Enterprise risk management framework • Illustrates need to manage risk and some of the most
Enterprise Risk and insurance important types of risk.
Management • New material: Recent survey results on derivatives use • Relates material to practice by financial executives.
• Hedging with forwards, futures, swaps, and options • Shows how many risks can be managed with financial
derivatives.
Chapter 25 • Put-call parity and Black–Scholes • Develops modern option valuation and factors influencing
Options and Corporate option values.
Securities
• Options and corporate finance • Applies option valuation to a variety of corporate issues,
including mergers and capital budgeting.

Chapter 26 (New • Introduction to Behavioural Finance • Introduces biases, framing effects, and heuristics.
Chapter) • Behavioural Finance and market efficiency • Explains limits to arbitrage and discusses bubbles and
Behavioural Finance: crashes, including the Crash of 2008.
Implications for Financial
• Market efficiency and the performance of professional • Expands on efficient markets discussion in Chapter 12 and
Management
money managers relates it to Behavioural Finance.

00Ross_FrontMatter_FIN.indd xx 12-12-20 13:00

Another Random Scribd Document
with Unrelated Content
 784. BLEAK HOUSE. le ofa much disposed to groom him
too) at a public-house where some Rouncewell's hands are dining^
as the ostler tells him. Some of Rouncewell's hands have just
knocked off for dinner time, and seem to be invading the whole
town. They are very sinewy and strong, are Rouncewell's hands — a
little sooty too. He comes to a gateway in the brick wall, looks in,
and sees a great perplexity of iron lying about, in every stage, and in
a vast variety of shapes ; in bars, in wedges, in sheets ; in tanks, in
boilers, in axles, in wheels, in cogs, in cranks, in rails ; twisted and
wrenched, into eccentric and perverse forms, as separate parts of
machinery ; mountains of it broken-up, and rusty in its age ; distant
furnaces of it glowing and bubbling in its youth ; bright fireworks of
it showering about, under the blows of the steam hammer; red-hot
iron, white-hot iron, cold-black iron ; an iron taste, an iron smell,
and a Babel of iron sounds. " This is a place to make a man's head
ache, too ! " says the trooper, looking about him for a counting-
house. "Who comes here? This is very like me before,! was set up.
This ought to be my nephew, if likenesses run in families. Your
servant, sir." "Yours, sir. Are you looking for any one?" v " Excuse
me. Young Mr. Rouncewell, I believe 1 " "Yes." " I was looking for
your father, sir. I wished to have a word with him." The young man,
telling him he is fortunate in his choice of a time, for his father is
there, leads the way to the office where he is to be found. "Very like
me before I was set up — devilish like me ! " thinks the trooper, as
he follows. They come to a building in the yard ; with an office on an
upper floor. At sight of the gentleman in the office, Mr. George turns
very red. " Wliat name shall I say to my father 1 " asks the young
man. George, full of the idea of iron, in desperation answers "Steel,"
and is so presented. He is left alone with the gentleman in the
office, who sits at a table with account-books before him, and some
sheets of paper, blotted with hosts of figures and drawings of
cunning shapes. It is a bare office, with bare windows, looking on
the iron view below. Tumbled together on the table are some pieces
of iron, purposely broken to be tested, at various periods of their
service, in various capacities. There is iron-dust on everything; and
the smoke is seen, through the windows, rolling heavily out of the
tall chimneys, to mingle with the smoke from a vaporous Babylon of
other chimneys, "I am at your service, Mr. Steel," says the
gentleman, when his visitor has taken a rusty chair.
 BLEAK HOUSE. 785 "Well, Mr. Rouncewell," George replies,
leaning forward, with his left arm on his knee, and his hat in his
hand ; and very chary of meeting his brother's eye; "I am not
without my expectations, that in the present visit I may prove to be
more free than welcome. I have served as a Dragoon in my day ;
and a comrade of mine that I was once rather partial to, was, if I
don't deceive myself, a brother of yours. I believe you had a brother
who gave his family some trouble, and ran away, and never did any
good but in keeping away 1 " "Are you quite sure," returns the
ironmaster, in an altered voice, " that your name is Steel ? " The
trooper falters, and looks at him. His brother starts up, calls him by
his name, and grasps him by both hands. " You are too quick for me
! " cries the trooper, with the tears springing out of his eyes. "How
do you do, my dear old fellow. I never could have thought you would
have been half so glad to see me as all this. How do you do, my
dear old fellow, how do you do ! " They shake hands, and embrace
each other, over and over again ; the trooper still coupling his "How
do you do, my dear old fellow ! " with his protestation that he never
thought Ms brother would have been half so glad to see him as all
this ! " So far from it," he declares, at the end of a full account of
what has preceded his arrival there, "I had very little idea of making
myself known. I thought, if you took by any means forgivingly to my
name, I might gradually get myself up to the point of writing a letter.
But I should not have been surprised, brother, if you had considered
it anything but welcome news to hear of me." " We will show you at
home what kind of news we think it, George," returns his brother.
"This is a great day at home, and you could not have arrived, you
bronzed old soldier, on a better. I make an agreement with my son
Watt to-day, that on this day twelvemonth he shall marry as pretty
and as good a girl as you have seen in all your travels. She goes to
Germany to-morrow, with one of your nieces, for a little polishing up
in her education. We make a feast of the event, and you will be
made the hero of it." Mr. George is so entirely overcome at first by
this prospect, that he resists the proposed honour with great
earnestness. Being overborne, however, by his brother and his
nephew — concerning whom he renews his protestations that he
never could have thought they would have been half so glad to see
him — he is taken home to an elegant house, in all the
arrangements of which there is to be observed a pleasant mixture of
the originally simple habits of the father and mother, with such as
are suited to their altered station 3e
 786 BLEAK HOUSE. and the higher fortunes of their
children. Here, Mr. George is much dismayed by the graces and
accomplishments of his nieces that are ; and by the beauty of Rosa,
his niece that is to be ; and by the affectionate salutations of these
young ladies, which he receives in a sort of dream. He is sorely
taken aback, too, by the dutiful behaviour of his nephew ; and has a
woful consciousness upon him of being a scapegrace. However,
there is great rejoicing, and a very hearty company, and infinite
enjoyment ; and Mr. George comes bluff and martial through it all ;
and his pledge to be present at the marriage and give away the
bride, is received with universal favour. A whirling head has Mr.
George that night, when he lies down in the state-bed of his
brother's house, to think of all these things, and to see the images
of his nieces (awful all the evening in their floating muslins),
waltzing, after the German manner, over his counterpane. The
brothers are closeted next morning in the ironmaster's room ; where
the elder is proceeding, in his clear sensible way, to show how he
thinks he may best dispose of George in his business, when George
squeezes his hand and stops him. "Brother, I thank you a million
times for your more than brotherly welcome, and a million times
more to that for your more than brotherly intentions. But my plans
are made. Before I say a word as to them, I wish to consult you
upon one family point. How," says the trooper, folding his arms, and
looking with indomitable firmness at his brother, " how is my mother
to be got to scratch me ? " " I am not sure that I understand you,
George," replies the ironmaster. "I say, brother, how is my mother to
be got to scratch me? She must be got to do it, somehow." "Scratch
you out of her will, I think you mean?" " Of course I do. In short,"
says the trooper, folding his arms more resolutely yet, " I mean — to
— scratch me ? " " My dear George," returns his brother, "is it so
indispensable that you should undergo that process ? " " Quite !
Absolutely ! I couldn't be guilty of the meanness of coming back
without it. I should never be safe not to be off again. I have not
sneaked home to rob your children, if not yourself, brother, of your
rights. I, who forfeited mine long ago ! If I am to remain, and hold
up my head, I must be scratched. Come. You are a man of
celebrated penetration and intelligence, and you can tell me how it's
to be brought about." "I can tell you, George," replies the
ironmaster, deliberately, " how it is not to be brought about, which I
hope may answer the
 BLEAK HOUSE. 787 purpose as well. Look at our mother,
think of her, recall her emotion when she recovered you. Do you
believe there is a consideration in the world that would induce her to
take such a step against her favourite son ? Do you believe there is
any chance of her consent, to balance against the outrage it would
be to her (loving dear old lady ! ) to propose it ? If you do, you are
wrong. No, George ! You must make up your mind to remain
w/iscratched. I think," there is an amused smile on the ironmaster's
face, as he watches his brother, who is pondering, deeply
disappointed, "I think you may manage almost as well as if the thing
were done, though." " How, brother ? " " Being bent upon it, you
can dispose by will of anything you have the misfortune to inherit, in
any way you like, you know." " That's true ! " says the trooper,
pondering again. Then he wistfully asks, with his hand on his
brother's, " Would you mind mentioning that, brother, to your wife
and family 1 " " Not at all." " Thank you. You wouldn't object to say,
perhaps, that although an undoubted vagabond, I am a vagabond of
the harum scarum order, and not of the mean sort ? " The
ironmaster, repressing his amused smile, assents. " Thank you.
Thank you. It's a weight off my mind," says the trooper, with a
heave of his chest as he unfolds his arms, and puts a hand on each
leg ; " though I had set my heart on being scratched, too ! " The
brothers are very like each other, sitting face to face ; but a certain
massive simplicity, and absence of usage in the ways of the world, is
all on the trooper's side. " Well," he proceeds, throwing off his
disappointment, " next and last, those plans of mine. You have been
so brotherly as to propose to me to fall in here, and take my place
among the products of your perseverance and sense. I thank you
heartily. It's more than brotherly, as I said before ; and I thank you
heartily for it," shaking him a long time by the hand. " But the truth
is, brother, I am a — I am a kind of a Weed, and it's too late to plant
me in a regular garden." "My dear George," returns the elder,
concentrating his strong steady brow upon him, and smiling
confidently; "leave that to me, and let me try." George shakes his
head. " You could do it, I have not a doubt, if anybody could ; but
it's not to be done. Not to be done, sir ! Whereas it so falls out, on
the other hand, that I am able to be of some trifle of use to Sir
Leicester Dedlock since his illness —
 788 BLEAK HOUSE. brought on by family sorrows ; and that
he would rather have that help from our mother's son than from
anybody else." "Well, my dear George," returns the other, with a
very slight shade upon his open face, " if you prefer to serve in Sir
Leicester Dedlock's household brigade " " There it is, brother ! " cries
the trooper, checking him, with his hand upon his knee again : "
there it is ! You don't take kindly to that idea ; I don't mind it. You
are not used to being officered ; I am. Everything about you is in
perfect order and discipline ; everything about me requires to be
kept so. We are not accustomed to carry things with the same hand,
or to look at 'em from the same point. I don't say much about my
garrison manners, because I found myself pretty well at my ease last
night, and they wouldn't be noticed here, I dare say, once and away.
But I shall get on best at Chesney Wold — where there's more room
for a Weed than there is here ; and the dear old lady will be made
happy besides. Therefore I accept of Sir Leicester Dedlock's
proposals. When I come over next year to give away the bride, or
whenever I come, I shall have the sense to keep the household
brigade in ambuscade, and not to manoeuvre it on your ground. I
thank you heartily again, and am proud to think of the Rouncewells
as they'll be founded by you." " You know yourself, George," says
the elder brother, returning the grip of his hand, " and perhaps you
know me better than I know myself. Take your way. So that we don't
quite lose one another again, take your way." " No fear of that ! "
returns the trooper. " Now, before I turn my horse's head homeards,
brother, I will ask you — if you'll be so good — to look over, a letter
for me. I brought it with me to send from these parts, as Chesney
Wold might be a painful name just now to the person it's written to.
I am not much accustomed to correspondence myself, and I am
particular respecting this present letter, because I want it to be both
straightforward and delicate." Herewith he hands a letter, closely
written in somewhat pale ink but in a neat round hand, to the
ironmaster, who reads as follows : " Miss Esther Summerson, " A
communication having been made to me by Inspector Bucket of a
letter to myself being found among the papers of a certain person, I
take the liberty to make known to you that it was but a few lines of
instruction from abroad, when, where, and how to deliver
 BLEAK HOUSE. 789 an enclosed letter to a young and
beautiful lady, then unmarried in England. I duly observed the same.
" I further take the liberty to make known to you, that it was got
from me as a proof of handwriting only, and that otherwise I would
not have given it up as appearing to be the most harmless in my
possession, without being previously shot through the heart. " I
further take the liberty to mention, that if I could have supposed a
certain unfortunate gentleman to have been in existence, I never
could and never would have rested until I had discovered his retreat,
and shared my last farthing with him, as my duty and my inclination
would have equally been. But he was (officially) reported drowned,
and assuredly went over the side of a transportship at night in an
Irish harbour, within a few hours of her arrival from the West Indies,
as I have myself heard both from officers and men on board, and
know to have been (officially) confirmed. " I further take the liberty
to state that in my humble quality as one of the rank and file, I am,
and shall ever continue to be, your thoroughly devoted and admiring
servant, and that I esteem the qualities you possess above all
others, far beyond the limits of the present dispatch. " I have the
honour to be, " George." "A little formal," observes the elder brother,
refolding it with a puzzled face. " But nothing that might not be sent
to a pattern young lady ? " asks the younger. "Nothing at all."
Therefore it is sealed, and deposited for posting among the iron
correspondence of the day. This done, Mr. George takes a hearty
farewell of the family party, and prepares to saddle and mount. His
brotlier, however, unwilling to part with him so soon, proposes to
ride with him in a light open carriage to the place where he will bait
for the night, and there remain with him until morning : a servant
riding, for so much of the journey, on the thoroughbred old grey
from Chesney Wold. The ofter being gladly accepted, is followed by
a pleasant ride, a pleasant dinner, and a pleasant breakfast, all in
brotherly communion. Then they once more shake hands long and
heartily, and part ; the ironmaster turning his face to the smoke and
fires, and the trooper to the green country. Early in the afternoon,
the subdued sound of his heavy military trot is heard on the turf in
the avenue, as he rides on with imaginary clank and jingle of
accoutrements under the old elm trees.
 790 BLEAK HOUSE. CHAPTER LXIV. Esther's narrative. Soon
after I had had that conversation with my Guardian, he put a sealed
paper in my hand one morning, and said, " This is for next month,
my dear." I found in it two hundred pounds. I now began very
quietly to make such preparations as I thought were necessary.
Regulating my purchases by my Guardian's taste, which I knew very
well of course, I arranged my wardrobe to please him, and hoped I
should be highly successful. I did it all so quietly, because I was not
quite free from my old apprehension that Ada would be rather sorry,
and because my Guardian was so quiet himself I had no doubt that
under all the circumstances we should be married in the most
private and simple manner. Perhaps I should only have to say to
Ada, " Would you like to come and see me married to-morrow, my
pet ? " Perhaps our wedding might even be as unpretending as her
own, and I might not find it necessary to say anything about it until
it was over. I thought that if I were to choose, I would like this best.
The only exception I made was Mrs. Woodcourt. I told her that I
was going to be married to my Guardian, and that we had been
engaged some time. She highly approved. She could never do
enough for me ; and was remarkably softened now, in comparison
with what she had been when we first knew her. There was no
trouble she would not have taken to have been of use to me ; but I
need hardly say tliat I only allowed her to take as little, as gratified
her kindness without tasking it. Of course this was not a time to
neglect my Guardian ; and of course it was not a time for neglecting
my darling. So I had plenty of occupation — -which I was glad of;
and as to Charley, she was absolutely not to be seen for needlework.
To surround herself with great heaps of it — baskets full and tables
full — and do a little, and spend a great deal of time in staring with
her round eyes at what there was to do, and persuade herself that
she was going to do it, were Charley's great dignities and delights.
Meanwhile, I must say, I could not agree Avith my Guardian on the
subject of the Will, and I had some sanguine hopes of Jarndyce and
Jarndyce. Which of us was right will soon appear, but I certainly did
encourage expectations. In Richard, the discovery gave occasion for
a burst of business and agitation that buoyed him up for a little time
; but he had lost the elasticity even of hope now, and seemed to me
to retain only its feverish anxieties. From something my Guardian
said one day, when we were talking about
 BLEAK HOUSE. 791 this, I understood that my marriage
would not take place until after the Term-time we had been told to
look forward to ; and I thought the more, for that, how rejoiced I
should be if I could be married when Richard and Ada were a little
more prosperous. The Term was veiy near indeed, when my
Guardian was called out of town, and went down into Yorkshire on
Mr. Woodcourt's business. He had told me beforehand that his
presence there would be necessary. I had just come in one night
from my dear girl's, and was sitting in the midst of all my new
clothes, looking at them all around me, and thinking, when a letter
from my Guardian was brought to me. It asked me to join him in the
country ; and mentioned by what stage-coach my place was taken,
and at what time in the morning I should have to leave town. It
added in a postscript that I would not be many hours from Ada. I
expected few things less than a journey at that time, but I was
ready for it in half-an-hour, and set off as appointed early next
morning. I travelled all day, wondering all day what I could be
wanted for at such a distance ; now I thought it might be for this
purpose, and now I thought it might be for that purpose ; but I was
never, never, never near the truth. It was night when I came to my
journey's end, and found my Guardian waiting for me. This was a
great relief, for towards evening I had begun to fear (the more so as
his lette"r was a very short one) that he might be ill. However, there
he was, as well as it was possible to be ; and when I saw his genial
face again at its brightest and best, I said to myself he has been
doing some other great kindness. Not that it required much
penetration to say that, because I knew that his being there at aU
was an act of kindness. Supper was ready at the hotel, and when we
were alone at table he said : " Full of curiosity, no doubt, little
woman, to know why I have brought you here 1 " " Well, Guardian,"
said I, " without thinking myself a Fatima, or you a Blue Beard, I am
a little curious about it." " Then to ensure your night's rest, my love,"
he returned, gaily, "I won't wait until to-morrow to tell you. I have
very much wished to express to Woodcourt, somehow, my sense of
his humanity to poor unfortunate Jo, his inestimable services to my
young cousins, and his value to us all. When it was decided that he
should settle here, it came into my head that I might ask his
acceptance of some unpretending and suitable little place, to lay his
own head in. I therefore caused such a place to be looked out for,
and such a place was found on very easy terms, and I have been
touching it up for
 792 BLEAK HOUSE. 1 bat |{ as ■ him and making it
habitable. However, when I walked over the day before yesterday,
and it was reported ready, I found that I was not housekeeiDer
enough to know whether things were all as they ought to be. So I
sent off for the best little housekeeper that could possibly be got, to
come and give me her advice and opinion. And here she is," said my
Guardian, " laughing and crying both together ! " Because he was so
dear, so good, so admirable. I tried to tell him what I thought of
him, but I could not articulate a word. " Tut, tut ! " said my
Guardian. " You make too much of it, little woman. Why how you
sob. Dame Durden, how you sob ! " " It is with exquisite pleasure.
Guardian — \nth a heart full of thanks." "Well, well," said he. "I am
delighted that you approve. I thought you would. I meant it as a
pleasant surprise for the little mistress of Bleak House." . I kissed
him, and dried my eyes. " I know now ! " said I. "I have seen this in
your face a long while." "No; have you really, my dear?" said he.
"What a Dame Durden it is to read a face ! " He was so quaintly
cheerful that I could not long be otherwise, and was almost
ashamed of having been otherwise at aU. When I went to bed, I
cried. I am bound to confess that I cried ; but I hope it was with
pleasure, though I am not quite sure it was with pleasure. I
repeated every word of the letter twice over. A most beautiful
summer morning succeeded ; and after breakfast we went out arm
in arm, to see the house of which I was to give my mighty
housekeeping opinion. We entered a flower-garden by a gate in a
side wall, of which he had the key ; and the first thing I saw, was,
that the beds and flowers were all laid out according to the manner
of my beds and flowers at home. "You see, my dear," observed my
Guardian, standing stdl, with a delighted face, to watch my looks ; "
knowing there could be no better plan, I borrowed yours." We went
on by a pretty little orchard, where the cherries were nestling among
the green leaves, and the shadows of the appletrees were sporting
on the grass, to the house itself, — a cottage, quite a rustic cottage
of doll's rooms ; but such a lovely place, so tranquil and so beautiful,
with such a rich and smiling countiy spread around it; with water
sparkling away into the distance, here all overhung with summer
growth, there turning a humming mill ; at its nearest point glancing
through a meadow by the cheerful town, where cricket-players were
assembling in bright groups, and a flag was flying from a white tent
that rippled in the sweet
 BLEAK HOUSE. 793 west wind. And still, as we went
through the pretty rooms, out at the little rustic verandah doors, and
underneath the tiny wooden colonnades, garlanded with woodbine,
jasmine, and honeysuckle, I saw, in the papering on the walls, in the
colours of the furniture, in the arrangement of all the pretty objects,
my little tastes and fancies, my little methods and inventions which
they used to laugh at while they praised them, my odd ways
everywhere. I could not say enough in admiration of what was all so
beautiful, but one secret doubt arose in my mind, when I saw this. I
thought, 0 would he be the happier for it ! Would it not have been
better for his peace that I should not have been so brought before
him ? Because, although I was not what he thought me, still he
loved me very dearly, and it might remind him mournfully of what he
believed he had lost. I did not wish him to forget me, — perhaps he
might not have done so, without these aids to his memory, — but
my way was easier than his, and I could have reconciled myself even
to that, so that he had been the happier for it. "And now, little
woman," said my Guardian, whom I had never seen so proud and
joyful as in showing me these things, and watching my appreciation
of them, "now, last of all, for the name of this house." " What is it
called, dear Guardian % " "My child," said he, "come and see." He
took me to the porch, which he had hitherto avoided, and said,
pausing before we went out : " My dear child, don't you guess the
name % " " No ! " said I. We went out of the porch ; and he showed
me written over it, Bleak House. He led me to a seat among the
leaves close by, and sitting down beside me, and taking my hand in
his, spoke to me thus : " My darling girl, in what there has been
between us, I have, I hope, been really solicitous for your
happiness. When I wrote you the letter to which you brought the
answer," smiling as he referred to it, "I had my own too much in
view ; but I had yours too. Whether, under different circumstances, I
might ever have renewed the old dream I sometimes dreamed when
you were very young, of making you my wife one day, I need not
ask myself I did renew it, and I wrote my letter, and you brought
your answer. You are following what I say, my child 1 " I was cold,
and I trembled violently ; but not a word he uttered was lost. As I
sat looking fixedly at him, and the sun's rays descended, softly
shining through the leaves, upon his bare head, I
 794 BLEAK HOUSE. felt as if the brightness on him must be
like the brightness of the Angels. " Hear me, my love, but do not
speak. It is for me to speak now. When it was that I began to doubt
whether what I had done would really make you happy, is no matter.
Woodcourt came home, and I soon had no doubt at all." I clasped
him round the neck, and hung my head upon his breast, and wept. "
Lie lightly, confidently, here, my child," said he, pressing me gently
to him. " I am your guardian and your father now. Rest confidently
here." Soothingly, like the gentle rustling of the leaves ; and genially,
like the ripening weather ; and radiantly and beneficently, like the
sunshine ; he went on. "Understand me, my dear girl. I had no
doubt of your being contented and happy with me, being so dutiful
and so devoted ; but I saw with whom you would be happier. That I
penetrated his secret when Dame Durden was bhnd to it, is no
wonder ; for I knew the good that could never change in her, better
far than she did. Well ! I have long been in Allan Woodcourt's
confidence, although he was not, until yesterday, a few hours before
you came here, in mine. But I would not have my Esther's bright
example lost ; I would not have a jot of my dear girl's virtues
unobserved and unhonoured ; I would not have her admitted on
sufferance into the line of Morgan ap Kerrig, no, not for the weight
in gold of all the mountains in Wales ! " He stopped to kiss me on
the forehead, and I sobbed and wept afresh. For I felt as if I could
not bear the painful delight of his praise. " Hush, little woman ! Don't
cry ; this is to be a day of joy. I have looked forward to it," he said,
exultingly, "for months on months ! A few words more, Dame Trot,
and I have said my say. Determined not to throw away one atom of
my Esther's worth, I took Mrs. Woodcourt into a separate
confidence. ' Now, madam,' said I, ' I clearly perceive — and indeed
I know, to boot — that your son loves my ward. I am further very
sure that my ward loves your son, but will sacrifice her love to a
sense of duty and affection,' and will sacrifice it so completely, so
entirely, so religiously, that you should never suspect it, though you
watched her night and day.' Then I told her all our story — ours —
yours and mine. ' Now, madam,' said I, ' come you, knowing this,
and live with us. Come you, and see my child from hour to hour ; set
what you see, against her pedigree, which is this, and this ' — for I
scorned to mince it — ' and tell me what is the true legitimacy, when
you shall have quite made up your mind on that subject.'
 BLEAK HOUSE. 795 Why, honour to her old Welch blood,
my dear ! " cried my Guardian, with enthusiasm, " I believe the
heart it animates beats no less warmly, no less admiringly, no less
lovingly, towards Dame Durden, than my own ! " He tenderly raised
my head, and as I clung to him, kissed me in his old fatherly way
again and again. What a light, now, on the protecting manner I had
thought about ! " One more last word. When Allan Woodcourt spoke
to you, my dear, he spoke with my knowledge and consent ■ — but
I gave him no encouragement, not I, for these surprises were my
great reward, and I was too miserly to part with a scrap of it. He
was to come, and tell me all that passed ; and he did. I have no
more to say. My dearest, Allan Woodcourt stood beside your father
when he lay dead — stood beside your mother. This is Bleak House.
This day 1 give this house its little mistress ; and before God, it is
the brightest day in all my life ! " He rose, and raised me with him.
We were no longer alone. My husband — I have called him by that
name full seven happy years now — stood at my side. "Allan," said
my Guardian, "take from me, a willing gift, the best wife that ever a
man had. What more can I say for you, than that I know you
deserve her ! Take with her the little home she brings you. You know
what she will make it, Allan ; you know what she has made its
namesake. Let me share its felicity sometimes, and what do I
sacrifice? Nothing, nothing." He kissed me once again ; and now the
tears were in his eyes, as he said more softly : "Esther, my dearest,
after so many years, there is a kind of parting in this too. I know
that my mistake has caused you some distress. Forgive your old
Guardian, in restoring him to his old place in your affections ; and
blot it out of your memory. Allan, take my dear ! " He moved away
from under the green roof of leaves, and stopping in the sunlight
outside, and turning cheerfully towards us, said : " I shall be found
about here somewhere. It's a West wind, little woman, due West !
Let no one thank me any more ; for I am going to revert to my
bachelor habits, and if anybody disregards this warning, I'll run
away, and never come back ! " What happiness was ours that day,
what joy, what rest, what hope, what gratitude, what bliss ! We
were to be married before the month was out ; but when we were
to come and take possession of our own house, was to depend on
Richard and Ada.
 796 BLEAK HOUSE. I We all three went home together next
day. As soon as we arrived in town, Allan went straight to see
Richard, and to carry our joyful news to him and my darling. Late as
it was, I meant to go to her for a few minutes before lying down to
sleep : but I went home with my Guardian first, to make his tea for
him, and to occupy the old chair by his side ; for I did not like to
think of its being empty so soon. When we came home, we found
that a young man had called three times in the course of that one
day, to see me ; and that, having been told, on the occasion of his
third call, that I was not expected to return before ten o'clock at
night, he had left word, "that he would call about then." He had left
his card three times. Mr. Guppy. As I naturally speculated on the
object of these visits, and as I always associated something
ludicrous with the visitor, it fell out that in laughing about Mr. Guppy
I told my Guardian of his old proposal, and his subsequent
retractation. "After that," said my Guardian, " we will certainly
receive this hero." So, instructions were given that Mr. Guppy should
be shown in, when he came again ; and they were scarcely given
when he did come again. He was embarrassed when he found my
Guardian with me, but recovered himself, and said, " How de do,
sir?" " How do you do, sir ? " returned my Guardian. " Thank you, sir,
I am tolerable," returned Mr. Guppy. "Will you allow me to introduce
my mother, Mrs. Guppy of the Old Street Road, and my particular
friend, Mr. Weevle. That is to say, my friend has gone by the name
of Weevle, but his name is really and truly Jobling." My Guardian
begged them to be seated, and they all sat down. "Tony," said Mr.
Guppy to his friend, after an awkward silence. " Will you open the
case ? " "Do it yourself," returned the friend, rather tartly. "Well, Mr.
Jarndyce, sir," Mr. Guppy, after a moment's consideration, began ; to
the great diversion of his mother, which she displayed by nudging
Mr. Jobling with her elbow, and winking at me in a most remarkable
manner ; "I had an idea that I should see Miss Summerson by
herself, and was not quite prepared for your esteemed presence. But
Miss Summerson has mentioned to you, perhaps, that something
has passed between iis on former occasions 1 " " Miss Summerson,"
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