MF807: Corporate Finance  

(MSF/MBA Course) (Offered in Fall)

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Syllabus

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Syllabus

(Web version)

Problem Sets and Solutions

Topic Notes

Case Questions

Review Sessions


TA: Yingzhen Li

Office: Fulton 333    Office Tel: 617-552-2033

Office Hours: TBA; additional office hours may be arranged by email.

Email: livw@bc.edu


 GENERAL INTEREST READINGS RELATED TO FINANCE (NOT REQUIRED FOR THE EXAM):

 Video on Subprime: http://www.youtube.com/watch?v=mzJmTCYmo9g

 Newspapers/Magazines
The Economist
The Financial Times
The Wall Street Journal
Investor’s Business Daily

 Great, easier to read, finance books
A Random Walk Down Wall Street, Malkiel, Burton G.  An informative overview of Wall Street and investing.
Against the Gods, Bernstein, Peter.  Entertaining book on the history of risk.
Fooled by Randomness, Taleb, Nassim.  Educational description of why luck plays a role in more parts of life than you might think.
When Genius Failed, Lowenstein, Roger.  Interesting account of the failure of Long-Term Capital Management.  
Capital Ideas,
Bernstein, Peter.  Outlines the history of financial ideas, in a very easy to follow narrative.


Outline of topics with interesting links:


FUNDAMENTAL TOOLS OF CORPORATE FINANCE:

Case Book for the Course: Please click here to purchase: http://ebooks.primisonline.com

Session 1 (Sept 13): Introduction and overview of the course. The financial environment and firm objectives. A quick review of  discounted cash flow. Bond Valuation (begin).

BM Chapters 1, 2, 3 (ninth edition); Chapters 1 and 2 (tenth edition).

Please download Topic Note-1 and Topic Note-2 before coming to class

Introduction to the Course: MS format

Review of Present Value Computation (MS Word Format)

Review of Present Value Computation (Powerpoint Format)

Class Notes of Bond Valuation (PowerPoint Slides)

 PROBLEM SET- I: BM Chapter 3 Practice Questions 12-24

PROBLEM SET- II: BM Chapter 4 Practice Questions 12-19 (ignore the graph requirements, i.e., Excel exercises).

 

Session 2 (September 20): Bond Valuation (continued). Stock valuation using the Dividend Discount Model.

BM Chapters 4 and 5 (ninth edition); Chapters 3 and 4 (tenth edition).

Please download Topic Note-3 before coming to class

Class Notes A:  Stock Valuation (MS Word format)  (Powerpoint format) (Please download before coming to class)

Class Notes B: Gordon Growth model (Powerpoint Format) (Please download before coming to class)

Application Article: "What's in store for stocks"

PROBLEM SET- III: BM Chapter 5 Practice Questions 16, 17, 19, 21, 24, 28

LINK: Securities and Exchange Commission Website

LINK: Yahoo! Finance

LINK: www.forbes.com

LINK: www.cbs.marketwatch.com

LINK: www.bloomberg.com

LINK: www.cnbc.com

 

Session 3 (September 27) : Stock Valuation (continued). Risk and Return in Finance. Expected return, variance, and co-variance. Choosing “efficient” portfolios. Systematic and Unsystematic Risk.

BM Chapters 8 and 9 (ninth edition); Chapters 7 and 8 (tenth edition).

Please download Topic Note-4 and Topic Note-5 before coming to class

Class Notes of Risk and Return (Powerpoint Format)

Review Article (not required for exam): "What Practitioners Need to Know (the Nobel Prize)"

Review Article (not required for exam): "What Practitioners Need to Know (about regressions)"

Review Article (not required for exam): "What Practitioners Need to Know (about uncertainty)"

 

Session 4 (October 4): The Capital Asset pricing Model. The determination of betas. Implementing  Portfolio Theory in Practice; Capital market efficiency.

BM Chapters 8 and 9 and chapter 14.2, 14.3, and 14.5 for market efficiency (ninth edition); Chapters 7 and 8 and chapter 13.2, 13.3, and 13.5 (tenth edition).

Please download Topic note for market efficiency before coming to class

Class Notes of Risk and Return (Powerpoint Format) (Larger version)

Class Notes of Testing CAPM and Implementing Portfolio Theory (Powerpoint Format)

PROBLEM SET- IV: BM Chapter 8 Practice Questions 11, 18, 20, 22, and 23; BM Chapter 9 Practice Questions 1, 2, 8, 11, 18, 19, 20, 21, and 22; BM Chapter 14 Practice Questions 9, 10, 11, and 16.

Web site that comes with the Brealey and Myers book:   www.mhhe.com/edumarketinsight (Site id given on the second page of your Brealey et al text book)

Ken French's website: http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/

General Interest Article (Not Required for the Exam): Efficiency and beyond

 


================ October 11: Columbus Day Break ==============


 

PROBLEM SOLVING IN CORPORATE FINANCE:

 

Session 5 (October 18):  What techniques should one use for capital budgeting? NPV, IRR, and Pay-back period rules. Complexities in capital budgeting. Capital budgeting in practice.

BM Chapter 6 (ninth edition); Chapter 5 (tenth edition).

Please download Topic Note-6 and Topic Note-7 before coming to class

Class Notes of Project Evaluation Techniques (Transparency copies)

Reading : "The theory and practice of corporate finance: evidence from the field" (Section 3 and 4)

 

Session 6 (October 25):

First Half: Mid-term Exam (in class).

Second Half: Computing Cash Flows in Capital Budgeting.

BM Chapter 7 (ninth edition); Chapter 6 (tenth edition).

Class Notes of Computing Cash Flows for Capital Budgeting (Transparency Copies)

PROBLEM SET- V: BM Chapter 6 Practice Questions 8, 9, 11, 12, 15; BM Chapter 7 Practice Questions 1, 3, 16, 18, 21, 24.

 

Session 7 (November 1): First Half: Case Discussion and Write-up (I): Valuing Capital Investment Projects.

Second Half: What discount rate should you use? Calculating the Weighted Average Cost of Capital. Levered and Unlevered Beta. Practical Issues for calculating WACC.

BM Chapter 10 (ninth edition); Chapter 9 (tenth edition).

Please download Topic Note-8 before coming to class

Class Notes on Computing the Cost of Capital (Transparency Copies)

Reading: Why the financial crisis has not changed the cost of capital

PROBLEM SET- VI: BM Chapter 10 Practice Questions 1, 5, 9, 10, 11, 12, 13, 14, 15, 18, and 22.
 

 

Session 8 (November 8): First Half: Case Discussion and Write-up (II): Ocean Carriers

Second Half: What discount rate should you use? Calculating the Weighted Average Cost of Capital. Levered and Unlevered Beta. Practical Issues for calculating WACC.

BM Chapter 10 (ninth edition); Chapter 9 (tenth edition).

Please download Topic Note-8 before coming to class

Class Notes on Computing the Cost of Capital (Transparency Copies)

Reading: Why the financial crisis has not changed the cost of capital

PROBLEM SET- VI: BM Chapter 10 Practice Questions 1, 5, 9, 10, 11, 12, 13, 14, 15, 18, and 22.

 

Session 9 (November 15): First half: Case Discussion and Write-up (III): Marriott Corporation.

Second Half:  Raising Money for Investment (I): Venture Capital Financing. The role of the venture capitalist and the private placement  market in the early stages of financing a company. The incentive effects of alternative venture capital contracts.

BM Chapter 16.1 (ninth edition); Chapter 15.1 (tenth edition).

Class Notes on Venture Capital (Transparency Copies)

Anatomy of a Term Sheet (PDF file)


More Term Sheet Explanations (PDF file)

ADVANCED READING (not required for exam): Smart Investors Foolish Choices

READING: How Good are Private Equity Returns?

ADVANCED READING (Not Required for the Exam). Chemmanur, T., and E, Loutskina, "The Role of Venture Capital Backing in Initial Public Offerings: Certification, Screening, or Market Power? "

PROBLEM SET- VII  : solution

LINK: Industry Perspectives on Private Equity

LINK: Dow Jones Private Equity Analyst

LINK: Private Equity Online (Free registration required)

LINK: Private Raise (Free registration required)

LINK: Red Herring Online

LINK: Price Waterhouse Venture Capital Survey

LINK: The VC Comic Strip

LINK: An Interesting VC Blog

LINK: Another Interesting VC Blog

LINK: New York Times Deal Book

LINK: TheFunded.com


Session 10 (November 22): First Half: Valuing a Firm: Alternative Valuation Techniques - Discounted Cash flow and Valuation by Comparables.

Case Discussion (IV): Atlantic Corporation (no write-up required)

Class Notes A: Firm Valuation (MS Format) (Please download before coming to class)

Class Notes B: Three valuation examples (MS Format) (Please download before coming to class)

READING Kim, M., and J.R. Ritter: "Valuing IPOs"

Second Half: Raising Money for Investment (II): Conclusion of discussion on Venture Capital Financing. Initial public Offerings.


Session 11 (November 29)

Initial public Offerings. Why go public? The costs vs. benefits of going public. Theories of IPO pricing. Raising Money for investment (III): The role of the underwriter in an IPO: The importance of underwriter reputation.  The long-term (post-IPO) performance of newly public firms.

BM Chapter 16.1 and 16.2 (ninth edition); Chapter 15.1 and 15.2 (tenth edition).

BM Chapter 16.2 (ninth edition); Chapter 15.2 (tenth edition).

Class Notes on IPOs (Transparency Copies)

Advanced Reading (Not required for the exam) Chemmanur, T., "The pricing of initial public offerings: A dynamic model with information production," pages 285-287 and 299-301

Advanced Reading (Not required for the exam) Ritter and Welch: "A Review of IPO Activity, Pricing, and Allocations"

READING Ritter, J. R., "The Long-Term performance of IPOs"

READING Loughran, Ritter, and Rydqvist: "Initial Public Offerings: International Insights"

Advanced Reading (Not required for the exam) Chemmanur, Thomas, and Imants Paeglis: "Management Quality, Certification, and Initial Public Offerings" (Download Here).

Advanced Reading (Not required for the exam) Chemmanur , Hu and Huang: "The Role of Institutional Investors in Initial Public Offerings" (Download Here)

General Interest Article (Not required for the exam): "The IPO Prospectus: How to Read the Fine Print".

PROBLEM SET- VIII: BM Chapter 16: Problem 5 (a) and 5 (b); Problem 6; Problem 11.

LINK: OpenIPO - level the playing field

LINK: Red Herring Online

LINK: RENAISSANCE CAPITAL - THE IPO EXPERTS - IPO CALENDAR AND PROFILES

LINK: TechInvestor High-Tech IPO Watch

LINK: Hoover's Online: IPO Central

LINK: IPO Calendar

LINK: IPO Montior.com

LINK: IPO Boutique

LINK: New York Times Deal Book

LINK: Analyzing an IPO Prospectus


Session 12 (December 6)

First Half: Case Discussion and Write-up (V): Google’s IPO.

Advanced Reading (Not required for the exam) Chemmanur and Liu: “How should a firm go public? A dynamic model of the choice between fixed-price offerings and auctions in IPOs and privatizations” (Download Here).

Case questions for Google IPO

Second Half:

Capital Structure or The Financing Decision: The financing decision under perfect capital markets. The Modigliani-Miller propositions on Capital structure. When does capital structure matter? Capital structure with taxes. Capital structure with costs of Financial Distress.

BM Chapters 18 and 19 (ninth edition); Chapters 17 and 18 (tenth edition).

Please download Topic Note-9 before coming to class

Class Notes on Capital Structure under Perfect Capital Markets (Transparency Copies)

Class Notes on Capital Structure under Imperfect Capital Markets (Transparency Copies)

PROBLEM SET- IX: BM Chapter 18 Practice Questions 2, 3, 5, 14, 15, 19, and 21.


Session 13 (December 13): Computational Class Project Due

Capital Structure (Continued): Capital Structure under Asymmetric Information. The Pecking order of Firm Financing.  An overview of Corporate Financing.

BM Chapter 19 and BM Chapter 15 (ninth edition); Chapters 18 and 14 (tenth edition).

Please download Topic Note-10 before coming to class

Class Notes on Adjusted PV and Preferred Stocks (Transparency Copies)

PROBLEM SET- X: BM Chapter 19 Practice Questions 2, 12, and 13 and Chapter 20 Practice Questions 1, 6, 8, and 11.

 

Session 14 (December 20): Final exam

 


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