FIN 488 - SELECTED TOPICS IN FINANCE SCHOOL OF BUSINESS, UNIVERSITY OF ALBERTA
WINTER, 2010
PROFESSOR: Mengxin Zhao, Ph.D. C.F.A.
OFFICE: 2-38 Business Building
OFFICE HRS: Wednesdays 10 – 11:30am or by appointment TELEPHONE: 780-248-1318
E-MAIL: [email protected]
COURSE DESCRIPTIONS
The objective of this course is to develop a better understanding of the main financial decisions that firms face, by using the techniques of investment analysis to better evaluate corporate decisions. Specifically, we will focus on the following topics: capital
budgeting, real options, capital structure, corporate payout, risk management, mergers and acquisitions. During the course, we will combine corporate theories and learn how to properly apply the theories to real-life situations through case studies. Approximately two thirds of the class sessions will be devoted to lectures and articles; the other quarter will be devoted to case discussions.
PREREQUISITES FIN 301
REQUIRED TEXTBOOK
Course Packet. The course packet includes articles and cases RECOMMENDED READINGS
Principles of Corporate Finance, Brealey, Myers, & Allen;
Irwin McGraw-Hill, 8th or 9th Edition.
The Revolution in Corporate Finance, (4th ed.), Joel M. Stern and Donald H.
Chew, Jr. eds. Blackwell Publishing, 2003.
DETERMINATION OF GRADES
Cases 40%
Article review/Assignments 20%
Final Examiniation (final project) 40%
No makeup examination will be given.
Your grade is completely determined by your rank in the class. The University provides a suggested grade distribution for a 400 level courses, and this course’s grade distribution will be similar.
University Suggested Grade Distribution for a 400 Level Class
Grade A+ A A- B+ B B- C+ C C- D+ <=D
Percentage
of Class 8% 12% 17% 16% 16% 12% 7% 5% 3% 2% 2%
ASSIGNMENTS AND CASES
The course consists of lectures and case discussions. Lectures will be devoted to issues and concepts underlying the topic to be covered. Case classes will be spent presenting and discussing the case assigned for that day. Students are expected to form groups of four or five people. Most of the case studies will be done in groups. In case some students have not joined a group by the deadline, I will assign students to groups arbitrarily. Each group will be responsible for a formal presentation of 20 minutes maximum at the beginning of class. Depending on the number of students in the class, each group may be assigned up to two cases for presentation (this will be finalized during the first week).
ATTENDENCE
Attendance is crucial to the understanding of the materials. However, attendance is not mandatory, but is strongly encouraged. If you miss a class, then you are responsible for getting whatever information you need from a classmate (not from me). This applies to questions about upcoming exams and case/article assignments.
ACADEMIC HONESTY
From the General Faculties Council: “The University of Alberta is committed to the highest standards of academic integrity and honesty. Students are expected to be familiar with these standards regarding academic honesty and to uphold the policies of the University in this respect. Students are particularly urged to familiarize themselves with the provisions of the Code of Student Behaviour and avoid any behavior which could potentially result in suspicions of cheating, plagiarism, misrepresentation of facts and/or participation in an offence. Academic dishonesty is a serious offence and can result in suspension or expulsion from the University.”
The Code of Student Behavior can be found here:
http://www.uofaweb.ualberta.ca/gfcpolicymanual/content.cfm?ID_page=37633
COURSE OUTLINE
This outline provides a general plan for the course; deviations may be necessary.
Week/Date Topics Assignment
Week 1 5-Jan
Course Overview Review of Capital
Budgeting
Article 1, 2, 3 Capital Budgeting Review
Problems Assigned
Week 2 11-Jan
Valuing Risky Projects
Real Options Start Case Arundel Partners assigned Week 3
18-Jan
Real Options Continued Case Discussion:
Arundel Partners Article 4, 5, 6
Real Options Continued Case CITIC Tower II assigned Week 4
25-Jan
Capital Structure and Cost
of Capital Article 8
Week 5 1-Feb
Case Discussion:
CITI Tower II Capital Structure
(continued)
Case Massey Ferguson Assigned
Week 6 8-Feb
Corporate Payout Firm Valuation
Article 7, 10
Case Linear Technology Assigned
Week 7
15-Feb Reading Week No Class
Week 8 22-Feb
Case Discussion:
Massey Ferguson Risk Management
Article 9
Case American Barrick Resource Corporation Assigned Week 9
1-Mar
Issuing Securities Case Discussion:
Linear Technology
M&A article assigned for reading M&A case Chase assigned
ICBC Case Assigned Week 10
8-Mar ICBC IPO Case
Case Discussion:
American Barrick
IPO Articles M&A Case MCI assigned
Week 11
15-Mar M&A, Event Study
Corporate Restructuring Articles on Recent Financial Crisis
Week 12 22-Mar
Case Discussion: Chase Corporate Governance
Week 13 29-Mar
Case Discussion: MCI Corporate Governance
(Continued)
Week 14 5-Apr
Wrap Up
Week 15 Final Week
ARTICLES
1. Stewart Myers, “Finance Theory and Financial Strategy,” Midland Corporate Finance Journal 5, 1987. (Reprinted in Stern and Chew, 2003).
2. Copeland, 2002, What do practitioners want? Journal of Applied Finance 12, 5-12.
3. John R. Graham and Campbell R. Harvey, “Theory and Practice of Corporate Finance – Evidence from the Field,” Journal of Financial Economics 61, 2001.
4. Timothy A. Luehrman, “Capital Projects as Real Options: An introduction”, HBS 9- 925-074
5. Alex Triantis and Adam Borison, “Real Options: State of the Practice,” Journal of Applied Corporate Finance 14-2, 2001. (Reprinted in Stern and Chew, 2003).
6. Jeremy Stein, “Rational Capital Budgeting in an Irrational World,” Journal of Business, 1996, 429-445.
7. David L. Ikenberry and Gustavo Grullon, “What Do We Know About Share
Repurchases?” Journal of Applied Corporate Finance, 13-1, 2000. (Reprinted in Stern and Chew, 2003).
8. “Vanderbilt University Roundtable on the Capital Structure Puzzle,” Journal of Applied Corporate Finance, 11-1, 1998.
9. “Stern Stewart Roundtable on Capital Structure and Stock Repurchase,” Journal of Applied Corporate Finance, 14-1, 2001. (Reprinted in Stern and Chew, 2003).
10. Baker and Powell, 2000, Determinants of corporate dividend policy: A survey of NYSE firms, Financial Practice & Education 10, 29-40.
11. Michael Jensen and Robert Monks, 2008, “U.S. Corporate Governance:
Accomplishments and Failings”, Journal of Applied Corporate Finance, Winter, 2008.
12. John Graham and Campbell Harvey, 2002, “How Do CFOs Make Capital Budgeting And Capital Structure Decisions?,”, JACF, vol 15 num 1, pp. 8-23
13. Park, M., and J. Ritter, 1999, Valuing IPOs, Journal of Financial Economics.
14 Brau, J. C., and S. E. Fawcett, 2006, Evidence on what CFOs think about the IPO process, JACF, vol 18 num 3, pp. 107-117.
15. Wilhelm, W., 2005, Bookbuilding, auctions, and the future of the IPO process JACF, vol 17 num 1, pp. 55-66.
16. Jagannathan, R., and A. E. Sherman, Reforming the bookbuilding process for IPOs, JACF, vol 17 num 1, pp. 67-72.
CASES
1. Capital Projects as Real Options: An Introduction (HBS 9-295-074) 2. Arundel Partners (HBS 9-292-140)
3. CITIC Tower II: The Real Options (HKU199) 4. Massey Ferguson, 1980 (HBS 9-282-043)
5. Dividend Policy at Linear Technology (HBS 9-204-066)
6. American Barrick Resources Corporation: Managing Gold Price Risk (HBS 9- 293-128)
7. Chase Manhattan Corporation: The Making of America’s Largest Bank (HBS 9- 298-016)
8. The MCI Takeover Battle: Verizon versus Quest (HBS 9-206-045)
Notes on Cases:
Cases are designed to provide ways to learn how to use various concepts and quantitative techniques in complicated environments. Hence the information provided for the cases may appear incomplete and/or ambiguous. I will provide some questions for each case, and they should provide directions for solving the case.
Case Write-ups: There should be an Executive Summary at the beginning of each write-up, and the entire write-up should be limited to three double-spaced pages. Please attach all supporting tables, figures and exhibitions at the end of the write-up. In forming your arguments, you can regard your write-up as a recommendation to the CEO or the Board of Directors of a company. Although there are usually no clear-cut answers to most of the cases, you are strongly encouraged to take a position in your Executive Summary, make specific recommendations and carefully justify your results.
