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vi Brief Contents

PART 5 Investor Decision Making 649

CHAPTER 16 Investment Concepts 651

CHAPTER 17 Security Valuation and Selection 697

APPENDIX A Using Spreadsheets to Solve Financial Problems 735

APPENDIX B Answers to End-of-Chapter Problems 747
APPENDIX C Selected Equations 757
Index 769

Preface xiii

PART 1 General Finance Concepts 1

Chapter Principles—Personal Finance 53
CHAPTER 1 Questions 54
An Overview of Finance 3 Problems 56
What Is Finance? 4 Appendix 2A 60
General Areas of Finance 5
The Importance of Finance in Nonfinance Areas 6 CHAPTER 3
The Evolution of Modern Finance 7 Financial Markets and the Investment Banking
Process 61
The Importance of Managerial Finance 14
What Are Financial Markets? 62
Financial Decisions and Value (Wealth)
Maximization 14 Importance of Financial Markets 63
Recent (Future) Developments in Business and Types of Financial Markets 66
Finance 16 The Investment Banking Process 74
Ethical Dilemma: Who Has the Money—The Regulation of Securities Markets 79
Democrat or The Republican? 17 International Financial Markets 80
Chapter Principles—Key Managerial Finance Ethical Dilemma: Too High Tech (“Smoke and
Concepts 18 Mirrors” or Real Sales)? 83
Chapter Principles—Personal Finance 19 Chapter Principles—Key Financial Markets
Questions 19 Concepts 83
Problem 20 Chapter Principles—Personal Finance 84
Questions 85
CHAPTER 2 Problems 85
Financial Assets (Instruments) 21 Computer-Related Problem 88
Financial Instruments and the Firm’s Balance Sheet 22 Appendix 3A 88
Debt 25
Bond Contract Features 32 CHAPTER 4
Bond Ratings 34 Financial Intermediaries and the Banking
Stock (Equity) 35 System 89
Derivatives 41 Roles of Financial Intermediaries 90
Rationale for Different Types of Securities 44 Types of Financial Intermediaries 93
Which Financial Instrument Is Best? 45 Safety (Risk) of Financial Institutions 102
Financial Instruments in International Markets 48 Banking Systems 104
Ethical Dilemma: Should Maria Take a SINful International Banking 116
Cruise? 51 Ethical Dilemma: Anything for (a) BUC? 118
Chapter Principles—Key Financial Assets Chapter Principles—Key Financial Intermediaries
Concepts 52 Concepts 119
vii
Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
viii Contents

Chapter Principles—Personal Finance 120 Other Factors That Influence Interest Rate
Questions 121 Levels 146
Problems 121 Interest Rate Levels and Stock Prices 148
Appendix 4A 124
The Cost of Money as a Determinant of
Value 148
CHAPTER 5
Ethical Dilemma: Unadvertised Special: Is It a
The Cost of Money (Interest Rates) 125
“Shark”? 149
Realized Returns (Yields) 126 Chapter Principles—Key Cost of Money (Interest
Factors That Affect the Cost of Money 128 Rates) Concepts 150
Interest Rate Levels 129 Chapter Principles—Personal Finance 150
Determinants of Market Interest Rates 131 Questions 151
Problems 152
The Term Structure of Interest Rates 137
Computer-Related Problem 156
Why Do Yield Curves Differ? 138 Appendix 5A 157
Does the Yield Curve Indicate Future Interest
Rates? 143

PART 2 General Business Concepts 159

Computer-Related Problem 196
CHAPTER 6 Appendix 6A 2014 Tax Rate Schedules 196
Business Organizations and the Tax Appendix 6B 198
Environment 161
Alternative Forms of Business Organization 163
CHAPTER 7
Finance in the Organizational Structure of the Analysis of Financial Statements 199
Firm 167
Recording Business Activity—Financial
What Goal(s) Should Businesses Pursue? 168 Statements 200
Managerial Actions to Maximize Shareholder Financial Statements 202
Wealth 169
Financial Statement (Ratio) Analysis 218
Should Earnings per Share (EPS)
Summary of Ratio Analysis: The DuPont
Be Maximized? 170
Analysis 229
Managers’ Roles as Agents of Stockholders 171
Comparative Ratios (Benchmarking) 231
Stockholders’ Roles as Agents of Creditors 174
Uses and Limitations of Ratio Analysis 233
Business Ethics 175
Accounting in an International Setting 234
Corporate Governance 176
Ethical Dilemma: Hocus-Pocus—Look, An Increase
Forms of Businesses in Other Countries 176 in Sales! 235
Multinational Corporations 178 Chapter Principles—Key Analysis of Financial
Multinational versus Domestic Managerial Statement Analysis Concepts 236
Finance 179 Chapter Principles—Personal Finance 237
The Federal Income Tax System 181 Questions 237
Problems 239
Corporate Tax Rates in Other Countries 188
Computer-Related Problem 248
Ethical Dilemma: Chances Are, What They Don’t
Appendix 7A 249
Know Won’t Hurt Them! 189
Chapter Principles—Key Business Organizations
Concepts 190
CHAPTER 8
Chapter Principles—Personal Finance 190
Financial Planning and Control 251
Questions 191 Sales Forecasts 252
Problems 193 Projected (Pro Forma) Financial Statements 254

Other Considerations in Forecasting 262 Chapter Principles—Key Financial Planning and

Financial Control—Budgeting and Leverage 263 Control Concepts 281
Chapter Principles—Personal Finance 282
Breakeven Analysis 264
Questions 283
Leverage 269 Problems 284
Using Leverage and Forecasting for Control 275 Computer-Related Problem 293
The Cash Budget 275 Appendix 8A Projected Financial Statements—
Ethical Dilemma: Competition-Based Planning— Including Financing Feedbacks 294
Promotion or Payoff? 280 Appendix 8B 295

PART 3 Fundamentals of Valuation 297

Valuation of Equity (Stock) 365
CHAPTER 9
Expected Dividends as the Basis for Stock
Time Value of Money 299
Values 367
Cash Flow Timelines 301
Actual Stock Prices and Returns in Recent
Cash Flow Patterns 302 Years 378
Future Value (FV) 303 Ethical Dilemma: Which ARM Should You
Present Value (PV) 311 Choose—The Left or the Right? 379
Comparison of Future Value with Present Chapter Principles—Key Valuation Concepts 380
Value 320 Chapter Principles—Personal Finance 380
Questions 382
Solving for Interest Rates (r), Time (n), or Annuity
Problems 383
Payments (PMT) 321
Computer-Related Problem 391
Semiannual and Other Compounding Periods 323 Appendix 10A 391
Comparison of Different Interest Rates 324
Amortized Loans 326 CHAPTER 11
Ethical Dilemma: It’s All Chinese to Me 328 Risk and Rates of Return 393
Chapter Principles—Key TVM Concepts 329 Defining and Measuring Risk 395
Chapter Principles—Personal Finance 329 Expected Rate of Return 397
Questions 330 Portfolio Risk—Holding Combinations of
Problems 331 Assets 406
Computer-Related Problem 340 The Concept of Beta 414
Appendix 9A Generating an Amortization Schedule—
The Relationship between Risk and Rates of
Financial Calculator Solution and Spreadsheet
Solution 340
Return—The Capital Asset Pricing Model
(CAPM) 418
Appendix 9B 342
Stock Market Equilibrium 424
CHAPTER 10 Changes in Equilibrium Stock Prices 426
Valuation Concepts 345 Physical Assets versus Securities 427
Basic Valuation 346 Different Types of Risk 428
Valuation of Bonds 347 Ethical Dilemma: RIP—Retire in Peace 431
Finding Bond Yields (Market Rates) 352 Chapter Principles—Key Risk and Rates of Return
Concepts 431
Interest Rates and Bond Values 354
Chapter Principles—Personal Finance 432
Changes in Bond Values Over Time 356 Questions 433
Bond Values with Semiannual Compounding 359 Problems 434
Interest Rate Risk on a Bond 361 Computer-Related Problem 441
Bond Prices in Recent Years 363 Appendix 11A 442

PART 4 Corporate Decision Making 443

Incorporating Risk in Capital Budgeting
CHAPTER 12 Analysis 522
The Cost of Capital 445
How Project Risk Is Considered in Capital
The Logic of the Weighted Average Cost of Capital Budgeting Decisions 525
(WACC) 447
Multinational Capital Budgeting 525
Basic Definitions 447
Ethical Dilemma: This Is a Good Investment—
Cost of Debt, rdT 448 Be Sure the Numbers Show That It Is! 527
Cost of Preferred Stock, rps 450 Chapter Principles—Key Capital Budgeting
Cost of Retained Earnings (Internal Equity), rs 451 Concepts 527
Cost of Newly Issued Common Stock (External Chapter Principles—Personal Finance 528
Equity), re 455 Questions 529
Problems 532
Weighted Average Cost of Capital (WACC) 457
Computer-Related Problem 543
The Marginal Cost of Capital (MCC) 458 Appendix 13A Depreciation 544
Combining the MCC and Investment Opportunity Problem 547
Schedules (IOS) 469 Appendix 13B Using a Spreadsheet to Compute
Project Risk and WACC 472 NPV and IRR 547
WACC versus Required Rate of Return of Appendix 13C 551
Investors 474
Ethical Dilemma: How Much Should You Pay To CHAPTER 14
Be “Green”? 477 Capital Structure and Dividend Policy Decisions 553
Chapter Principles—Key Cost of Capital The Target Capital Structure 554
Concepts 477 Business and Financial Risk 556
Chapter Principles—Personal Finance 478 Determining the Optimal Capital Structure 558
Questions 479
Liquidity and Capital Structure 567
Problems 481
Computer-Related Problem 489 Capital Structure Theory 568
Appendix 12A 490 Variations in Capital Structures among
Firms 572
CHAPTER 13 Dividend Policy 573
Capital Budgeting 491 Investors and Dividend Policy 574
The Importance of Capital Budgeting 493 Dividend Policy in Practice 575
Project Classifications 493 Factors Influencing Dividend Policy 579
Steps in the Valuation Process 494 Stock Dividends and Stock Splits 580
Estimating a Project’s Cash Flows 495 Capital Structures and Dividend Policies around the
Cash Flow Estimation—Illustrations of World 582
Expansion Projects and Replacement Ethical Dilemma: A Bond Is a Bond Is a Bond …
Projects 500 Is a Stock … Is a Bondock? 584
Capital Budgeting Evaluation Techniques 506 Chapter Principles—Key Capital Structure and
Comparison of the NPV and IRR Methods 513 Dividend Policy Concepts 584
Chapter Principles—Personal Finance 586
Cash Flow Patterns and Multiple IRRs 518
Questions 587
Modified Internal Rate of Return 519 Problems 589
Conclusions on the Capital Budgeting Decision Computer-Related Problems 596
Methods 520 Appendix 14A 597

Managing Cash and Marketable Securities 616

CHAPTER 15
Credit Management 620
Working Capital Management 599
Inventory Management 626
Working Capital Terminology 601
Multinational Working Capital Management 631
The Requirement for External Working Capital
Financing 601 Ethical Dilemma: Money-Back Guarantee, No
Questions Asked 633
The Cash Conversion Cycle 603
Chapter Principles—Key Working Capital
Working Capital Investment and Financing Management Concepts 634
Policies 606 Chapter Principles—Personal Finance 635
Advantages and Disadvantages of Short-Term Questions 636
Financing 609 Problems 637
Sources of Short-Term Financing 610 Computer-Related Problem 645
Computing the Cost of Short-Term Credit 613 Appendix 15A 646

PART 5 Investor Decision Making 649

Evaluating the Firm’s Financial Position 708
CHAPTER 16
Stock Valuation Techniques 710
Investment Concepts 651
Technical Analysis 716
The Investment Process 652
Stock Selection Criteria 720
Investment Alternatives 656
Investment Selection in Efficient Markets 724
Securities Transactions 656
Ethical Dilemma: Mary Mary Quite
Investment Information 659
Contrary, What Makes Your Sales Forecasts
Computing Investment Returns 666 Grow? 725
Indexes—Measuring Market Returns 672 Chapter Principles—Key Security Valuation and
Alternative Investment Strategies 678 Selection Concepts 726
Ethical Dilemma: Drip, Drip, Drip … Should We Chapter Principles—Personal Finance 727
Call a Plumber? 683 Questions 727
Chapter Principles—Key Investment Concepts 684 Problems 729
Chapter Principles—Personal Finance 685 Computer-Related Problem 733
Questions 686 Appendix 17A 733
Problems 687
Computer-Related Problem 692 APPENDIX A
Appendix 16A 693 Using Spreadsheets to Solve Financial Problems 735

CHAPTER 17 APPENDIX B
Security Valuation and Selection 697 Answers to End-of-Chapter Problems 747
Fundamental Analysis versus Technical
APPENDIX C
Analysis 699
Selected Equations 757
Economic Analysis 700
INDEX 769
Industry Analysis 705

Principles of Finance is intended for use in an introductory finance course. The book
presents a survey of key concepts by covering the three general areas of study in
finance: (1) financial markets and institutions, (2) managerial finance, and (3) invest-
ments. The book begins with a discussion of the principles of financial systems—
markets, institutions, and financial assets. This section is followed by a presentation
of general business concepts, including discussions of business organizations and
goals and an examination of financial health. The next set of chapters covers valua-
tion concepts, which include the time value of money, valuing financial and real
assets, and the fundamentals of risk and return. Then, corporate decision making,
or managerial finance, is presented. The discussions here center on how financial
managers can help maximize their firms’ values by making sound decisions in such
areas as capital budgeting, choice of capital structure, and working capital manage-
ment. Finally, in the last two chapters, investment fundamentals are explained. This
organization has three important advantages:
1. Explaining early in the book how financial markets operate and how security
prices are determined helps students understand how managerial finance can
affect the value of the firm as well as how the same concepts can be used to
make personal financial decisions. This background helps when coverage of
such key concepts as risk analysis, time value of money, and valuation tech-
niques are discussed in the remainder of the book.
2. Structuring the book around markets and valuation enhances continuity,
because this organization helps students see how the various topics relate to
one another.
3. Most students—even those who do not plan to major in finance—are generally
interested in investment concepts, such as stock and bond valuation and selec-
tion, how financial markets work, how risk and rates of return affect financial
decision making, and the like. Because people’s ability to learn a subject is a
function of their interest and motivation, and because Principles begins by
showing the relationships among security markets, valuing financial assets,
and managerial finance, this organization works well from a pedagogic
standpoint.
Although this book is intended to be a survey of general finance, we could not
include discussions of every area associated with the field of finance. Thus, we
included those topics considered most relevant to presenting a basic understanding
of the diversity of finance as an area of study. Because most students who read this
book probably will not become finance majors, this book will be their only expo-
sure to finance, including investment concepts that intrigue all of us. For this rea-
son, we have structured the book so that (1) its content is sufficient to provide
students with a good basic understanding of finance and (2) it can be used as a ref-
erence, or guide, for answering fundamental questions about finance.

xiii
Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xiv Preface

RELATIONSHIP OF THIS BOOK WITH OTHER CENGAGE BOOKS

Clearly, it is impossible to provide everything one needs to know about finance in
one text, especially an introductory text. This recognition has led us to limit the
scope of this book and also to write other texts to deal with the materials that can-
not be included in Principles. Besley and Brigham have authored two texts that
emphasize more detailed material about managerial finance (CFIN 4, and Essentials
of Managerial Finance, 14th edition). Also, Eugene F. Brigham and Philip R. Daves
have coauthored an intermediate undergraduate text (Intermediate Financial Man-
agement, 11th edition), and Eugene F. Brigham and Michael C. Ehrhardt have
coauthored a comprehensive book aimed primarily at MBAs (Financial
Management: Theory and Practice, 14th edition).
The relationship between Principles and the more advanced books deserves
special comment. First, we recognize that the advanced books are often used by stu-
dents who have also used Principles in an introductory finance course. Thus, we
wanted to avoid excessive overlap but wanted to be sure to expose students to alter-
native points of view on controversial subjects. We should note, though, that our
students in advanced courses invariably tell us that they find it helpful to have the
more difficult materials repeated—they need the review. Students also say they like
the fact that the style and notation used in our upper-level books are consistent
with those in the introductory text, as this makes learning easier. Regarding alterna-
tive points of view, we have made every effort to take a moderate, middle-of-the-
road approach, and where serious controversy exists, we have tried to present the
alternative points of view. Reviewers were asked to consider this point, and their
comments have helped us eliminate potential biases.

INTENDED MARKET AND USE

As noted earlier, Principles is intended for use as an introductory text. The key
chapters can be covered in a one-term course, and if supplemented with cases and
some outside readings, the book can also be used in a two-term course. If it is used
in a one-term course, the instructor might cover only selected chapters, leaving the
others for students either to examine on their own or to use as reference in conjunc-
tion with work in later courses. Also, we have made every effort to write the chap-
ters in a flexible, modular format, which helps instructors cover the material in a
different sequence, should they choose to do so.

IMPORTANT FEATURES OF THE BOOK

We must present the material contained in the book in a structured manner to
ensure continuity and cogency in the coverage of the topics. To enhance the peda-
gogy, we have included some important features, which are discussed here.

A Managerial Perspective
Each chapter leads off with “A Managerial Perspective,” which can be used for student
reading, for class lecture, or for both. Although these business anecdotes are not new to
this edition of Principles, we want to draw attention to them because the content of each
is either new to this edition or has been updated since the previous edition.

Self-Test Problems
Self-test problems are strategically positioned throughout the chapters. These problems
provide students the opportunity to test their understanding of the material contained in
the section of the chapter they just completed. Solutions to the Self-test problems are
given at the end of the chapter in which they are included.

Learning Objectives and End-of-Chapter Summary

Each chapter begins with a section called Chapter Principles—Learning Objectives,
which presents the concepts students should understand when they finish reading
the chapter. Each chapter ends with a summary of the key concepts that are pre-
sented in the chapter as they relate to the learning objectives given at the beginning
of the chapter. This feature helps students connect the material covered in the chap-
ter with questions that instructors often ask during class or on exams.

Microsoft Excel Spreadsheets

Where appropriate, spreadsheets are used to solve problems presented in the book.
The use of spreadsheets to solve financial problems is prominent in the chapter that
covers time value of money concepts (Chapter 9) and the chapter that describes
capital budgeting techniques (Chapter 13). In addition, computer-related problems
that should be solved using a spreadsheet are included in the problem section at the
end of appropriate chapters. We also included an Appendix A, that provides a tuto-
rial on how to solve financial problems using spreadsheets. Because students must
use spreadsheets in the business world, they should be exposed to the benefits of
this important tool early in their business curriculum.

Personal Finance
In the years we have taught the basic course in finance that all business majors are
required to complete, we have noticed that many students seem uninterested in the
topic. In fact, most admit that they would not take the course if it was not required
as part of their business curriculum. As a result, we have tried various methods to
get the uninterested students more interested in finance. It seems that one way to get
the attention of students is to relate managerial finance topics to personal financial
decisions that everyone is exposed to at some point during their lives. Therefore,
each chapter has a section titled Chapter Principles—Personal Finance. This section
contains discussion that relates the topics covered in the chapter to personal finan-
cial decisions. Our hope is that students make the connection between financial
concepts presented in the course and the application to decisions that they will
face with their personal finances. Perhaps this pedagogy will help get students
more interested in learning some of the important financial concepts.

Ethical Dilemmas
We feel that it is crucial for students who will someday be decision makers in the
business world to be exposed to ethical situations to improve their critical-thinking
skills. For this reason, we include ethical dilemma vignettes in each chapter. Each
ethical dilemma vignette is related to the material covered in the chapter and is
based on real-world circumstances. These ethical dilemmas (1) expose students to
the relationship between ethics and business, (2) promote the development of criti-
cal-thinking and decision-making skills, and (3) provide a vehicle for lively class
discussion.

Cash Flow Timelines and Approaches to TVM Analysis

In our discussions of time value of money topics (Chapter 9), we begin each major
section with a verbal discussion of a time value issue, and then we present a time-
line to show graphically the cash flows that are involved, after which we give the
equation that must be solved to obtain the required answer. Finally, we present
two methods that can be used to solve the equation: (1) a numerical solution and
(2) a financial calculator solution. (We also present spreadsheet solutions for some
problems.) The cash flow timeline helps students visualize the problem at hand and
see how to set it up for solution, the equation helps them understand the mathemat-
ics, and the two-pronged solution approach helps them see that time value prob-
lems can be solved in alternative ways. Each student will focus on the particular
solution technique he or she feels comfortable using, which generally calls for
using a financial calculator. One advantage of our approach is that it helps students
understand that a financial calculator is not a “black box”; rather, it is an efficient
tool that can be used to solve time value problems.

Multinational Finance Coverage

Coverage of multinational finance is included in the chapters where the specific
topics are covered rather than in a separate chapter devoted to multinational
managerial finance. This placement allows students to better understand how the
application of the material presented in the chapter differs in domestic and interna-
tional settings.

ANCILLARY MATERIALS
All instructor materials can be found on the password-protected website at
login.cengage.com. Here you will find the following resources:
1. Instructor’s Manual. The comprehensive manual contains answers to all text
questions, problems, and detailed solutions to integrative problems.
2. PowerPoint Lecture Presentations. To facilitate classroom presentations,
Microsoft PowerPoint slides which highlight key chapter features are provided.
3. Test Bank and Cengage Learning Testing powered by Cognero. The test bank
contains more than 1,000 class-tested questions and problems. True/false
questions, multiple-choice conceptual questions, multiple-choice problems
(which can be easily modified to short-answer problems by removing the
answer choices), and financial calculator problems are included for every
chapter. We have developed outcomes assessment criteria to satisfy Blooms
Taxonomy standards along with Business Program, and specialized financial
standard requirements. All questions are tagged for easy selection.
The Test Bank is available in Microsoft Word as well as online with Cog-
nero. Cengage Learning Powered by Cognero is a flexible, online system that
allows you to author, edit, and manage Test Bank content. You can create mul-
tiple test versions and deliver tests from your LMS, your classroom, or wher-
ever you have an Internet connection.
4. Problem Spreadsheets. Spreadsheets that contain models for the computer-
related end-of-chapter problems are available.

A number of additional items are available for purchase by students:

1. Cases. Finance Online Case Library, 3rd edition, by Eugene F. Brigham and
Linda S. Klein, is well suited for use with Principles. The cases provide real-
world applications of the methodologies and concepts developed in this book.
In addition, all of the cases are available in a customized format, so your stu-
dents pay only for the cases you decide to use.
2. Spreadsheet Analysis Book. Financial Analysis with Microsoft Excel, 7th edi-
tion, by Timothy R. Mayes fully integrates the teaching of spreadsheet analysis
with the basic finance concepts. This book makes a good companion to Princi-
ples in courses in which computer work is highly emphasized.

ACKNOWLEDGMENTS
This book reflects the efforts of a number of people over the years.
We would like to thank the following people for their valuable comments and sug-
gestions in previous editions of this book: Nasser Arshadi, Catherine D. Broussard,
Robert E. Chatfield, K. C. Chen, John H. Crockett Jr., Mary M. Cutler, Dean
Drenk, Barbara H. Edington, John Fay, David R. Fewings, Shawn M. Forbes,
Thomas C. Friday, Beverly Hadaway, William C. Handorf, Jerry M. Hood, Tim
Jares, Raman Kumar, Kristie J. Loescher, Ladan Masoudie, Christine McClatchey,
Joseph H. Meredith, Aldo Palles, Robert M. Pavlik, Stephen Peters, Marianne Plun-
kert, Gary Sanger, Oliver Schnusenberg, Richard A. Shick, Paul J. Swanson, Harold
B. Tamule, Sorin Tuluca, David E. Upton, Bonnie Van Ness, K. Matthew Wong,
Howard R. Whitney, Sinan Yildirim, and Shaorong Zhang.

ERRORS IN THE TEXT

At this point, most authors make a statement like this: ‘‘We appreciate all the help we
received from the people listed above, but any remaining errors are, of course, our
own responsibility.’’ And in many books, there are plenty of remaining errors. Hav-
ing experienced difficulty with errors ourselves, both as students and as instructors,
we resolved to avoid this problem in Principles. As a result of our error-detection
procedures, we are convinced that this text is relatively free of mistakes.
Partly due to our confidence that there are few errors in this book, but primarily
because we want to correct any errors that might have slipped by so that we can
correct them in future printings of the book, we have decided to offer a reward of
$10 per error to the first person who reports it to us. For purposes of this reward,
errors are defined as spelling errors, computational errors not due to rounding,
factual errors, and other errors that inhibit comprehension. Typesetting errors,
such as spacing, and differences in opinion concerning grammatical or punctuation
conventions do not qualify for the reward. Also, given the ever-changing nature of
the Internet, changes in web addresses do not qualify as errors—the web addresses
included in the book are those that existed at the time we wrote it. Finally, any
qualifying error that has follow-through effect is counted as two errors only. Please
report any errors to Scott Besley either via e-mail at [email protected] or by regular
mail at the address on the next page.

CONCLUSION
Finance is, in a real sense, the cornerstone of the enterprise system—good financial
management is vitally important to the economic health of business firms, and
hence to the nation and the world. Because of its importance, finance should be
widely and thoroughly understood, but this is easier said than done. The field is
relatively complex, and it is undergoing constant change in response to shifts in eco-
nomic conditions. All of this makes finance stimulating and exciting but also chal-
lenging and sometimes perplexing. We sincerely hope that Principles of Finance will
meet its own challenge by contributing to a better understanding of our financial
system.

Scott Besley
University of South Florida
College of Business Administration, BSN3403
Tampa, FL 33620-5500

Eugene F. Brigham
University of Florida
College of Business
Gainesville, FL 32611-7160

A Managerial Perspective
AN OVERVIEW
OF FINANCE
1
D
o you like money? If you do, then you considered a passing grade. Although they per-
should like finance because finance deals formed better, college students still received a
with money. More important, you will grade of D with an average score of 62.2 The Con-
discover as you read this text that finance sumer Financial Literacy Survey conducted by
people like putting the money they have to work so Harris Interactive Inc. for the National Foundation
they can make more money. Sound like a good for Credit Counseling from 2011 to 2013 found
idea? It is, if you know what you are doing. that at least 40 percent of those surveyed felt that
How well do you think you understand their knowledge about personal finance deserved
finance? If you are like most people, the answer grades of C or lower. Clearly, these results suggest
is “not very well.” A number of surveys and quiz- that citizens of the most financially developed
zes that have been administered to determine the country in the world—the United States—are lack-
financial literacy of Americans show that far too ing in their understanding of personal finance.
many people are financially illiterate. For exam- The areas in which people seem to have the
ple, based on its survey in 2003, Bankrate.com greatest deficiencies or misconceptions about
gave Americans an average grade of D for finan- their finances are retirement needs and personal
cial literacy. Only 10 percent of the participants debt. During the period from 1950 through
earned a score of A on the Bankrate.com financial 1979, the average annual savings rate (as a per-
literacy test; 35 percent of the participants earned cent of disposable income) in the United States
a failing grade.1 The results are worse for high was approximately 9 percent. In the 1990s, the
school students. In its 2008 survey of high school savings rate declined to 5.5 percent; the rate has
seniors, Jump$tart found that the average score on dropped further to about 3 percent in the 2000s.
its financial literacy test was 48, which is failing. As a result, the portion of their incomes that
The scores showed improvement—the average Americans are putting aside to prepare
score increased to 58—when the test was adminis- for either retirement or emergencies has
tered to students between the ages of 13 and 18 by declined substantially since 1980.3 To make mat-
the National Financial Educators Council (NFEC) ters worse, as savings dropped, personal debt
in 2012 and 2013. However, only about 25 per- increased sharply. For example, in 1990 the
cent of the students scored above 70, which is average credit card balance per household was

1
Information about financial literacy can be found at Bankrate.com. The source for this survey is www.bankrate.com/brm/news/financial-
literacy2004/grade-home.asp.
2
The results of the Jump$tart survey are available at www.jumpstart.org/survey.html and the results of the NFEC financial literacy test can be found at
www.financialeducatorscouncil.org/financial-literacy-research/.
3
Source: The Bureau of Economic Analysis (www.bea.gov/).
3
Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
4 Part 1: General Finance Concepts

approximately $3,000, in 2000 the average bal- try to relate the concepts that are discussed to
ance was nearly $8,000, and, although it appears future decisions that you will face, including
that outstanding credit card debt has declined investing in stocks, planning for retirement, and
somewhat, in 2013 the average balance was financing such big-ticket items as cars and
still nearly $8,000. As a student, you should be houses. Even if you pursue a career in a non-
concerned about your credit because, on average, finance profession, you will find yourself using
undergraduate students carry outstanding credit finance concepts in both your job and your
card balances equal to about $3,500, and gradu- personal life. And, keep in mind that it has
ate students carry balances equal to almost been shown that persons who have more knowl-
$5,600. Unfortunately, approximately 10 per- edge about personal finances generally are able
cent of graduating students have credit card bal- to retire more comfortably and are wealthier
ances in excess of $7,000. In addition, when they than persons who lack such knowledge.
graduate, college students on average have edu- Although finance is centuries old, it remains
cation loans that amount to about $24,000.4 an evolving discipline, with no limits in sight. As
Finance is a fundamental part of life, so it is you read this chapter, as well as the rest of the
important to have some understanding of how it book, keep in mind that this field is dynamic
affects you as a person. When you buy a car or a and ever-changing. If you are looking for a
house or plan for retirement, you must deal with career in which you are not likely to become
general financial concepts. As you read this text, bored, finance just might be the answer.

After reading this chapter, you should be able to:

• Explain what finance entails and why everyone should have an understanding of basic
financial concepts.
• Describe how the finance discipline has changed during the past century.

• Explain in general how value is measured and what it means to maximize value.
• Explain what it means to be sustainable and how making appropriate financial decisions
promotes sustainability.
• Explain what the terms lean manufacturing and lean finance mean.

WHAT IS FINANCE?
finance In simple terms, finance is concerned with decisions about money, or more appro-
The discipline that deals priately, cash flows. Finance decisions deal with how money is raised and used by
with decisions concern-
ing how money is raised businesses, governments, and individuals. To make sound financial decisions, you
and used by businesses, must understand three general, yet reasonable, concepts: Everything else being
governments, and
individuals. 4
Sources include Draut, T., “Economic State of Young America,” Demos: A Network for Ideas & Action (New York),
Spring 2008. A PDF version of the report is available at www.demos.org/; Dickler, J., “Getting Squeezed by Credit
Card Companies: Card Issuers Use All Sorts of Tactics to Wrestle Every Penny Out of Customers. Here’s What You
Need to Know,” CNNMoney.com, May 27, 2008; “Taking Charge: America’s Relationship with Credit Cards,”
CreditCards.com, June 6, 2007; and “Student Debt and the Class of 2009,” The Project on Student Debt, October
2010, available at www.projectonstudentdebt.org/. In addition, information was compiled from websites such as
Index Credit Cards, www.indexcreditcards.com/creditcarddebt/, Collections & Credit Risk, www.collectionscreditrisk
.com/news/card-debt-falling-along-with-average-credit-scores-3003248-1.html, CreditCards.com, www.creditcards.com/
credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php, and Federal Reserve Bank of New York,
www.newyorkfed.org/microeconmics/data.html.

equal, (1) more value is preferred to less; (2) the sooner cash is received, the more
valuable it is; and (3) less risky assets are more valuable than (preferred to) riskier
assets. Firms that make decisions with these concepts in mind are able to provide
better products to customers at lower prices, pay higher salaries to employees, and
still provide greater returns to investors who put up the funds needed to form and
operate the businesses. In general, then, sound financial management contributes to
the well-being of both individuals and the general population.
Although the emphasis in this book is business finance, you will discover that the
same concepts that firms apply when making sound business decisions can be used
to make informed decisions relating to personal finances. For example, consider the
decision you might have to make if you win a state lottery worth $105 million.
Which would you choose: a lump-sum payment of $54 million today or a payment
of $3.5 million each year for the next 30 years? Which should you choose? In
Chapter 9, we will show that the time value of money techniques firms use to
make business decisions can also be used to answer this and other questions that
relate to personal finances.

GENERAL AREAS OF FINANCE

The study of finance consists of four interrelated areas:
1. Financial Markets and Institutions—Financial institutions, which include
banks, insurance companies, savings and loans, and credit unions, are an inte-
gral part of the general financial services marketplace. The success of these
organizations requires an understanding of factors that cause interest rates and
other returns in the financial markets to rise and fall, regulations that apply to
such institutions, and various types of financial instruments, such as mortgages,
auto loans, and certificates of deposit, that financial institutions offer.
2. Investments—This area of finance focuses on the decisions made by businesses and
individuals as they choose securities for their investment portfolios. The major
functions in the investments area are (a) determining the values, risks, and returns
associated with such financial assets as stocks and bonds and (b) determining the
optimal mix of securities that should be held in a portfolio of investments.
3. Financial Services—Financial services refers to functions provided by organiza-
tions that deal with the management of money. Persons who work in these
organizations, which include banks, insurance companies, brokerage firms,
and similar companies, provide services that help individuals (and companies)
determine how to invest money to achieve such goals as home purchases, retire-
ment, financial stability and sustainability, budgeting, and related activities.
4. Managerial (Business) Finance—Managerial finance deals with decisions that all
firms make concerning their cash flows, both inflows and outflows. As a conse-
quence, managerial finance is important in all types of businesses, whether they
are public or private, deal with financial services, or manufacture products. The
types of duties encountered in managerial finance range from making decisions
about plant expansions to choosing what types of securities to issue to finance
such expansions. Financial managers also have the responsibility for deciding
the credit terms under which customers can buy, how much inventory the firm
should carry, how much cash to keep on hand, whether to acquire other firms
(merger analysis), and how much of each year’s earnings should be paid out as
dividends and how much should be reinvested in the firm.

Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Other documents randomly have
different content
possible his departure from Kashmere. But this was a measure not
easily effected. No person could leave the province without a
passport from the governor, who, when this document was applied
for, observed, that the Turks were good soldiers, and that as he just
then happened to be in want of men, he would employ the traveller
in his army. Forster now began to perceive that his Turkish character,
which had hitherto procured him respect, was likely to advance him
to a post of honour which he had very little ambition to occupy. One
agent after another was employed to obtain the passport from the
governor, a ferocious and sanguinary Afghan, who, like Charles IX.
of France, shot men for his amusement; and at length, by dint of
unremitted perseverance and a trifling bribe, the selfsame Georgian
who had conjectured his religion from the form of his scull, with a
sagacity which would have done honour to Dr. Gall himself, contrived
to deliver him from the honour intended him by Azad Khan, and
obtain the tyrant’s permission for his leaving the country.
Fearful lest the khan should alter his determination, and transform
him, whether he would or not, into a trooper, he took into his service
a Persian boy, hired a horse of a native of Peshawer, who was
returning to that city, and on the 11th of June set out from
Kashmere. His evil genius, in the form of vanity, had suggested to
him the propriety of adorning his person with a gaudy red coat, in
the pocket of which he deposited his passport. This showy garment,
which no doubt excited the envy of many an Afghan beau, on the
second day of his journey was snatched by a thief from his bed just
as he was awaking, who, in spite of every obstacle, succeeded in
bearing off his plunder. Not having passed the frontiers, he began to
apprehend that a return to the capital might be necessary; but
found, upon trial, that his Indian gold was considered every whit as
good as Azad Khan’s written permission.
The scenery through which his road now lay was of a magnificent
description, mountainous, rocky, savage, gloomy; forests below,
snowy pinnacles above, with here and there a torrent bursting and
dashing through rocky chasms with the noise of thunder. The path,
impassable to horses, which were sent by another route, wound
round the projections of the mountains, and sometimes consisted of
a floor of planks laid over beams which were driven into the cliff. The
rivers were crossed in baskets slung upon ropes, or on sheep’s or
dogs’ skins inflated, and placed under the breast, while the traveller
impelled himself forward by the motion of his feet. In other places a
sort of bridge was formed in the following manner:—A stout rope,
fastened to wooden posts on either shore sustained a number of
carved pieces of wood resembling oxen-yokes, with forks placed
vertically. The sides of these yokes being embraced by smaller ropes
afforded a hold to the passengers.
On the 10th of July they crossed the Indus, about twenty miles
above the town of Attock. “The stream,” says Forster, “though not
agitated by wind, was rapid, with a rough undulating motion, and
about three-quarters of a mile or a mile in breadth where it was not
interrupted by islands, and having, as nearly as I could judge, a
west-and-by-south course. The water was much discoloured by a
fine black sand, which, when put into a vessel, quickly subsided. It
was so cold from, I apprehend, a large mixture of snow then thawed
by the summer heats, that in drinking it my teeth suffered a violent
pain. In our boat were embarked seventy persons, with much
merchandise and some horses. This unwieldy lading, the high swell
of the current, and the confusion of the frightened passengers made
the passage dangerous and very tedious.”
Next day, having crossed the Attock or Kabul river, they arrived at
Akora, where Forster entered a spacious cool mosque to escape the
intense heat of the sun, spread his bed, and laid himself down quite
at his ease. Here he remained until the time of evening prayer, when
he was summoned by the moollah, or priest, to prepare himself for
the ceremony. Persons who adopt a fictitious character commonly
overact their part, and thus frequently render themselves liable to
suspicion; but Forster’s error lay on the other side, which was
perhaps the safer; for, although it drew upon him the charge of
negligence, it by no means disposed his associates to regard him as
an infidel, their own practice too generally corresponding with his
own. In the present case, upon his excusing himself from performing
the accustomed prayer on account of the debilitated state of his
body, the moollah replied, with extreme contempt, that it was the
more necessary to pray, in order to obtain better health. The honest
Mohammedan, however, like the priests of Æsculapius in
Aristophanes, used, it seems, to make the tour of the mosque at
midnight, and compel his miserly brethren to perform an act of
charity in their sleep, by disposing of a part of their substance for
the benefit of the establishment. From our traveller the contribution
attempted to be levied was his turban; but happening unluckily to be
awake, he caught the holy marauder by the arm, and demanded
who was there. The poor man, utterly disconcerted at this
unseasonable wakefulness, replied, in a faltering voice, that he was
the moollah of the mosque,—the same man, apparently, who had so
rudely reprehended the stranger for his neglect of prayer.
On the morrow a body of Afghan cavalry encamped in the
environs of Akora. This event spread no less terror and
consternation through the country than if a hostile army had
suddenly made an incursion into it; for the licentious soldiery,
devouring and destroying like a swarm of locusts wherever they
appeared, conducted themselves with insufferable insolence towards
the inhabitants. It must be observed, however, in mitigation of the
enormity of their transactions, that they are in a measure compelled
to subsist themselves and their horses in this manner; for their
ignorant and unreflecting sovereign, in need of their service, but
unwilling to reward them, suffers them in peaceful times to be
reduced to such distress, that they are frequently constrained to sell
their horses, arms, and even apparel, to purchase a morsel of bread.
In three days from this they arrived at Peshawer, a large,
populous, and opulent city, founded by the great Akbar. Of all the
places visited by our traveller in Northern India, none appeared to
suffer so intense a heat as this city; but by skirting round the
northern limits of the Punjâb he avoided Lahore, where he would
probably have found an atmosphere equally heated with that of
Peshawer. Other cities, he observes, may be afflicted with a too-
great warmth; hot winds blowing over tracts of sand may drive their
inhabitants under the shelter of a wetted screen; but here the air,
during the middle of summer, becomes almost inflammable. Yet,
notwithstanding this burning atmosphere, the inhabitants enjoy
exceedingly good health, and are but little liable to epidemical
disorders. This fact may easily be accounted for. The air of Peshawer,
like that of the deserts of Arabia, in which the finest Damascus
blades may be exposed all night without contracting the slightest
rust, is extremely dry; and it would appear that heat, however
intense, is not, when free from humidity, at all subversive of health.
Another circumstance greatly tended to increase the salubrity of this
city; provisions were excellent and abundant, especially the mutton,
the flesh of the large-tailed sheep, said to have been first discovered
in South America.
There being no caravansary at Peshawer, Forster took up his
residence in an old mosque, where he continued several days,
melting in perpetual perspiration. While at Kashmere he had
converted a part of his property into a bill of five hundred rupees on
Kabul, which, in order to secure it from rain and other accidents, he
enclosed in a canvass belt which he wore as a girdle. On examining
the condition of this bill some days after his arrival in this city, he
found that the writing had been so entirely obliterated by
perspiration that no one could read, or even conjecture its subject,
as from beginning to end it was literally black. The discovery much
disquieted his mind, as he began to be apprehensive he might be
reduced to want money on his journey. But his temperament was
sanguine; and in order to afford melancholy as slender an opening
as possible, he flew into society and laughed away his cares.
Still, the apprehension of a diminution in his finances rendered
him anxious to proceed; and meeting with a man with whom he had
travelled during the early part of his journey, it was agreed they
should move on together, unite their means, and protect each other.
On inquiring into the state of his companion’s finances, it appeared
that he possessed in cash one rupee, on which himself, a boy, and a
horse were to be subsisted until his arrival at Kabul, a journey of
twelve or fourteen days. As it seemed clear that when this
extraordinary fund should be expended the Mohammedan would
apply to Forster, the latter, aware of the inconvenience and danger
to which a disclosure of the real amount of his property might
expose him, pretended to be but little richer, and producing three
rupees, the whole was considered common stock; and his
companion, with a face brightened by faith and zeal, exhorted him
to be of good cheer, for that true believers were never deserted in
the hour of need.
In company with this cheerful Islamite he departed from
Peshawer, and, uniting themselves to a kafilah proceeding in the
same direction, they pushed forward towards the west. During the
second day’s march he discovered that rashness is not always a
mark of valour; for, advancing before the kafilah with about thirty
horsemen, who all appeared by their whiskers to be men of
desperate courage, they were met and plundered by a small body of
Afghans, who seemed no way disturbed when the larger body of the
kafilah appeared in sight, but slowly retreated with their booty.
During this part of the journey it was for many reasons judged
expedient by the leaders of the kafilah to travel by night. But if they
by this means diminished the danger of falling a prey to the
plundering Afghans, they found in return that they had other perils
to encounter; for, boisterous weather having come on, and the rain
descending in torrents, every hollow of the mountains became the
bed of a torrent, which, rushing down impetuously through its steep
channel, rolled along stones of a vast size with a noise which, in the
stillness of night, resembled thunder. The sky, meanwhile, was
overcast with black clouds; and the roaring of the torrents heard on
all sides created in the mind of the traveller a certain horror mingled
with awe, and disposed him involuntarily to consider this grand
scene of nature with sentiments of profound reverence.
On approaching one of these mountain streams, which had been
greatly swelled by the recent rains, the commander of the kafilah
escort, who was accompanied by one of his favourite women, placed
her on a powerful horse, and, that she might not be incommoded by
the crowd, attempted to convey her over first; but she had no
sooner entered the water than she was carried off among the black
whirling eddies of the current, and drowned. The Mohammedan,
thus suddenly deprived of his mistress, at once forgot all thoughts of
resignation to the decrees of fate, and, throwing himself upon the
ground in the bitterness of his affliction, lamented his loss like a
giaour. This melancholy event occasioned the immediate halt of the
whole kafilah, the tragical fate of the lady having impressed their
minds with a salutary terror. Next morning, on searching along the
margin of the torrent, the body was found covered with mud, and
was interred upon the spot with such ceremonies as time and place
permitted. The kafilah then crossed the stream, and continued its
march.
The road now lay through a black and desolate track, scooped into
hollows by torrents, or yawning with natural chasms. It next entered
a wide plain well watered and interspersed with walled villages, in
the midst of which stands Kabul, the capital of the Afghan empire,
where they arrived safely on the evening of the 2d of August. Here
Forster took up his abode with a Georgian named Bagdasir, to whom
he had brought a letter of introduction from his countryman in
Kashmere. To this man, as to the person most likely to render him
aid in such an affair, he showed his bill for five hundred rupees; but
when it was found that not one single letter in it was legible, the
man shook his head, as well he might, and predicted that no one
would be found to discount it. However, after application had in vain
been made in every other quarter, Bagdasir himself purchased the
bill for half its real amount, which, its extraordinary condition being
considered, was fully as much as it was worth.
Not many days after his arrival at Kabul our traveller was seized by
a malignant fever, which for several days menaced him with a much
longer journey than the one he had undertaken. Hot and cold fits
succeeded each other with singular violence; he was tormented by
insatiable thirst, and, as he endeavoured to quench this by the
constant drinking of cold water, a most profuse perspiration was
maintained, which probably saved his life. His whole body was
covered with spots of a very bright colour, shaded between purple
and crimson, which he should have beheld, he says, with pleasure,
supposing that such an eruption would diminish the force of the
disease, but that some of his neighbours regarded them as signs of
the plague. This created a general alarm, and they were about to
exclude him from their quarter, when he confidently asserted that
the fever of the plague always produced its crisis in three days,
whereas his had now continued seven; which, together with the
conduct of Bagdasir, who never deserted him, somewhat assuaged
their terrors, and induced them to suffer his presence. His disorder
continued three weeks, and at length, when it disappeared, left him
so weak that he could with difficulty crawl about the streets.
The religious toleration which prevailed at Kabul, where Turk, Jew,
and Christian lived equally unmolested, induced him in an evil hour
to throw off his Mohammedan disguise and profess himself a
Christian; not considering, that however tolerant the Afghans of this
capital might be, the remainder of his road, until he should reach the
Caspian, lay among bigots of the most desperate stamp, who
regarded the professors of all heterodox religions with abhorrence,
and reckoned it a merit to revile and persecute them.
Having remained a full month at Kabul, he hired one side of a
camel, on which a pannier was suspended for his accommodation,
and on the 1st of September joined a party proceeding to Kandahar.
The mode of travelling which he had now adopted is peculiar to that
part of the world, and deserves to be particularly described. The
camel appropriated to the service of passengers, he observes,
carries two persons, who are lodged in a kind of pannier laid loosely
on the back of the animal. The pannier, in Persian kidjahwah, is a
wooden frame, with the sides and bottom of netted cords, of about
three feet long and two broad. The depth likewise is generally about
two feet. The provisions of the passengers are conveyed in the
kidjahwah, and, the journey being commonly performed in the night,
this swinging nest becomes his only place of rest; for on the kafilah’s
arrival at its station he must immediately exert himself in procuring
provisions, water, and fuel, as well as in keeping an eye over his
property.
Forster soon found reason to regret his ill-timed abjuration of the
prophet. The camel upon which he was stowed like a bale of
merchandise was the worst conditioned of the whole drove; and to
comfort him during his ride, a shrill-tongued old woman and a crying
child took up their quarters in the opposite pannier, and contrived,
the one by shrieking, the other by scolding, effectually to chase
away his dreams. An old Afghan lady, with a very handsome
daughter and two grandchildren, occupied the panniers of another
camel. The rest were loaded with merchandise. This old dame soon
began a contest with Dowran, the conductor of the kafilah,
respecting the mode in which the movements of the caravan should
be regulated; and after some desperate skirmishes, in which the
force of her lungs and the piercing shrillness of her voice stood her
in good stead, victory declared on her side, and the party fell under
petticoat government.
Being now a declared infidel, and regarded by every person as an
unclean beast, whom it would be pollution to touch, and worse than
adultery to oblige by any kind offices, our traveller enjoyed many of
the preliminaries of martyrdom, was hourly abused, laughed at,
mocked, and derided; and still further to enhance the contempt
which every person already entertained for him, Dowran maliciously
insinuated that he was not even a Christian, but a Jew. When the
party arrived at their halting-place no one could be tempted to assist
him, not even for money; imagining, I presume, that the gold which
had lurked beneath his “Jewish gaberdine,” like that derived by
Vespasian from a tax on urinaries, which his son Titus jocosely
smelled in order to discover its scent, must be accompanied by an
unsavoury odour, which might cleave to a true believer, and exclude
him after death from the arms of the houries. He was therefore daily
compelled to go himself in search of water and dried camels’ dung to
boil his tea-kettle, and, what was much worse, to endure the smoke
which it emitted when first lighted, which entered his eyes, and
made him think that some Mohammedan devil had transformed
himself into smoke for the purpose of tormenting him.
In the midst of this gehannum, which gave him the more pain
from its being of his own creating, he received some consolation
from the protection of the Afghan lady, whose good-will he had won
by fondling the children and giving them sugar. Thus fortified, he
began by degrees to laugh at Dowran’s beard; and if he did not
return him the compliment of being of the race of Abraham, it was
more from want of reflection than from apprehension of danger.
On the 26th of September they arrived at Ghizni, the residence of
the munificent and magnanimous Mahmood, the patron of Firdoosi,
and one of the splendid princes whose actions adorn the annals of
the East. But “the cloud-capped towers, the gorgeous palaces, the
solemn temples” of Ghizni had long been trodden under foot by
time; and, save some scattered masses of misshapen ruins, not a
trace was to be seen of its former grandeur. The tomb of Mahmood,
however, still remains in the neighbourhood of the city; and to this
resting-place of genius numerous pilgrims resort from distant lands
to say their prayers. The surrounding country is interspersed with
low hills, and, excepting in some few cultivated spots, produces little
else than a prickly aromatic weed, which, with balls of unsifted
barley-paste, constitutes the common food of the camel.
The kafilah arrived on the 5th of October at Kandahar, a
flourishing and populous city, where he remained three days, and
then departed for Herat. His camel companion now was a noisy,
disputatious theologian, who not only regaled him on the road with
menaces and arguments, but deterred a poor half-starved Arab
tailor, whose services Forster had engaged, from eating the bread of
an infidel, though he saw clearly the poor man had no other to eat.
In this agreeable position he continued until the 2d of November,
when they arrived at Herat, where he determined once more to
invest himself, if possible, with the cloak of Mohammedanism. At the
caravansary, where he had been deposited by the kafilah, with an
ample tradition of his faith and practice, so desirable a disguise was
impracticable; but he no sooner quitted the purlieus of his lodgings
than he became a grave hypocritical Mussulman, and partook of the
enjoyment of all his privileges. Nor did he entertain any great fear of
detection, it being easy, in so motley a population as that of Herat,
to maintain successfully the most extraordinary disguise. He daily
frequented the eating-houses, where all the talk of the day was
circulated, and chiefly fabricated, in conjunction with the barbers’
shops, which in Herat have a neat appearance. In the centre of it
stands a small stone pillar, on the top of which is placed a cup of
water in readiness for operation, while the sides of the shop are
decorated with looking-glasses, razors, and beard-combs. In one
great source of amusement Herat was at this time deficient,—there
were no dancing girls. However, notwithstanding this remarkable
desideratum, our traveller, who was an accommodating person, and
contentedly put up with the blessings within his reach, contrived to
pass his time agreeably enough when absent from the caravansary.
Learning at length that a kafilah was about to proceed to
Tursheez, a town of Khorasan, lying in the direction of Mazenderan,
he entered into an agreement with the director for a conveyance,
but with a confidential stipulation that he was to be received in a
Mohammedan character, as an Arab. The kafilah departed from
Herat on the 22d of November; and as it had been agreed that he
was to form one of the family of the leader, he joined the party at
the appointed place, and took his station on a camel, with a bag of
rice on the opposite pannier. The advantages of his new character
were soon visible. Having represented himself as a pilgrim going to
the shrine of Meshed, he was treated with the greatest possible
consideration by every passenger in the kafilah, all of whom courted
his society, as if holiness, like the plague, were infectious. Our hajjî
now rejoiced and stroked his beard, to the ample dimensions of
which he owed a large portion of the veneration which was shown
him; and as he moved along, caressed and admired by all who
beheld him, he must have felt no small gratitude towards
Mohammed for the sanctity which his religion had thrown round the
person of a pilgrim. This extraordinary degree of respect exciting the
kafilah conductor, who considered that at this rate he might possibly
dwindle into nobody, even in the eyes of his own camels and mules,
he whispered about that Forster in reality was no hajjî, nay, not so
much as a member of the church at all. His information, however,
was received with utter incredulity, and attributed to his envious
disposition; so that no evil arose to the Meshed pilgrim.
It was now December, and the north wind, sweeping with
irresistible violence over the plains of Khorasan from the frozen
mountains of Tartary, brought along with it a deluge of snow, which
in a few hours clothed the whole country in white. On arriving at the
village of Ashkara, the snow fell in such great quantities that the
roads were blocked up, while the winds, hurling it along in
tremendous drifts, seemed to threaten the village itself with
destruction. The whole party was admitted, after many earnest
entreaties, into a small dark room in the fort, where they were
furnished with an abundance of fuel; but when they began to make
inquiries respecting provisions, they found with dismay that not a
single article of food was on any terms to be procured. Yet, says the
traveller, such cordial pleasures are inherent in society, that though
pent up in a dark hovel, which afforded but a flimsy shelter against
the mounds of snow furiously hurled against it, our good-humour
with each other and an ample supply of firing produced cheerfulness
and content. A Persian of more than ordinary education, and who
possessed a taste for poetry, amused them with reading Jami’s story
of Yousuf and Zuleikha, which, for its scenes of wondrously pathetic
adventure, and the luxuriant genius of the poet, is admirably
calculated to soften the rigour of a winter’s day.
At this village they remained four days, during which, though the
fact is not stated, they must have found something more substantial
to subsist on than Jami’s poetry; when, the storm having abated,
they pushed forward in the direction of Tursheez. On arriving at this
town, he found that every apartment in the caravansary was already
occupied; but a small piece of money bestowed upon the gatekeeper
introduced him to a small chamber, in which, by submitting to
receive a partner in housekeeping, he might reside comfortably
enough during his stay. Our traveller, on his part, regarded the
companion with still greater satisfaction than the chamber, and it
soon appeared that the feeling was mutual; for the stranger,
accosting him with evident tokens of joy, observed, that the solitary
life he had hitherto passed at Tursheez was exceedingly tiresome,
and that he now anticipated a cordial relief by his company. It was
immediately agreed that a joint board should be kept; that the
stranger, being yet weak from a recent sickness, should conduct the
culinary operations, while Forster was to furnish water; a laborious
task, there being none that was good at a nearer distance than a
mile. This man, a gloomy, mysterious person, soon departed for
Herat; and the traveller, together with a new companion, contrived
likewise to find a better apartment. This second associate was a
moollah, whose profession it was to vend certain spells, which were
powerfully efficacious in conferring every species of worldly
happiness, and in excluding all evils. But
Nolint: atqui licet esse beatis.

The Persians of these parts had no taste for happiness; so that this
modern Thermander was, when Forster met him, so thoroughly
disgusted with his attempts at banishing all misery from among his
countrymen, that he was willing, he said, to shut up his book should
any other prospect of a maintenance be held out to him. When our
traveller offered him a participation of his fare, he therefore joyfully
quitted his profession as a wholesale dealer in happiness, and
consented to superintend the labours of the kitchen, in which, by
long practice, he had attained a remarkable proficiency. “The
excellent services of my companion,” says Forster, “now left me at
liberty to walk about the town, collect information, and frequent the
public baths. In the evening we were always at home; when the
moollah, at the conclusion of our meal, either read the story of
Yousuf and Zuleikha, which he did but lamely, or, opening his book
of spells, he would expound the virtues of his nostrums, which
embraced so wide a compass that few diseases of mind or body
could resist their force. They extended from recalling to the paths of
virtue the steps of a frail wife, and silencing the tongue of a scolding
one, to curing chilblains and destroying worms.”
While Forster and the moollah were enjoying this peaceful and
pleasant life, a large body of pilgrims from the shrine of Meshed
suddenly inundated every apartment of the caravansary; and as this
motley group of vagabonds were proceeding towards Mazenderan,
directly in his route, he was tempted to join them and continue his
journey, leaving his poor companion to subsist once more upon the
virtue of his spells.
Accordingly, with this holy kafilah he departed from Tursheez on
the 28th of December; and being, as the reader will have perceived,
of an exceedingly sociable disposition, he very quickly found a
substitute for the moollah in the person of a seid, or descendant of
Mohammed, who has doubtless more descendants than any other
man ever had. This green-turbaned personage was a native of
Ghilān, and, take him for all in all, his conduct did more honour to
his great ancestor than any other member of his family
commemorated by European travellers. With this honest man Forster
very quickly entered into partnership; but the seid being old and
infirm, the laborious portion of their operations necessarily fell on
the traveller. One little incident among many will serve to show the
terms upon which they lived together. The kafilah having halted in a
desert on the 3d of January, 1784, at a small stream, “the Ghilān
seid and I,” says Forster, “had filled our bottle for mutual use; and
the bread, cheese, and onions which supplied our evening meal
giving me a violent thirst, I made frequent applications to our water
stock. The seid, seeing that I had taken more than a just portion,
required that the residue should be reserved for his ceremonial
ablutions. While the seid retired to pray I went in search of fuel,
and, returning first to our quarter, I hastily drank off the remaining
water, and again betook myself to wood-cutting, that I might not be
discovered near the empty vessel by my associate, who had
naturally an irascible temper. When I supposed he had returned from
his prayer, I brought in a large load of wood, which I threw on the
ground with an air of great fatigue, and of having done a meritorious
service ‘Ay,’ says he, ‘while I, like a true believer, have been
performing my duty to God, and you toiling to procure us firing for
this cold night, some hardened kaufir, who I wish may never drink
again in this world, has plundered the pittance of water which was
set apart for my ablutions.’ He then made strict search among our
neighbours for the perpetrator of this robbery, as he termed it; but
receiving no satisfactory information, he deliberately delivered him
or them to the charge of every devil in the infernal catalogue, and
went grumbling to sleep.”
In this way they proceeded until, having escaped from the deserts
of Khorasan, they entered the mountainous, woody, and more
thickly-peopled province of Mazenderan, the inhabitants of which
Forster found more civilized and humane than the Khorasans. On the
night of the 24th of January, while pushing on through the forests,
most of the passengers beheld a star with an illuminated tail, which,
from its form and quick motion, our traveller supposed to be a
comet. In several of the woods through which their road now lay, no
vestige of a habitation or signs of culture appeared, excepting a few
narrow slips of land at the bases of the hills. But as they proceeded
the valleys soon “opened, and exhibited a pleasing picture of plenty
and rural quiet. The village all open and neatly built, the verdant hills
and dales, encircled by streams of delicious water, presented a scene
that gave the mind ineffable delight. The air, though in winter, was
mild, and had the temperature of an English climate in the month of
April.” Frazer, the able author of the Kuzzilbash, has given in his
travels a no less favourable idea of the rich scenery of Mazenderan.
In a few days he arrived at Mushed Sir, on the Caspian Sea, where
he was hospitably received and entertained by the Russian
merchants established there. At this city he embarked for Baku,
where he shaved his beard, forswore Mohammed, and again
embarked in a Russian frigate for Astrakhan, where he arrived on
the evening of the 28th of April. From this place, where he remained
some time in order to recruit his strength, he proceeded through
Moscow to Petersburg, which he reached on the 25th of May. Here
his stay was but short, for he had now become impatient to visit
England; and therefore, embarking about the middle of June in a
trading vessel, he arrived in England in the latter end of July, 1784.
Forster seems to have occupied himself immediately on his arrival
in throwing into form a portion of the literary materials which he had
collected during one of the most hazardous and adventurous
journeys that ever were performed; for in 1786 he published in
London his “Sketches of the Mythology and Manners of the Hindoos,”
which was received with extraordinary favour by the public. How
long he remained in England after the publication of this work I have
not been able to discover; but we find him in 1790 at Calcutta,
where he published the first volume of his “Journey from Bengal to
England,” and prepared the second volume for the press. However,
before the completion of his work, the political troubles which at that
period shook the whole empire of Hindostan involved him in their
vortex. He was despatched by the governor-general, whose personal
friendship he would appear to have enjoyed, on an embassy to
Nagpoor, in Gundwarra, the capital of the Bhoonsla Mahratta
dynasty, where he died about eight months after his arrival, in the
month of February, in 1791. His papers were conveyed to England.
Here, six years after his death, a complete edition of his travels
appeared, in two volumes quarto; but the person who undertook the
task of editor, with a degree of negligence which cannot be
sufficiently admired, not only omitted to give the public any account
of the author, but, which is more unpardonable, did not even
condescend to inform them when, how, and from whom the
manuscript was obtained. However, the extraordinary merit of the
work, and the lively, laughing style in which it is written, quickly
recommended it sufficiently to the literary world. The celebrated
Meiners, professor of philosophy in the university of Göttingen,
translated it into German; and Langlès, the well-known orientalist,
published in 1802 a French translation, with copious notes, a
chronological notice on the khans of the Krimea, and a map of
Kashmere.
In English there has not, I believe, appeared any new edition,—
none, at least, which has acquired any reputation; though there are
extremely few books of travels which better deserve to be known, or
which, if properly edited, are calculated to become more extensively
popular. Forster was a man of very superior abilities; and his
acquirements—whatever M. Langlès, a person ill calculated to judge,
may have imagined—were various and extensive. He possessed an
intimate knowledge of the Persian, and the popular language of
Hindostan; and appears to have made a considerable progress even
in Sanscrit. Neither was he slightly conversant with modern
literature; and although it may be conjectured from various parts of
his work that the history of ancient philosophy and literature had
occupied less of his attention, he may yet be regarded as one of the
most accomplished and judicious of modern travellers. This being
the case, it is difficult to explain why he should now be less read
than many other travellers, whose works are extremely inferior in
value, and incomparably less amusing.
JAMES BRUCE.
Born 1730.—Died 1794.

James Bruce, one of the most illustrious travellers whom any age or
country has produced, was born on the 14th of December, 1730, at
Kinnaird, in the county of Stirling, in Scotland. His mother, who died
of consumption when he was only three years old, seemed to have
bequeathed to him the same fatal disorder; for during childhood his
health was bad, and his constitution, which afterward acquired an
iron firmness, appeared to be particularly feeble. His father, who had
married a second wife, by whom he had a large family, sent James
at the age of eight years to London, where he remained under the
care of his uncle, counsellor Hamilton, until 1742, when he was
placed at Harrow school. Here he remained four years, during which
he made considerable progress in his classical studies; and while he
commanded the enthusiastic approbation of his teachers (one of
whom observed, that for his years he had never seen his fellow), he
laid the foundations of many valuable friendships which endured
through life.
On leaving school at the early age of sixteen, Bruce, who at that
time could of course understand nothing of his own character,
imagined himself admirably adapted for the study of divinity and the
tranquil life of a clergyman; but his inclination not receiving the
approbation of his father, he necessarily abandoned it, and prepared,
in obedience to paternal authority, to study for the Scottish bar. He
returned to Scotland in 1747, and, having spent the autumn of that
year in destroying wild fowl and other game, for which noble and
rational species of recreation he always, we are told, retained a
peculiar predilection, he resumed his studies, which, as they now led
him through the dusty mazes of ancient and modern law, seem to
have possessed much fewer charms for our future traveller than
shooting grouse upon the mountains. Two years, however, were
uselessly consumed in this study. At the termination of this period it
was discovered that it was not as a lawyer that Bruce was destined
to excel; and therefore, abandoning all thoughts of a career for
which he had himself never entertained the least partiality, he
returned in a considerably impaired state of health to his favourite
field sports in Stirlingshire.
Here he lived about four years, undetermined what course of life
he should pursue; but at length, having resolved to repair as a free
trader to Hindostan, he proceeded to London in 1753 for the
purpose of soliciting permission from the directors. An event now
occurred, however, which promised to determine for ever the current
of his hopes and pursuits. Conceiving an attachment for the
daughter of an eminent wine-merchant, who, on dying, had
bequeathed considerable wealth and a thriving business to his
widow and child, Bruce relinquished his scheme of pushing his
fortunes in the East, married, and became himself a wine-merchant.
But Providence had otherwise disposed of his days. In a few months
after his marriage, consumption, that genuine pestilence of our
moist climates, deprived him of his amiable wife at Paris, whither he
had proceeded on his way to the south of France. For some time
after this event he continued in the wine trade, the interests of
which requiring that he should visit Spain and Portugal, he applied
himself during two years to the study of the languages of those
countries, of which he is said to have possessed a very competent
knowledge.
This preliminary step having been made, he may be said to have
commenced his travels with a voyage to the Peninsula. Landing on
the northern coast of Spain, he traversed Gallicia, spent four months
in Portugal, and then, re-entering Spain, made the tour of a large
portion of Andalusia and New Castile, and then proceeded to Madrid.
His enthusiasm and romantic character, which had probably a new
accession of ardour from the wild scenes still redolent of ancient
chivalry which he had just visited, recommended him strongly to the
Spanish minister, who used many arguments to induce him to enter
the service of his Catholic majesty. This by no means, however,
coincided with Bruce’s views. That restlessness which the man who
has once conceived the idea of travelling ever after feels, unfitted
him in reality for all quiet employment. He felt himself goaded on by
the desire of fame; to be in motion seemed to be on the way to
acquire it. He therefore proceeded across the Pyrenees into France,
and thence, through Germany and Holland, to England, where he
arrived in July, 1758.
He had learned at Rotterdam the death of his father, by which he
succeeded to the family estate at Kinnaird. He likewise continued
during another three years to derive profit from his business as a
wine-merchant; but at the termination of that period the partnership
was dissolved. All this while, however, his leisure had been devoted
to the acquisition of the Arabic and other eastern languages, among
the rest the Ethiopic, which probably first directed his attention to
Abyssinia. In the mean while, an idea which he had conceived while
at Ferrol in Gallicia was the means of bringing him into
communication with the English ministry; this was, that in case of a
rupture with Spain, Ferrol would be the most desirable point on the
Spanish coast for a descent. Should the scheme be adopted, he was
ready to volunteer his services in aiding in its execution. The plans
appeared feasible to Lord Chatham, with whom Bruce had the
honour of conversing on the subject. But this great man going out of
office before any thing definitive had been concluded on, Bruce
began to imagine that the plan had been abandoned; but was for
some time longer amused with hopes by the ministers, until the
affair was finally dropped at the earnest solicitation of the
Portuguese ambassador.
He now retired in apparent disgust to his estate in Scotland; but
shortly afterward, Lord Halifax, who seems to have penetrated into
Bruce’s character, recalled him to London, and proposed to him, as
an object of ambition, the examination of the architectural curiosities
of Northern Africa, and the discovery of the sources of the Nile. This
latter achievement, however, was spoken of in an equivocal manner,
and as if, while he mentioned it, his lordship had entertained doubts
of Bruce’s capacity for successfully conducting so difficult and
dangerous an enterprise. Such a mode of proceeding was well
calculated, and was probably meant, to pique the vanity of Bruce,
and urge him, without seeming to do so, into the undertaking of
what with great reason appeared to be an herculean labour. But
whatever may have been Lord Halifax’s intentions, which is now a
matter of no importance, the hint thus casually or designedly thrown
out was not lost. Bruce’s imagination was at once kindled by the
prospect of achieving what, as far as he then knew, no man had up
to that moment been able to perform; and secretly conceiving that
he had been marked out by Providence for the fulfilment of this
design, he eagerly seized upon the idea, and treasured it in his
heart.
Fortune, moreover, appeared favourable to his views. The
consulship of Algiers, the possession of which would greatly facilitate
his proceedings in the early part of the scheme proposed, becoming
vacant at an opportune moment, he was induced to accept of it;
and, having been appointed, he immediately furnished himself with
astronomical instruments and all other necessaries, and set out
through France and Italy for the point of destination.
During a short stay in Italy, spent in the assiduous study of
antiquities, he engaged Luigi Balugani, a young Bolognese architect,
to accompany him as an assistant on his travels; and, having
received his final instructions from England, he embarked at
Leghorn, and arrived at Algiers in the spring of 1763.
The leisure which Bruce now enjoyed, interrupted occasionally by
business or altercations with the dey, was devoted to the earnest
study of the Arabic, in which his progress was so rapid, that in the
course of a year he considered himself fully competent to dispense
with the aid of an interpreter. In the Ethiopic want of books alone
prevented his making equal progress; for with him the acquiring of a
language was a task of no great difficulty. He was now, having thus
qualified himself for penetrating into the interior with advantage,
peculiarly desirous of commencing his travels; for to continue longer
at Algiers would, he rightly considered, be uselessly to sacrifice his
time; and he repeatedly requested from Lord Halifax permission to
resign his consulship. For a considerable time, however, his desires
were not complied with. The critical position of the British in that
regency required a firm, intelligent consul; and until a dispute which
had just then arisen with the dey respecting passports should be
settled, it was not judged expedient to recall Bruce, whose
intrepidity, which was thus tacitly acknowledged, admirably adapted
him to negotiate with barbarians. The dispute arose out of the
following circumstances:—On the taking of Minorca by the French, a
number of blank Mediterranean passports fell into their hands.
These, in the hope of embroiling the English and Algiers, they filled
up and sold to the Spaniards and other nations inimical to the
Barbary powers. The effect desired was actually produced. Ships
were taken bearing these forged passports; and although, upon
examination, the fraud was immediately detected by the British
consul, Bruce’s predecessor, it was not easy to calm the violent
suspicions which had thus been excited in the mind of the dey, that
the English were selling their protection to his enemies. In fact, the
conduct of the governor of Mahon and Gibraltar, who, as a
temporary expedient, granted what were termed passavants to ships
entering the Mediterranean, strongly corroborated this suspicion; for
these ill-contrived, irregular passports appeared to be purposely
framed for embarrassing or deluding the pirates. Bruce
endeavoured, with all imaginable firmness and coolness, to explain
to the dey that the first inconvenience originated in accident, and
that the second was merely a temporary expedient; but it is
probable that had not the regular admiralty passports arrived at the
critical moment, he might have lost his life in this ignoble quarrel.
This disagreeable affair being terminated, he with double
earnestness renewed his preparations for departure. Aware that a
knowledge of medicine and surgery, independently of all
considerations of his own health, might be of incalculable advantage
to him among the barbarous nations whose countries he designed to
traverse, he had, during the whole of his residence at Algiers,
devoted a portion of his time to the study of this science, under the
direction of Mr. Ball, the consular surgeon; and this knowledge he
afterward increased by the aid of Dr. Russel at Aleppo.
The chaplain of the factory being absent, to avoid the necessity of
taking the duties of burying, marrying, and baptizing upon himself,
he took into his house as his private chaplain an aged Greek priest,
whose name was Father Christopher, who not only performed the
necessary clerical duties, but likewise read Greek with our traveller,
and enabled him, by constant practice, to converse in the modern
idiom. The friendship of this man, which he acquired by kindness
and affability, was afterward of the most essential service to him,
and contributed more, perhaps, than any other circumstance to
preserve his life and forward his views in Abyssinia.
At length, in the month of August, 1765, Bruce departed from
Algiers, furnished by the dey with ample permission to visit every
part of his own dominions, and recommendatory letters to the beys
of Tunis and Tripoli. He first sailed to Port Mahon, and then,
returning to the African shore, landed at Bona. He then coasted
along close to the shore, passed the little island of Tabarca, famous
for its coral fishery, and observed upon the mainland prodigious
forests of beautiful oak. Biserta, Utica, Carthage were successively
visited; and of the ruins of the last, he remarks, that a large portion
are overflowed by the sea, which may account, in some measure, for
the discrepancy between the ancient and modern accounts of the
dimensions of the peninsula on which it stood.
At Tunis he delivered his letters, and obtained the bey’s permission
to make whatever researches he pleased in any part of his
territories. He accordingly proceeded with an escort into the interior,
visited many of the ruins described or mentioned by Dr. Shaw,
feasted upon lion’s flesh, which he found exceedingly tough and
strongly scented with musk, among the Welled Sidi Booganim, and
then entered the Algerine province of Kosantina. Here, he observes,
he was greatly astonished to find among the mountains a tribe of
Kabyles, with blue eyes, fair complexions, and red hair. But he ought
not to have been astonished; for Dr. Shaw had met with and
described the same people, and supposed, as Bruce does, that they
were descendants of the Vandals who anciently possessed this part
of Africa.
Having visited and made drawings of numerous ruins, the greater
number of which had previously been described more or less
accurately by Dr. Shaw, he returned to Tunis, and, after another
short excursion in the same direction, proceeded eastward by
Feriana, Gaffon, and the Lake of Marks, to the shores of the Lesser
Syrtis. Here he passed over to the island of Gerba, the Lotophagitis
Insula of the ancients, where, he observes, Dr. Shaw was mistaken
or misinformed in imagining that its coasts abounded with the
seedra, or lotus-tree. He must have spoken of the doctor’s account
from memory; for it is of the coasts of the continent, not of the
island, that Dr. Shaw speaks in the passage alluded to.
In travelling along the shore towards Tripoli Bruce overtook the
Muggrabine caravan, which was proceeding from the shores of the
Atlantic to Mecca,[8] and his armed escort, though but fifteen in
number, coming up with them in the gray of the morning, put the
whole body, consisting of at least three thousand men, in great
bodily terror, until the real character of the strangers was known.
The English consul at Tripoli received and entertained our traveller
with distinguished kindness and hospitality. From hence he
despatched an English servant with his books, drawings, and
supernumerary instruments to Smyrna, and then crossed the Gulf of
Sidra, or Greater Syrtis, to Bengazi, the ancient Berenice.
8. Bruce says, “From the Western Ocean to the western banks of the Red Sea,
in the kingdom of Sennaar.” His recent biographer omits the “kingdom of
Sennaar,” but still places Mecca on the “western banks of the Red Sea.” For
“western,” however, we must read “eastern” in both cases.
Here a tremendous famine, which had prevailed for upwards of a
year, was rapidly cutting off the inhabitants, many of whom had, it
was reported, endeavoured to sustain life by feeding upon the
bodies of their departed neighbours, ten or twelve of whom were
every night found dead in the streets. Horror-stricken at the bare
idea of such “Thyestœan feasts,” he very quickly quitted the town,
and proceeded to examine the ruins of the Pentapolis and the
petrifactions of Rao Sam, concerning which so many extraordinary
falsehoods had been propagated in Europe. From thence he
returned to Dolmetta (Ptolemata), where he embarked in a small
junk for the island of Lampedosa, near Crete. The vessel was
crowded with people flying from the famine. They set sail in the
beginning of September, with fine weather and a favourable wind;
but a storm coming on, and it being discovered that there were not
provisions for one day on board, Bruce hoped to persuade the
captain, an ignorant landsman, to put into Bengazi, and would no
doubt have succeeded; but as they were making for the cape which
protects the entrance into that harbour, the vessel struck upon a
sunken rock, upon which it seemed to be fixed. They were at no
great distance from the shore, and as the wind had suddenly
ceased, though the swell of the sea continued, Bruce, with a portion
of his servants and a number of the passengers, lowered the largest
boat, and, jumping into it, pushed off for the shore. “The rest, more
wise,” he observes, “remained on board.”
They had not rowed twice the length of the boat from the vessel
before a wave nearly filled the boat, at which its crew, conscious of
their helplessness, uttered a howl of despair. “I saw,” says Bruce,
“the fate of all was to be decided by the very next wave that was
rolling in; and apprehensive that some woman, child, or helpless
man would lay hold of me, and entangle my arms or legs, and weigh
me down, I cried to my servants, both in Arabic and English, ‘We are
all lost; if you can swim, follow me.’ I then let myself down in the
face of the wave. Whether that or the next filled the boat I know
not, as I went to leeward, to make my distance as great as possible.
I was a good, strong, practised swimmer, in the flower of life, full of
health, trained to exercise and fatigue of every kind. All this,
however, which might have availed much in deep water, was not
sufficient when I came to the surf. I received a violent blow upon my
breast from the eddy wave and reflux, which seemed as given by a
large branch of a tree, thick cord, or some elastic weapon. It threw
me upon my back, made me swallow a considerable quantity of
water, and had then almost suffocated me.
“I avoided the next wave, by dipping my head and letting it pass
over; but found myself breathless, and exceedingly weary and
exhausted. The land, however, was before me, and close at hand. A
large wave floated me up. I had the prospect of escape still nearer,
and endeavoured to prevent myself from going back into the surf.
My heart was strong, but strength was apparently failing, by being
involuntarily twisted about, and struck on the face and breast by the
violence of the ebbing wave. It now seemed as if nothing remained
but to give up the struggle and resign to my destiny. Before I did
this I sunk to sound if I could touch the ground, and found that I
reached the sand with my feet, though the water was still rather
deeper than my mouth. The success of this experiment infused into
me the strength of ten men, and I strove manfully, taking advantage
of floating only with the influx of the wave, and preserving my
strength for the struggle against the ebb, which, by sinking and
touching the ground, I now made more easy. At last, finding my
hands and knees upon the sands, I fixed my nails into it, and
obstinately resisted being carried back at all, crawling a few feet
when the sea had retired. I had perfectly lost my recollection and
understanding, and, after creeping so far as to be out of the reach
of the sea, I suppose I fainted, for from that time I was totally
insensible of any thing that passed around me.”
In giving the history of this remarkable escape of Bruce, I have
made use of his own words, as no others could bring the event so
vividly before the mind of the reader. He seems, in fact, to rival in
this passage the energetic simplicity and minute painting of Defoe.
The Arabs of the neighbourhood, who, like the inhabitants of
Cornwall, regard a shipwreck as a piece of extraordinary good
fortune, soon came down to the shore in search of plunder; and
observing Bruce lying upon the beach, supposed him to be drowned,
and proceeded at once to strip his body. A blow accidentally given
him on the back of the neck restored him to his senses; but the
wreckers, who from his costume concluded him to be a Turk,
nevertheless proceeded, with many blows, kicks, and curses, to rifle
him of his few garments, for he had divested himself of all but a
waistcoat, sash, and drawers in the ship, and then left him, to
perform the same tender offices for others.
He now crawled away as well as his weakness would permit, and
sat down, to conceal himself as much as possible among the white
sandy hillocks which rose upon the coast. Fear of a severer
chastisement prevented him from approaching the tents, for the
women of the tribe were there, and he was entirely naked. The
terror and confusion of the moment had caused him to forget that
he could speak to them in their own language, which would certainly
have saved him from being plundered. When he had remained some
time among the hillocks several Arabs came up to him, whom he
addressed with the salaam alaikum! or “Peace be with you!” which is
a species of shibboleth in all Mohammedan countries. The question
was now put to him whether he was not a Turk, and, if so, what he
had to do there. He replied, in a low, despairing tone, that he was
no Turk, but a poor Christian physician, a dervish, who went about
the world seeking to do good for God’s sake, and was then flying
from famine, and going to Greece to get bread. Other questions
followed, and the Arabs being at length satisfied that he was not one
of their mortal enemies, a ragged garment was thrown over him,
and he was conducted to the sheikh’s tent. Here he was hospitably
received, and, together with his servants, who had all escaped,
entertained with a plentiful supper. Medical consultations then
followed; and he remained with the sheikh two days, during which
every exertion was made on the part of the Arabs to recover his
astronomical instruments, but in vain. Every thing which had been
taken from them was then restored, and they proceeded on camels
furnished by the Arabs to Bengazi.
At this port he embarked on board of a small French sloop, the
master of which had formerly received some small favours from
Bruce at Algiers, which he now gratefully remembered, and sailed
for Canea, in Crete; from whence he proceeded to Rhodes, where he
found his books, to Casttrosso, on the coast of Caramania, and
thence to Cyprus and Sidon. His excursions in Syria were numerous,
and extended as far as Palmyra; but I omit to detail them, as of
minor importance, and hasten to follow him into Egypt and
Abyssinia.
On Saturday, the 15th of June, 1768, he set sail from Sidon, and
touching by the way at Cyprus, his imagination, which was on fire
with the ardour of enterprise, beheld on the high white clouds which
floated northward above the opposite current of the Etesian winds
messengers, as it were, from the mountains of Abyssinia, come to
hail him to their summits. Early in the morning of the fifth day he
had a distant prospect of Alexandria rising from the sea; and, upon
landing, one of the first objects of his search was the tomb of
Alexander, which Marmol pretended to have seen in 1546; but
although his inquiries were numerous, they were perfectly fruitless.
From this city he proceeded by land to Rosetta, and thence up the
Nile to Cairo. Here he was hospitably received by the house of Julian
and Bertran, to whom he had been recommended; and he likewise
received from the principal bey and his officers, men of infamous
and odious characters, very extraordinary marks of consideration, his
cases of instruments being allowed to pass unexamined and free of
duty through the custom-house, while presents were given instead
of being exacted from him by the bey. These polite attentions he
owed to the opinion created by the sight of his astronomical
apparatus that he was a great astrologer,—a character universally
esteemed in the East, and held in peculiar reverence by the
secretary of the bey then in office, from his having himself some
pretensions to its honours.
This man, whose name was Risk, in whom credulity and
wickedness kept an equal pace, desired to discover, through Bruce’s
intimate knowledge of the language of the stars, the issue of the
war then pending between the Ottoman empire and Russia, together
with the general fortunes and ultimate destiny of the bey. Our
traveller had no predilection for the art of fortune-telling, particularly
among a people where the bastinado or impaling-stake might be the
consequence of a mistaken prediction; but the eulogies which his
kind host bestowed upon the laudable credulity of the people, and
perhaps the vanity of pretending to superior science, overcame his
reluctance, and he consented to reveal to the anxious inquirer the
fate of empires. In the mean while he was directed to fix his
residence at the convent of St. George, about three miles from
Cairo. Here he was visited by his old friend Father Christopher, with
whom he had studied modern Greek at Algiers, and who informed
him that he was now established at Cairo, where he had risen to the
second dignity in his church. Understanding Bruce’s intention of
proceeding to Abyssinia, he observed that there were a great
number of Greeks in that country, many of whom were high in
office. To all of these he undertook to procure letters to be
addressed by the patriarch, whose commands they regarded with no
less veneration than holy writ, enjoining them as a penance, upon
which a kind of jubilee was to follow, says Bruce, “that laying aside
their pride and vanity, great sins with which he knew them much
infected, and, instead of pretending to put themselves on a footing
with me when I should arrive at the court of Abyssinia, they should
concur heart and hand in serving me; and that before it could be
supposed they had received instructions from me, they should make
a declaration before the king that they were not in condition equal to
me; that I was a free citizen of a powerful nation, and servant of a
great king; that they were born slaves of the Turk, and at best
ranked but as would my servants; and that, in fact, one of their
countrymen was in that station then with me.”[9]
9. In the biography of Bruce recently published there are a few mistakes in the
account of this transaction, which, simple as it may appear, was precisely
that upon which Bruce’s whole success in Abyssinia depended. Major Head
says, that Father Christopher was the patriarch, that he accosted Bruce upon
his arrival at the convent, and that it was he who addressed the letters to
Abyssinia. Bruce, on the contrary, says that he was Archimandrites; and that
it was “at his solicitation that Risk had desired the patriarch to furnish” him
with an apartment in the convent of St. George. Nor was he at the convent
to accost Bruce on his arrival. “The next day after my arrival,” says the
traveller, “I was surprised by the visit of my old friend Father Christopher.” He
goes on to say, that between them they digested the plan of the letters, and
that Father Christopher undertook to manage the affair,—that is, to procure
the patriarch to write and forward the letters.—Bruce’s Travels, vol. 1. p. 34,
35, 4to. Edin. 1790.
Our traveller was soon called upon to perform in the character of
an astrologer. It was late in the evening when he one night received
a summons to appear before the bey, whom he found to be a much
younger man than he had expected. He was sitting upon a large
sofa covered with crimson cloth of gold; his turban, his girdle, and
the head of his dagger all thickly covered with fine brilliants; and
there was one in his turban serving to support a sprig of diamonds,
which was among the largest Bruce ever saw. Abruptly entering
upon the object of their meeting, he demanded of the astrologer
whether he had ever calculated the consequences of the war then
raging between the Turks and Russians? “The Turks,” replied Bruce,
“will be beaten by sea and land wherever they present themselves.”
The bey continued, “And will Constantinople be burned or
taken?”—“Neither,” said the traveller; “but peace will be made after
much bloodshed, with little advantage to either party.” At hearing
this the bey clapped his hands together, and, having sworn an oath
in Turkish, turned to Risk, who stood before him, and said, “That will
be sad indeed! but truth is truth, and God is merciful.”
This wonderful prophecy procured our traveller a promise of
protection from the bey, to whom a few nights afterward he was
again sent for near midnight. At the door he met the janizary aga,
who, when on horseback, had absolute power of life and death,
without appeal, all over Cairo; and, not knowing him, brushed by
without ceremony. The aga, however, stopped him just at the
threshold, and inquired of one of the bey’s people who he was. Upon

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PART 5 Investor Decision Making 649

CHAPTER 17 Security Valuation and Selection 697

APPENDIX A Using Spreadsheets to Solve Financial Problems 735

PART 1 General Finance Concepts 1

PART 2 General Business Concepts 159

Other Considerations in Forecasting 262 Chapter Principles—Key Financial Planning and

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