CORPORATE FINANCE



CASE WESTERN RESERVE UNIVERSITY

Weatherhead School of Management

Scott Fine BAFI 402

Professor for the Practice of Management Financial Management I

Rm. 366, Peter B. Lewis Building Summer 2007

scott.fine@case.edu M/W 6 - 8 pm

Ph: (216) 368-0909

Fax: (216) 368-6249

Peter Ritchken

Kenneth Walter Haber Professor of Finance and Department Chair

Rm. 372, Peter B. Lewis Building

peter.ritchken@case.edu

Ph: (216) 368-3849

Fax: (216) 368-6249

Note: Professor Fine will be the primary instructor during June and Professor Ritchken will be the primary instructor during July. Although first contact should be with the professor responsible for each half, both will be available to address student questions during the span of the course.

Course Syllabus

Introduction

This is a Corporate Finance course that deals with financial value and investment theory. The course materials cover discounted cash flows, bond and stock valuation, capital budgeting, applications of real options in investment analysis, asset risk and return, and cost of capital. The tools, problem solving techniques, and ways of thinking that you develop in this course have broad applicability to all areas of business. They also form the basis for sensible personal decisions in the areas of investments, borrowing, and financial planning.

This course is the prerequisite for BAFI 403, which deals with capital structure, financial leverage, long-term financing and some special topics related to the materials covered here. It is also a required course for all other advanced finance electives.

You should read this syllabus very carefully. It describes all the components of the course, and provides lots of information. Most importantly, this constitutes our contract with you. We will stick to the terms of the contract, and will expect the same of you. Please do not ask us to deviate from the terms of this contract. To deviate would be unfair to your colleagues and might hinder your own learning, so we shall not do that. We will expect that you know the information in this syllabus.

Prerequisites

The co-requisite for BAFI 402 is ACCT 401. Students who have had no other accounting courses in the past should read basic financial accounting from their accounting text ahead of class. This class requires familiarity with accounting concepts, therefore you need to bring yourself up to speed with basic accounting concepts including reading and interpreting the balance sheets, income statements, cash flow / funds flow statements of companies, the difference between earnings and cash flows, the effects of depreciation and amortizations on earnings and cash flows, the tax impact of depreciation, etc. Even students who have had accounting courses in the past should revisit their textbooks and brush up the concepts. Without the knowledge of these concepts, it may be very difficult for you to understand some parts of the course.

Secondly, this is a quantitatively oriented course, so some of you may find it a tough course. It would be beneficial to you if you brush up your basic algebra and statistics concepts as well, especially how to compute the mean, standard deviation and variance of a random variable, and how to compute the covariance and correlation between two random variables.

Course Materials

• Textbook: Ross, Westerfield, and Jaffe, Corporate Finance, 8th Edition, McGraw-Hill – this is a required text for this course.

• The class overheads will be on blackboard at least one session before class. It’s your responsibility to print them out ahead of class, read them, and bring them with you to class so that you do not have to write their contents down by hand. Please note that we will not be distributing these in class at all.

• The homework problem sets are outlined in this syllabus, along with the submission due dates.

• Solutions to the problem sets will be put up on blackboard after the assignments are turned in.

• A financial newspaper, like the Wall Street Journal or the Financial Times, as well as a business publication, like the Economist or Business Week.

You will also need a financial calculator for this course. You can come and discuss with us what kind of calculator you would need. We will also be discussing it in class.

Grading

Problem Sets 30%

Midterm Exam 35%

Final Exam 35%

Your grade in the course depends on your cumulative score in the problem sets and the exams as per the weights given above, as well as the average score of all the students in your class.

Please note that the exact cut-offs for grades will be decided by us at the end of the semester based on the overall performance level of the class.

Problem Sets

There are seven problem sets consisting of various questions from the text, and some additional problems that we may assign from time to time. These problems are useful in helping you understand the materials covered and consolidate the knowledge obtained in class. They also provide a good review for the exams. Solutions for these problem sets will be put up on blackboard after the assignments are turned in. While you are permitted to discuss the problem sets in small groups, the problem sets must be turned in individually. They should either be typed or neatly hand written (please make sure your assignment sheets are stapled together). Each problem set will be evaluated out of 5 points as follows:

Excellent (attempted all questions completely, most of them correctly) 5/5

Satisfactory (Good faith attempt made to answer all questions, 4/5

but some mistakes)

Unsatisfactory (Good faith effort doubtful, too many mistakes) 2/5

Not submitted 0/5

You can hand in the assignments in class, fax them to our office, or e-mail them to us, but they must reach us by the start time of our class on which they are due for them to be evaluated. Late submissions will not be accepted at all.

The problem sets will be graded by us, i.e., there will be no TA. If you are not satisfied with your assignment grade, you must discuss it with us within two weeks of the graded assignment being returned to you in order for us to reconsider your grade.

Exams

There will be two in-class exams in this course – the mid-term exam on Wednesday, June 27th, and the final exam on Wednesday, July 25th. There will be a review session before each exam. We will also post a practice exam on blackboard before each exam.

You may bring one 8.5 x 11” sheet of notes into the exam. You can put any useful information you want on this sheet. You can use both sides of the sheet, but you can’t bring a magnifying glass or a microscope into the exam.

To maintain order in the course, we have to work as per a set schedule. The class-by-class schedule is given in this course outline, so you should plan your work schedules accordingly. If you have any problem with the exam dates, or with any of the other class dates, please let us know in writing by Monday, June 11, 2007 – after that, we will assume that you have sorted out your schedules, and we will not be able to reschedule anything, unless it is a medical emergency (for which you would need to produce sufficient evidence).

Class Participation

We encourage you to ask questions and share your insights in class as much as possible. You and your classmates will benefit from this. Also, the onus of understanding all the materials in this course is on you. If you do not understand anything in class, you should feel totally free to ask us to explain it again. If you do not agree with something we say, you should challenge us immediately – we would urge you to never accept anything we say unless you are yourself convinced that it is right. This way, we can have a very rewarding exchange of thoughts throughout the course. Remember, if you do not ask us any questions, we will assume that you have understood the materials thoroughly.

If, at any stage, you feel you have trouble keeping up with the course, please get in touch with us immediately so that we can try and do something about it before it is too late. Please note that nothing can be done about it once the course is over and your grades have been assigned.

While we will not take attendance in the class, we expect each one of you to attend every class. If you miss any class, you would be in danger of falling behind, since a lot of the classes are linked together. If you end up missing any class due to unavoidable reasons, you must make up the materials for that class on your own. Feel free to seek our help in bringing you up to speed on those missed classes. In all likelihood we will be taping almost all of the classes.

Office Hours and Communication

We encourage you to communicate with us by e-mail so we can respond to you with a written note. You can always call us on the phone numbers listed on the first page to make an appointment to see me.

Outside of class, our primary mode of communication with you will be via e-mail. From time to time, we’ll send you mails regarding any changes in the schedule, any extra readings that you need to do before class, or any other announcements. For this purpose, we will use the class e-mail list provided through Blackboard. We would urge you to check your Weatherhead e-mail account at least once every day. If you cannot access your Weatherhead account for any reason, you can have your mails forwarded to an e-mail address of your choice – so please get your mails forwarded in case you do not plan to access your Weatherhead account periodically. You can contact the ITG help desk if you have any questions regarding forwarding your e-mails. It’s your responsibility to either check your Weatherhead e-mail or get them forwarded – we will assume that you are getting the e-mails we are sending to you.

Remember, the responsibility for getting your questions, problems, and doubts resolved in a timely manner rests solely on you. You should feel free to seek our help at any time during the course. Do not leave your problems unresolved until the end of the course.

Academic Integrity

You are expected to adhere to university standards of academic integrity. Cheating, plagiarism, and other forms of academic dishonesty will not be tolerated in this course. This includes, but is not limited to, consulting with another person during an exam, turning in written work that was prepared by someone other than you, and making minor modifications to the work of someone else and turning it in as your own. Ignorance will not be permitted as an excuse. If you are not sure whether something you plan to submit would be considered either cheating or plagiarism, it is your responsibility to ask for clarification. Please remember that you have agreed to Standards Regarding Academic Integrity (a copy of which can be found at ), which outlines your responsibility in greater detail.

Course Outline

Date Topic Chapter(s)

Scott Fine Instructor During First Portion of Class

Mon June 4 Introduction to Corporate Finance 1

Wed June 6 Accounting Statements and Cash Flow 2

Mon June 11 Time Value of Money 4

Wed June 13 Stock and Bond Valuation 5

Problem Set 1 Due (Ch. 4: 3, 4, 8, 11, 13, 15, 23, 26, 38, 51, 54, 65)

Mon June 18 Net Present Value and Other 6

Criteria for Investment Decisions

Problem Set 2 Due (Ch. 5: 2, 4, 10, 13, 18, 27, 30, 38)

Wed June 20 Capital Budgeting 7

Mon June 25 Review session

Discussion of Practice Mid-Term Exam

Problem Set 3 Due (Ch. 6: 1, 4, 5, 8, 10, 13, 14, 19, 26)

Wed June 27 Mid-term exam

Peter Ritchken Instructor During Second Portion of Class

Mon July 2 Mid-term exam handed back; with solution Problem Set 4 Due (Ch. 7: 2, 3, 7, 12, 15, 21, 24, 32, 39)

Risk and Return I: Lessons from Market History 9

Wed July 4 No Class – July 4th holiday

Mon July 9 Risk and Return II: Capital Asset Pricing Model 10

Problem Set 5 Due

Wed July 14 Risk, Cost of Capital and Capital Budgeting 12

Mon July 16 Corporate Financing Decisions and Efficient Markets 13

Problem Set 6 Due

Wed July 18 Back to Project Analysis:

Using Decision Trees and Options 8

Mon July 23 Review Session

Discussion of Practice Final Exam

Problem Set 7 Due

Wed July 25 Final Exam

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download