University of Pennsylvania - Wharton Finance

Fall 2004

University of Pennsylvania The Wharton School

FNCE 601

Corporate Finance

BULK PACK QUARTER 1

(i) Course Schedule and Due Dates

(ii) Problem Sets

Problem Set 1

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2

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3

Problem Set 4

(Due Tuesday 9/14) (Due Tuesday 9/21) (Due Thursday 9/30) (Due Thursday 10/14)

(iii) Cases

Peach Case

(Due Tuesday 10/5)

(iv) Old Exams

Formula Sheet for Midterm Example Midterms 1-3 with Solutions Example Midterms 4-5 without Solutions (to be posted on Webcafe)

(v) Lecture Notes

Total Length

Franklin Allen

Page no. 3

5 7 11 15

19

21 25 45 57 300

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INTENTIONALLY BLANK 2

Week 1: Tu: 9/7

Th: 9/9 Week 2: Tu: 9/14

Th: 9/16 Week 3: Tu: 9/21

Th: 9/23

Week 4: Tu: 9/28 Th: 9/30

Week 5: Tu: 10/5

Th: 10/7

COURSE SCHEDULE AND DUE DATES QUARTER 1

Section 1: Introduction Read Ch. 1 BM Section 2: The Objective Function for Corporations Read Ch. 2 BM

Section 2 (cont.)

PROBLEM SET 1 DUE Section 3: Calculating Present Values Read Ch. 3 BM

Section 4: The Valuation of Bonds and Stocks Read Ch. 4 BM

PROBLEM SET 2 DUE Section 5: A Comparison of Investment Criteria Read Ch. 5 BM

Section 5 (cont.) Section 6: Practical Aspects of the NPV Rule Read Ch. 6 BM

Section 6 (cont.)

PROBLEM SET 3 DUE Section 7: Measuring Risk Section 7(i): Statistics Review Section 7(ii): A Theory of Asset Pricing: Introduction

PEACH CASE DUE Section 7(iii): Mean-Standard Deviation Analysis Section 7(iv): Diversification and Beta Read Ch. 7 BM

Section 8: The Capital Asset Pricing Model Read Ch. 8 BM

3

Week 6: Tu: 10/12

Th: 10/14

Week 7: Tu 10/19

Th: 10/21

QUARTER 2 Week 1: Tu: 10/26

Th: 10/28

Week 2: Mon: 11/1

Section 8 (cont.) PROBLEM SET 4 DUE Section 9: Capital Budgeting and the CAPM Read Ch. 9 BM Exam Week for MBA Core ? No class Exam week for MBA Core - No class

Break - No class Review Session during regular class

MIDTERM EXAM 6:15-7:45pm

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UNIVERSITY OF PENNSYLVANIA Wharton School

FNCE 601 Corporate Finance

Fall 2004

Problem Set 1 (Due Tuesday, September 14, 2004)

Section 2

1. Patrice Biais can lend and borrow at the bank at 20 percent per period. She has $5,000 in cash now. Her only investment possibility (other than the bank) is a project that costs $3,000 now in her Youth and has a payoff of $4,000 in cash one period from now in her Old Age. What is the most she can consume in her Old Age?

2. Ying Lok can lend and borrow at the bank at 12 percent per period. She has no cash of her own. An investment that costs $9,000 now in her Youth and has a payoff of $15,000 one period from now in her Old Age is the only investment available to her (other than the bank). What is the most she can consume now in her Youth?

3. Han Kim can lend and borrow at the bank at 22 percent per period. He has $10,000 in cash now. His only investment possibility (other than the bank) costs $6,000 now in his Youth and has a payoff of $7,100 in his Old Age. What is the most he can consume in his Old Age?

4. In the context of the diagram with consumption in youth on the horizontal axis and consumption in old age on vertical axis which of the following statements is/are correct?

A. The slope of the straight line representing opportunities provided by the bank is (1 + r), where r is the lending and borrowing rate at the bank.

B. In plotting the production possibilities curve, the least profitable project is plotted starting from the point representing the amount the person has inherited (i.e. the endowment point).

C. The slope of the production possibility curve is -(1 + R) where R is the rate of return on the project at that point on the curve.

D. The distance between the point representing the amount the person has inherited (i.e. the endowment point) and the point where the straight line representing the bank cuts the axis is the PV of the project.

E. None of the above.

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