THE UNIVERSITY OF HONG KONG FACULTY OF BUSINESS AND ECONOMICS. MFIN7026: Advanced Corporate Finance Module 1 of 2011/2012

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1 I. INFORMATION ON INSTRUCTOR THE UNIVERSITY OF HONG KONG FACULTY OF BUSINESS AND ECONOMICS MFIN7026: Advanced Corporate Finance Module 1 of 2011/2012 Instructor: Dr. Office: Room 1108B, KKL Building Office telephone: konan@business.hku.hk Course web page: Teaching assistant: Mr. YI, Long (Jason) (phone: , jasonyi10@hku.hk) II. COURSE INFORMATION Prerequisite Some accounting background will be required to take this course. Course Description This course is aimed to give students a solid understanding of theoretical and empirical contributions of modern corporate finance. Major topics of corporate finance, including valuation, equity offerings, financial leverage, payout policy, and mergers and acquisitions, will be extensively discussed. The course offers students an opportunity to appreciate how corporate managers apply financial concepts and theories to managing real business and how financial decisions generate significant impact on firm value. After taking the course, students are expected to possess the ability to logically evaluate a firm s financial decisions and later resolve financial issues in real world. Textbook Corporate Finance by Ross, Westerfield, Jaffe, 9th edition, 2010 Some supplement materials of this course will be extracted from these two books as well. 1. Corporate Finance by Smart, Megginson, and Gitman, 2nd edition, Corporate Finance by Berk and DeMarzo, 2007 Course Objectives 1. Build up a solid foundation for students to comprehend financial decisions made by corporate managers. 2. Develop financial management techniques for career opportunities in finance. 1

2 Lecture Notes The class notes will be available on the course website before each class. Students are expected to download the notes, read them, and prepare the answers for the questions raised in the notes before the class. Course Intended Learning Outcomes (ILOs) Upon the successful completion of this course, students should be able to ILO1. Understand the fundamental financial management concepts and process. ILO2. Apply the time value of money concepts on security valuation and capital budgeting. ILO3. Evaluate decisions in corporate investing, financing, payout and acquisition activities. ILO4. Understand how capital structure decisions affect firm value. ILO5. Develop skills in identifying and analyzing financial problems as well as team working skill. Alignments of Program and Course ILOs Program ILOs Course ILOs 1. Acquire quantitative techniques of finance ILO1, ILO2, ILO3, ILO4 2. Acquire advanced knowledge of financial ILO2, ILO3, ILO4, ILO5 products 3. Apply and integrate the skills and ILO3, ILO4, ILO5 knowledge in the finance profession 4. Inculcate professionalism ILO2, ILO3, ILO4, ILO5 Teaching and Learning Activities (TLAs) TLA1. TLA2. TLA3. TLA4. Lectures: Instructor will give lectures on major concepts and issues. Cases: Students will be asked to solve cases by groups and submit written reports. The objective of these cases is to give students an opportunity to study in depth about corporate finance and then apply concepts and tools they learn on realworld problems. The written report should demonstrate students understanding of corporate finance by integrating theories and reality considerations. Tutorials and consultation: The teaching assistant will hold weekly sessions to address students questions and illustrate important examples to highlight major points covered in class. Class participation: Students are encouraged to raise questions in class and actively participate in the class discussion. 2

3 Assessment The weights of the various components in determining the final grade will be: A1. Class Participation 15% A2. Final Exam 35% A3. Cases and assignments 50% Total 100% Attendance To ensure that students gain the maximum benefit from classes, students are required to attend at least 80% of classes; otherwise they will treated as having failed the whole course. Coming late to class is not encouraged. Class Participation The active class participation is anticipated for each student. Students should take an active role to learn course materials. Responding to questions, asking questions, providing answers to other students concerns, stating relevant working experiences to related concepts, and clarifying the questions asked by instructor are all encouraged and expected. The frequency of contribution will be counted to evaluate the class participation. However, the core will be emphasized on quality ideas, solid analysis, and clear recommendations. Exam There will be one exam. Students are responsible for all materials covered in the class, including readings, cases, textbook, and lecture notes. No make-up exam will be given except for medical reasons supported by proper documentation. Assignments I will distribute readings in each week to provide additional insights of theories/concepts we cover in the class. Students are required to read these handouts and prepare discussions in the following classes. 3

4 Cases There are four cases in this course. Students should form a group (6-8 people) to solve these cases. Each group will make a class presentation (with PowerPoint slides) for at least one case. Although the case is done by a group, each student is required to study the case, prepare solutions, and ask (answer) questions. The objective of having cases in this course is to give students an opportunity to study in depth about each special topic of corporate finance. By solving these cases, students will demonstrate their understanding of corporate finance by integrating the tools and concepts covered in the course. Besides, the case approach will enhance students interpersonal skills, build up their techniques in time management and group collaboration, strengthen their problem-solving ability, and encourage their creativity. The free-rider problem, a situation that lazy students do nothing but rely on other group members to do the work, is strictly prohibited in the case report and presentation. A confidential peer evaluation will be carried out after each case to determine students individual grade of group work. No grade will be given if the student is evaluated as the free-rider by group members. Relationship among ILOs, TLAs and Assessment ILO Teaching and Learning Activities (TLAs) Assessment (A)

5 Standards of Assessment Exams are graded based on the following criteria: Grade A+, A, A- B+, B, B- C+, C, C- D+, D F Criteria Provide accurate solutions to all problems, give detailed and insightful responses to essay questions and score correctly on more than 90% of the multiple choice questions. Provide accurate solutions to some problems, give detailed responses to some essay questions and score correctly on less than 90% of the multiple choice questions. Provide accurate solutions to a few problems, give limited responses to some essay questions and score correctly on less than 80% of the multiple choice questions. Provide inaccurate solutions to a few problems, give unclear responses to most essay questions and score correctly on less than 70% of the multiple choice questions. Skip some problems or provide inaccurate solutions to most problems, give poor responses to most essay questions and score correctly on less than 60% of the multiple choice questions. The cases are graded using the following criteria: presentation/explanation of analysis (50%); and identification of relevant information (50%). Grade A+, A, A- B+, B, B- C+, C, C- D+, D F Criteria Very good to excellent ratings on some or all three criteria. Good to very good ratings on some or all three criteria. Fair to good ratings on some or all three criteria. Fair ratings on all three criteria. Fail to submit the case synthesis. 5

6 III. ACADEMIC AND CLASS CONDUCT The University Regulations on academic dishonesty will be strictly enforced. Please check the University Statement on plagiarism on the web: Academic dishonesty is behavior in which a deliberately fraudulent misrepresentation is employed in an attempt to gain undeserved intellectual credit, either for oneself or for another. It includes, but is not necessarily limited to, the following types of cases: Plagiarism The representation of someone else s ideas as if they are one s own. Where the arguments, data, designs, etc., of someone else are being used in a paper, report, oral presentation, or similar academic project, this fact must be made explicitly clear by citing the appropriate references. The references must fully indicate the extent to which any parts of the project are not one s own work. Paraphrasing of someone else s ideas is still using someone else s ideas, and must be acknowledged. Unauthorized Collaboration on Out-of-Class Projects The representation of work as solely one s own when in fact it is the result of a joint effort. Cheating on Exams The covert gathering of information from other students, the use of unauthorized notes, unauthorized aids, etc. Unauthorized Advance Access to an Exam The representation of materials prepared at leisure, as a result of unauthorized advance access (however obtained), as if it were prepared under the rigors of the exam setting. This misrepresentation is dishonest in itself even if there are not compounding factors, such as unauthorized uses of books or notes. Where a candidate for a degree or other award uses the work of another person or persons without due acknowledgement: 1. The relevant Board of Examiners may impose a penalty in relation to the seriousness of the offence; 2. The relevant Board of Examiners may report the candidate to the Senate, where there is prima facie evidence of an intention to deceive and where sanctions beyond those in (1) might be invoked. If any student is caught in an act of academic dishonesty or misconduct, the student will fail the course. If the case report submitted has been discovered to copy other group s work, from prior students, or from financial press/internet, all students involved will be subject to the penalty for the act of plagiarizing or copying. 6

7 IV. CLASS SCHEDULE Date Topic (chapters)/case Assigned readings 08/30 Overview Take photos, arrange seats, name tag Basics (Ch 1-9) 09/01 Risk and return (Ch 11) Cost of capital (Ch 13) 09/06 EVA The real key to creating wealth Evidence on EVA Valuation 09/08 Payout Policy (Ch 19) What do we know about stock repurchases? 09/15 EVA case Best practices in estimating the cost of capital: survey and synthesis 09/17 Capital structure (Ch 16, 17) Agency costs of free cash flow, corporate finance, and takeovers 09/20 Payout case Capital structure Reappearing dividends How do CFOs make capital budgeting and capital structure decisions? 09/22 M & A (Ch 29) 09/27 Capital structure case Capital structure decisions: Which factors are reliably important? 09/29 IPO (Ch 20) Creating value with mergers and acquisitions 10/04 M&A case 10/08 Exam The above schedule is extremely tentative, and subject to change. Any variations will be announced in the class and posted on the course web 7