FINANCE 422 – CAPITAL INVESTMENT
Winter 2019
University of Alberta, Alberta School of Business Department of Finance and Statistical Analysis
Instructor: Sheng-Jun Xu Class Room: BUS B-9
Email: [email protected] Class Time (Section B1): Mon, Wed 12:00 – 13:20 Phone: 780-492-8057 Class Time (Section B2): Mon, Wed 13:30 – 14:50 Office: BUS 2-32B Office Hours: Tues, Thurs 13:30 – 15:00 Course Description: This course discusses the capital investment decisions of firms. These are decisions about the size, allocation, and financing of capital expenditures, the relatively large, long-term investments that may be tactical or strategic in nature. Taken in the aggregate, these decisions determine the economic future for a society. To the firm, they constitute one of the most demanding challenges confronting management.
Prerequisites: FIN 301, MGTSC 312.
Learning Objectives: This course incorporates the learning goals of the BCom Program, in particular critical thinking, oral communication, teamwork, quantitative skills, and written communications. At the end of this course, you will have developed the following course-specific knowledge:
1. You should understand the theory of finance related to the allocation of a firm’s long-term capital resources.
2. You should acquire tools to deal with the practical application of theory.
3. You should have gained experience applying the theory and tools to real-world problems. This will be achieved through the valuation project.
Course Materials:
Textbook: Berk, De Marzo, Stangeland: Corporate Finance, 4th Canadian Edition, Pearson Canada, 2018, ISBN: 978-0134887456 (The 3rd edition is also acceptable but it is your responsibility to monitor differences between the editions.) Additional required and suggested readings may be handed out in class or posted on the class web site.
Instructor Availability: The instructor is available during office hours (listed at the top of the page). Meetings by appointment can be arranged only during the week leading up to the midterm, final exam, or presentations.
Method of Evaluation: Final grading in the course is done on the basis of individual student achievement.
Individual student achievement is measured by the following assessments:
Assignments (3 assignments, 5% each) 15%
Valuation Project Presentation & Report 15%
Class Participation 10%
Midterm Exam 25%
Final Exam 35%
Final grades in the course will follow generally the historical distribution of grades in a FIN course that in- cludes third-year and fourth-year students. The following is the link to the official University of Alberta Assess- ment and Grading Policy: https://policiesonline.ualberta.ca/PoliciesProcedures/Pages/DispPol.
aspx?PID=101.
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FIN 422 Winter 2019
Important Dates:
Assignment 1 Thursday, January 31
Assignment 2 Thursday, February 28
Assignment 3 Thursday, March 21
Midterm Wednesday, February 13 (tentative)
Valuation Project Report Monday, April 1
Final Exam TBD
Assignments: Three assignments will be given. Each person in the class must submit his/her indi- vidual assignments. The due dates are listed below. Assignments must be submitted to the FIN 422 Section B1/B2 assignment slot(use the slot for your enrolled section) located outside the General Office on the third floor of the School of Business building. The cutoff time for dropping off assignments on the due dates is 3:00 p.m. Assignments handed in after 3:00 p.m. on the stated due dates will not be accepted.
“One way to work appropriately with your colleagues is to discuss concepts, research and ideas together and then go your separate ways to write your individual assignments When two or more students submit identical work claiming it is their own, it is a clear sign of inappropriate collaboration... Having someone write, rewrite, extensively edit or correct your work for you is Cheating.” (University of Alberta, Truth in Education)
Examinations: The exams will be on: material discussed in class, material in the class notes (incl. suggested questions from the textbook listed at the beginning of each note), and material covered in the three assignments.
A sample midterm and sample final exam will be provided.
The midterm exam will be on topics covered up to reading week. These topics include: investment criteria, investment risk, cost of capital (theory), DCF methods, and cash flows.
The2-hour final examwill focus primarily on the material covered following the mid-term. Note that Finance is a cumulative discipline so core dumping the first-half materials following the mid-term is not advisable.
In the case of absence from the final exam, the student must apply through the Undergraduate Office to write a deferred exam. Students interested in deferred final examinations should consult the Undergraduate Office. For more information on what a deferred exam is, go to http://business.ualberta.ca/programs/
bachelor-of-commerce/current-students/exam-policy-procedures/deferred-exams. If you miss the fi- nal exam and meet the criteria for a deferred final, the deferred final will be on May 14, 2pm - 4pm.
Students with accessibility needs can request special accommodations for exam. Please refer tohttps://www.
ualberta.ca/current-students/accessibility-resources/exam more more details about what types of accommodations are available, requirements, and deadlines.
Valuation Group Project: This course requires students to produce a written report and deliver a presentation regarding the valuation of an actual company. The project is to be completed in groups of five (5) students. Groups are expected to be formed by the end of the first week of class, and I will arbitrarily assign students to groups in case some students have not joined a group by the deadline. By the end of the second week of class, each group is expected to pick one company,from a predetermined list of three companies listed on eClass. I will assign a company to any group that has not yet selected their cases for presentation.
The valuation group project will account for 15% of your final grade. The written submission and presentation portions of the project will each account for 6%. The remaining 3% will be based on a peer evaluation in which each group member is to evaluate the performance of all other members of their group.
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FIN 422 Winter 2019
If problems arise during the term with any of the members of your group, please advise the instructor promptly.
Students who make no contribution to their group stand to lose all of the marks allocated for the valuation project presentation and written report. In this circumstance, the instructor may penalize nonparticipating members of a group based upon complaints received from other group members. Such complaints must be made to the instructor prior to the day that valuation project reports are due (Monday, April 1).
A student will not lose any marks for nonparticipation, in excess of the 3% of your final grade based on the peer evaluation, without the instructor giving that student an opportunity to explain her/his lack of participation.
A student who wishes to explain her/his lack of participation should contact the instructor before the last day of classes (Wednesday, April 10).
Class Participation: The mark for class participation will in large part be based on participation in the classes when the valuation project presentations are made. The best way to maximize your class participation grade is by volunteering helpful insights and/or questions. I may also cold call on students, but participation is ultimately your responsibility.
Academic Integrity: 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 (online atwww.governance.ualberta.ca) and avoid any behaviour 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.
Please be aware that writing help is available at the following sites:
1. Centre for Writers: http://www.c4w.ualberta.ca/
2. Student Conduct and Accountability: http://www.osja.ualberta.ca/
Question about Grades: If you feel that your grade is incorrect, you must notify me in writing within one week of the date that the assignment, valuation project report, or exam is returned to the class. After that, the problem will not be researched. Please note that a request to have a question on your exam re-graded entails a request to have the entire exam re-graded, which means your grade may go up or down.
Missed Term Work: Any student who misses term work for a valid reason will be permitted to transfer the weight of that term work onto the final exam. Supporting documentation (either a form from the student’s faculty or a Statutory Declaration) may be required to demonstrate valid cause.
Recording of Lectures: Audio or video recording, digital or otherwise, of lectures, labs, seminars or any other teaching environment by students is allowed only with the prior written consent of the instructor or as a part of an approved accommodation plan. Student or instructor content, digital or otherwise, created and/or used within the context of the course is to be used solely for personal study, and is not to be used or distributed for any other purpose without prior written consent from the content author(s).
Outline Policy: Policy about course outlines can be found in Course Requirements, Evaluation Procedures and Gradingof the University Calendar
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FIN 422 Winter 2019
Tentative Class Schedule:
Date(s) Topics and Events
Readings from Berk et al. 4th Canadian edition (3rd Canadian edition readings in parenthesis when different)
January 7 Introduction Ch. 1 – 2
January 9, 14 Investment Criteria Ch. 3 - 4, 9, p. 586 - 588 (p. 571 - 574)
January 16, 21 Investment Risk Ch. 5, 10 - 11, 13.7
January 23, 28 Cost of Capital: Theory Ch. 17 - 19 January 30, February 4 Discounted Cash Flow Methods Ch. 21.1 - 21.7
February 6, 11 Cash Flows Ch. 7.1, 7.2, 9, 13.8
February 13 Midterm Exam
February 18 – 22 Reading Week
February 25, 27 Cost of Capital: Practice Ch. 12
March 4, 6 Valuing Firms Ch. 7, 22
March 11 Sensitivity Analysis Ch. 9.5
March 13, 18 Real Options Ch. 15 – 16
Mar 20 Guest Lecture
March 25, 27
Special topics (time permitting):
Taxes, Inflation, Diluted Shares, Minority Interest, Monte Carlo Simulation, Buy vs. Lease Decision
CCA Calculations: Ch. 9.1, 9.4
Inflation: p. 156 - 160 (148 - 152), 294 (285)
April 1, 3, 8 Project Presentations
April 10 Final Exam Review
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