FINANCE 422 – CAPITAL INVESTMENT UNIVERSITY OF ALBERTA School of Business
Department of Finance
Instructor: András Marosi Fall 2021
e-mail: [email protected]
Office hours: TBA (I will poll the class to find out about the right mix of remote and in person office hours).
Class section: A1 Class times: MW 9:00 a.m. – 10:20 a.m. in BUS 4-09 Class section: A2 Class times: MW 11:00 a.m. – 12:20 p.m. in BUS 4-09
Course Description and Objectives: 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. (Prereq: FIN 301, MGTSC 312) Learning Objectives: This course incorporates all the Learning Goals of the BCom Program, in particular business concepts and theories, ethical awareness, business communication, and teamwork. 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. Special emphasis will be placed on decision- making under uncertainty. Real options analysis will be discussed.
3. You should have gained experience applying the theory and tools to real-world problems. This will be achieved through a company valuation project.
Textbook: Berk, DeMarzo, Stangeland: Corporate Finance, 5th Canadian Edition, Pearson Canada, 2021, ISBN:
9780136649052 (The 4th 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 website.
Company Valuation Project: A list of companies will be made available.
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 (Presentation & Write-up) 15%
Class Participation 10%
Midterm Exam 25%
Final Exam 35%
TOTAL 100%
Final grades in the course will follow generally the historical distribution of grades in a FIN course that includes third-year and fourth-year students.
The following is the link to the official University of Alberta Assessment and Grading Policy:
https://www.ualberta.ca/registrar/examinations/assessment-and-grading
Assignments: Three assignments will be given. Each person in the class must submit his/her individual assignments.
The due dates are listed below. Assignments must be submitted via eClass. The cutoff time for submitting assignments on the due dates is 3:00 p.m. Assignments submitted after 3:00 p.m. on the stated due dates will not be accepted.
Due Dates for Assignments: Assignment 1 Monday, September 27 Assignment 2 Friday, October 15 Assignment 3 Friday, November 19
Group Work: This course requires students to participate in group-work for the valuation project presentation and written submission. This work accounts for 15% of the final grade in the course. Students will be given the opportunity to select the members of their group and groups will consist of about four students each. 15% of the group mark will be based on a peer evaluation in which all group members will be given the opportunity to evaluate the performance of the other members of their group. Students who fail to participate adequately in their group are liable to lose part or all of these marks. If
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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 submission. 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 (Wednesday, November 24). A student will not lose any marks for nonparticipation, in excess of the 15% 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 (December 7).
Class Participation: Participation in the classes when the valuation project presentations are made is particularly important. Participation will include attendance and participation in the discussion of the valuation projects.
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 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:
Centre for Writers: http://www.c4w.ualberta.ca/
Student Conduct and Accountability: https://www.ualberta.ca/current-students/academic-resources/academic- integrity
Examinations:
1. The exams will be on:
The material discussed in class.
The material in the class notes (incl. suggested questions from the textbook listed at the beginning of each note).
The material covered in the three assignments.
2. The midterm exam will be on the following topics: introduction, discounted cash flow analysis, investment under uncertainty, capital structure, estimating the cost of capital, and approaches to valuation.
3. The 2-hour final exam focuses on the following topics: cash flow estimation, valuation of firms, sensitivity and scenario analyses, Monte Carlo simulation, decision tree analysis, and real options analysis.
4. The tentative time and date for the final exam (subject to confirmation by the University) is:
Section A1:2:00 p.m. – 4:00 p.m. on Wednesday, December 15 Section A2:2:00 p.m. – 4:00 p.m. on Monday, December 13
5. You will not be required to memorize formulas. Additional details will be announced closer to the date of the exam (the required formulas will most likely be included with each question).
7. More information about the exams will be posted to the class web site closer to the exam dates.
Questions about Marking: If you feel that your grade is incorrect, you must notify me via email 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.
Missed Term Work:
1. 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.
2. In case of absence from the final exam, the student must apply through the Undergraduate Office to write a deferred exam.
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).
3 Tentative Class Schedule
The readings refer to chapters and sections from the textbook, Berk, et al. 5th (or 4th) Canadian edition.
Date Topics and Events Readings
September 1, 8 Introduction;
NPV and other Investment Criteria
Chapters 1 – 5, 8; Section 14.6; Section 16.5
September 13, 15 Investment under Uncertainty Chapters 10 – 11;
Multifactor models 13.7 September 20, 22 Capital Structure Theory Ch. 17 - 19
September 27, 29 Estimating the Cost of Capital Sections 7.1, 7.2; Chapter 12 Section 13.8
October 4, 6 Approaches to Valuation
(APV, FTE, and WACC)
Sections 21.1 – 21.7
October 13, 18 Estimating Cash Flows Chapter 9
October 20 Midterm Exam
October 25 Valuation of Firms Sections 7.3, 7.4, 7.5; Chapter 22
October 27 Sensitivity and Scenario Analyses Monte Carlo Simulation
Section 9.5
November 1 Decision Tree Analysis Section 16.2
November 3 Real Options Analysis Chapters 15 and 16
November 8 – 12 Reading Week
November 15, 17, 22 Real Options Analysis, Final Exam Review
Chapters 15 and 16 November 24, 29; December 1, 6 Valuation Project Presentations
Other Important Information
Policy about course outlines can be found in the University Calendar.
Sample midterm and final examination will be made available via eClass.