Corporate Finance Saturday EMBA. Fall 2015

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1 Corporate Finance Saturday EMBA Fall 2015 INSTRUCTOR Professor: Wei Jiang Arthur F. Burns Professor of Free and Competitive Enterprise Director, Jerome A. Chazen Institute of International Business Office: Uris 803 Office Phone: Office Hours: Before and after class; and by appointment TEACHING ASSISTANTS Head TA: Grader TA: Kunal Sachdeva Like Chen Yiting Xu Please contact Kunal for specific issues regarding the review sessions and course materials; please contact Like and Yiting if you have questions about the case grading. For any general questions regarding the curriculum and course policies, please direct the questions to the instructor. REQUIRED COURSE MATERIAL The following items are required: Teaching notes will be handed out in class and posted on Canvas. These are your primary reference material for the class. Case material and assignments will be posted on Canvas under the File folder and then Case Assignment subfolder. The textbook is: Corporate Finance, 3rd edition, by Jonathan Berk and Peter DeMarzo (BDM). Readings from this book for each lecture are listed in Schedule of Sessions and Assignments. Readings should be done prior to or after class. The Page 1 of 4

2 book is not required but is highly recommended as a supplement to the lecture notes. These additional materials are not required, but may be useful to some students: An additional treatment of valuation: Valuation by McKinsey & Company Inc. The Wall Street Journal and/or The Financial Times are fundamental reading for any business school student. Class discussion will often reference news items. The Wall Street Journal Guide to Understanding Money and Investing by Morris and Siegel can be useful for those who are not as familiar with the language of finance. COURSE DESCRIPTION AND OBJECTIVES Corporate Finance is an introductory finance course that is required for all MBA students. It is therefore designed to cover those areas of finance that are important to all managers whether they specialize in finance or not. Importantly, at t the end of the course you will be able to value a firm. In order to reach this goal we will cover the following topics along the way: 1. General framework for valuation (including, as special cases, valuation of stocks and bonds, and evaluation of investment opportunities) 2. The free cash flow method for firm valuation 3. Basic concepts of risk and return and identification of opportunity cost of capital 4. Choice of alternative sources of external funding for company operations The course will consist of approximately one-half lecture and one-half in-class case discussions, for which students should prepare carefully. The aim of the course is to provide students with an understanding both of sound theoretical principles of finance and of the practical environment in which financial decisions are made. EVALUATION AND ASSIGNEMENTS Grades will be calculated using the following weights: Participation 10% Case write-ups (highest 9 socres) 30% Final exam 60% Peer evaluation (bonus) 5% Case write-ups The text of the case, a handout with the Assignment and Discussion Questions, and additional materials (such as excel spreadsheets) will be available on Canvas at least one week before the case write-ups are due. You are required to complete the Assignment portion of the handout. You do not need to explicitly answer the discussion questions; however you should think about them before coming to class and be ready to discuss them during the class. Page 2 of 4

3 Each learning group will turn in ONE completed write-up. On your write-up, please include the names of each group member. Case write-ups should be submitted in hard copy at the beginning of class the day that they are due. If special (hopefully very infrequent) circumstances prevent you from submitting a hard copy on time, a timely electronic submission of your work to the two grading TAs will be credited as on-time delivery. Late assignments will not be accepted. You should make a copy of your answers to refer to during class discussion. Due to the structure of the course, case write-ups will be graded mostly based on the perceived effort and clarity of presentation. Therefore, it is very important that you review (and possibly re-do) the assignments after the cases are discussed in class. Problem Sets There will be a mini-problem set at the beginning of each three-hour module. The answer will be given out on the spot. Participation is mandatory but your work will not be graded. However, you should review these questions afterwards to ensure adequate understanding and retention of course materials throughout the semester. Class Participation Students are expected to be prepared for every class and participate in class discussions. Students should have thoroughly prepared any assigned case, reviewed previous lecture notes, and be willing to answer and ask questions during class. Sharing your expertise when relevant is good participation, as is asking questions that help other class members. Final Exam The final exam will be an in-class, written exercise involving the analysis of a case. You will be asked to value a firm. In addition there will also be additional questions testing your knowledge of finance concepts that are introduced throughout the course. The exam is open book and notes. You will need your laptop to solve the case. The length of the exam is four hours. To avoid ambiguity regarding group and individual work, the MBA Committee has standardized the description types of assignments. They are specified below: Type Designation Discussion of Concepts A group/group Permitted with designated group Preparation of submission By the group Grade Same grade for each member of group B group/individual Permitted with Individually designated group (No sharing of any portion Individual of the submission.) C individual/individual None of any kind Individually Individual Case Write-ups are Type A assignments. Page 3 of 4

4 Columbia Core Culture The purpose of the Columbia Core Culture is to promote a consistent classroom environment of mutual respect, preparation and engagement. Our expectation of you in class is to be: Present: Your success depends on being on time and present for the entire class every session. Attendance will be part of your grade for class participation and students are expected to sit in their assigned seats. Prepared: Bring your nameplate, clicker, and complete any pre-work needed for class discussion. Expect the professor to cold call in class. Participating ing: Active participation calls for no electronic devices such as laptops, tablet computers, or smartphones during class, except when the professor tells you as part of in-class work. Page 4 of 4

5 Class Schedule Date Session Topic Read Assignment Due Part I: Basic Tools for Financial Analysis Fri 11-Sep 1 Introduction: Understanding Value Creation Ch 1, 2 Fri 11-Sep 2 Time Value of Money and Discounting Ch 3, 4, 7 Sat 12-Sep 3 Introduction to Valuation Methods: Bonds Ch 5, 6 Sat 12-Sep 4 Introduction to Valuation Methods: Stocks Ch 9 Sat 19-Sep 5 Evaluation of Financial Performance Case 1: Clarkson Lumber I Sat 19-Sep 6 Free Cash Flows and Pro Forma Projections Ch 8 Case 2: Clarkson Lumber II Part II: Capital Structure Sat 26-Sep 7 Debt, Equity and Capital Structure: M&M Ch 14 Sat 26-Sep 8 Target Capital Structure Case 3: American Home Products Sat 3-Oct 9 Optimal Capital Structure: Taxes and Financial Distress Ch 15, 16 Case 4: GM Sat 3-Oct 10 Advanced Capital Structure and Payout Policies Ch 17 Sat 17-Oct 11 Corporate Governance (IBS) Sat 17-Oct 12 Mid-Term Course Review (in-class not-graded quiz) Part III: Risk, Return, and Discount Rate Sat 24-Oct 13 The CAPM Ch 10, 11 Sat 24-Oct 14 WACC, Leverage, and Project Risk Ch 12, 13 Case 5: Walmart Sat 31-Oct 15 Cost of Capital and Financial Decision Making Case 6: Grand Metropolitan Sat 31-Oct 16 Valuation Overview Part IV: Comprehensive Valution Sat 7-Nov 17 Valuation I: Alternative Terminal Values Case 7: Calaveras Vineyards Sat 7-Nov 18 Valuation I: (Continued) Sat 14-Nov 19 Valuation II: Going Concern and Buyout Case 8: HCA Sat 14-Nov 20 Valuation II (Continued) Sat 21-Nov 21 Valuation III: Start-ups Case 9: Hybritech Sat 21-Nov 22 Alternative Valuation Models Sat 5-Dec 23 Valuation IV: Resolving Disputes Case 10: Global v. Golden Telecom Sat 5-Dec 24 Course Summary and Preparation for Final Exam Optional case 11: Eskimo Pie