Corporate Finance, Spring,2011
Instructor: Fritz Koger, CFA, PhD E-mail: fritzkoger@phbs.pku.edu.cn
Office: C – 308 Office Phone: 2158
Office Hours: 12:30 – 13:30 pm, Friday
Course: Corporate Finance Class Location: Room C – 105
Class Meeting Time: Tuesday & Friday, 10:30 – 12:20 pm. Sundays (as noted), 6:00 -7:50 pm
TA Review Sessions: Not Applicable
Course Description: This course is intended for students who wish to learn and analyze the concepts, theories, and applications of modern corporate finance. The course builds on the topics of an introductory finance course, and covers a wide range of topics related to corporate finance. Specific topics include in-depth analyses of firms’ financing choices and their impact on risk and value, advanced capital budgeting, agency costs, dividend policy, stock splits and repurchases, various aspects of corporate restructuring, mergers and acquisitions, corporate risk-management basics, and financial distress. The course will also cover stock option characteristics, valuation, and applications. The pace is extremely fast!
Course Prerequisites: Financial Engineering or equivalent background, such as an introductory course in finance covering time value of money, NPV analysis, risk and return, and costs of capital.
Course Goals: This course is designed to teach students all the important elements of corporate finance including capital structure, advanced capital budgeting, firm and equity valuation, mergers, acquisitions, and asset restructurings, dividend policy, IPOs and general capital raising mechanics, basics of options and warrants, corporate risk management, and issues related to corporate financial distress. This course forms the foundation for all the other advanced courses in finance. Problem solving skills are emphasized throughout the course.
Student Learning Objectives: As the result of this course students should be able to (i) assess the impact of a financing choice on the value of a firm and the risk and value of equity holders, (ii) value equity, overall firms and other assets using the discounted cash flow and multiples methods, (iii) evaluate corporate projects on a holistic basis including the way the firm and project are financed, presence of government subsidies, externalities, synergies, etc., (iv) determine the appropriate dividend and share repurchase policy for a company, (v) evaluate the risks faced by firms and determine the appropriate risk management tools.
Course Material:
REQUIRED TEXT: Stephen A. Ross, Randolph W. Westerfield, and Jeffrey F. Jaffe (RWJ), “Corporate Finance,” Ninth Edition, 2010, Irwin-McGraw Hill Publishers. ISBN: 978-0-07-338233-3.
Textbook and SUPPLEMENTAL Notes: TESTS WILL COME FROM THE COURSE TEXTBOOK. Supplemental notes will also be distributed. These are a supplement to the text book, going deeper into concepts, intuition and mathematical derivations to give you a more profound understanding of the material. The supplemental notes include the important notions from the text. The professor understands that they are atypically dense; hence, as such they are NOT intended to be lecture notes. NOR ARE THEY INTENDED TO REPLACE THE TEXTBOOK. They are supplemental. THEIR USE IS OPTIONAL. HENCE, IF YOU DO NOT FIND THEM USEFUL, DO NOT USE THEM. Again, the bible for the course is the required textbook.
Guidelines: What follows are guidelines to how the course will be managed. There are two overarching themes to these policies: the professor’s aims are (1) to be as fair as possible to everyone, and (2) create the optimal learning environment for everyone! The professor firmly believes that treating individuals differently is inherently unfair. Thus, everyone will be treated identically the same, per the guidelines outlined here. There are no exceptions.
Grading: THERE WILL BE NO MAKE-UP QUIZZES OR EXAMS. IF YOU MISS A QUIZ OR AN EXAM, YOU WILL RECEIVE A 0 FOR IT. All quizzes and exams will be curved as needed to ensure PKU HBS guidelines are satisfied. There will be five (5) in-class quizzes and one (1) cumulative final exam. The quizzes will be given during the first 15 minutes of class. The remaining class time will be for lecturing new material. The exam will last for 2 hours or less.
You get to drop your lowest quiz grade. In other words, of the 5 quizzes, only the highest 4 quiz scores will count toward your final grade. Since you get to drop one quiz, no make-up quizzes will be given. If you miss a quiz for any reason, that will be the one that you drop. If you miss a second quiz, you will receive a score of zero (0) for one quiz that counts toward your final grade. If you miss three quizzes, two scores of zero (0) will count toward your final grade. If you miss four quizzes, your final quiz average will include three (3) zeros. If you miss all five quizzes, your final quiz average will be zero (0).
Grading weights will be as follows:
Quizzes (Highest 4 of 5 scores): 15% each, or 60% total
Final Exam: 30%, or 30% total
Subjective Evaluation: 10%, or 10% total
Anything discussed in a lecture is fair game on a quiz or on an exam. In fairness to all students, I will NOT discuss in private with any student before a quiz or an exam any details regarding the nature of the quiz or exam (e.g., what I plan to emphasize, etc…), but of course, I will answer all specific questions regarding any material covered in the lectures. Information relevant to the nature of the quizzes or exams will only be discussed in class.
Subjective Evaluation: 10% of your final score will be a subjective evaluation, based in part, on your punctuality, attendance, classroom behavior, attitude, preparedness, etc… If you miss a class for any reason, you will be counted as absent for that class. Being tardy and being absent both equivalently negatively impact your grade. If you arrive 5 seconds late, you are late! There is no need to explain your tardiness. You are allowed only 1 tardiness/absence per semester. After that, your subjective evaluation is negatively impacted. Your professor appreciates you letting him know in advance if you will be tardy or absent. However, this does not excuse the tardiness/absence. You will be permitted one tardiness/absence. After that, your subjective evaluation will be negatively impacted. A tardiness and an absence have identical negative impacts upon your subjective evaluation.
Finally, disturbing the class lectures will negatively impact your subjective evaluation. Talking during class, having a cell phone ring, etc… are disturbances that won’t be tolerated. The rules are designed to optimize the learning environment for all students.
Calculator Policy: Calculators are not allowed.
No formula sheet is allowed during tests (exams or quizzes) If I were you, I would make sure that I was comfortable with all formulas and their intuitions that have been covered at any point during the semester. Each weekend, I would review the material from that week, and also refresh my memory of all formulas from previous weeks. If you understand the relevant concepts, then knowing the formulas should be relatively trivial. Waiting until just before an exam to try to “memorize” formulas is a recipe for disaster!
Statement about Academic Integrity: This class will be conducted in full accordance with PKU’s policies about academic integrity. Anyone caught cheating will be punished as severely as the school permits.
You will be given guidelines for each test. Violation of these guidelines will result in severe penalty. The tests are designed to be a challenge to finish; the professor wants to see who knows the material best, and believes that one’s speed through a test is directly correlated with one’s preparedness. So anyone who begins early or refuses to turn in the test when the professor requests it gains an unfair advantage over the rest of the class and will be penalized for such behavior. Again, policies are designed with fairness in mind.
Educational Norms and Expectations: You are responsible for material covered in any class that you miss. The professor will not tutor individually such material, nor will he provide copies of missed materials. If you miss a class, you must retrieve lecture notes from a classmate.
If you miss a class or are late, the professor appreciates knowing about it in advance. However, notifying the professor in advance never excuses an absence or tardiness.
There are three (3) rules. (1) You must attend class. (2) You must be punctual. (3) You are not to disturb others. This includes no talking in class, other than addressing the professor. All cell phones, computers and electronic equipment are to be turned off. You are to sit quietly and attentively. If you have a question, please direct it to me. The rules are designed to optimize the learning environment for all students. Violation of these rules will negatively impact your subjective evaluation. Your professor appreciates you letting him know in advance if you will be tardy or absent. However, this does not excuse the tardiness/absence.
Expectations regarding study habits: You are expected to study 3 hours per lecture hour. If we meet 4 hours per week, you should be studying 12 hours per week. I do not assign homework, projects, cases, etc… in order that you may optimize your study time, studying in whatever is the most efficient mode for you. This way, you decide how to spend your study time. Read the book multiple times, read other books, read the lecture notes, do homework problems, work in Excel, read cases, etc…; do whatever works best for you!
Again, there is no “event” (i.e., test, homework, etc…) in half the weeks during the semester. This does NOT mean that you should not spend time during these weeks learning this material. You should be spending roughly 12-15 hours studying outside of class EVERY week, regardless of whether or not we have a test that week.
You are expected to read the relevant chapter in the book BEFORE the lecture. That way, the lecture period will be much more productive.
Teaching Assistant (TA) Review Sessions: There are none for this course.
Suggestions for improving the course: I am committed to making this course a good as possible. If you have suggestion to improve the course, please inform me, IN PRIVATE. During a lecture is not the appropriate time for such feedback. Please understand that some policies I am committed to (e.g., the fast pace of the course), so take no offense if your suggestion is implemented. However, the course is obviously for your benefit, not mine. So any feedback is greatly appreciated and is seriously considered.
Miscellaneous: Any issue not specifically addressed here will be handled at the discretion of the professor.
Course Schedule:
Week | Tentative Topic(s) | Tests |
1 | Basics of Options, Long Term Financing, Capital Structure | SUNDAY (05/01/11) Quiz #1 |
2 | Continue Capital Structure, Valuation and Capital Budgeting | SUNDAY (05/08/11) Quiz #2 |
3 | Dividend Policy, Issuing Securities to Public | SUNDAY (05/15/11) Quiz #3 |
4 | Valuing Options, Capital Structure as Options, Game Theory | SUNDAY (05/22/11) Quiz #4 |
5 | Real Options, Warrants and Convertible Bonds | |
6 | Derivatives, Speculation, Hedging, Risk and Risk Management | FRIDAY (05/27/11) Quiz #5 |
7 | NO CLASS | |
8 | NO CLASS | |
9 | Continue Risk Management; (If time permits: Mergers and Acquisitions) | |
Final Exam | CUMULATIVE FINAL EXAM | MONDAY (6/27/11) or TUESDAY (6/28/11) |
Week | Days and Dates | |
1 | T (04/26/11) and F(04/29/11) AND SUNDAY (05/01/11) | |
2 | T(05/3/11) and F (05/6/11) AND SUNDAY (05/08/11) | |
3 | T(05/10/11) and F (05/13/11) AND SUNDAY (05/15/11) | |
4 | T(05/17/11) and F (05/20/11) AND SUNDAY (05/22/11) | |
5 | T(05/24/11) and F (05/27/11) | |
6 | T(05/31/11) and F (06/03/11) | |
No Class | NO CLASS (HKU TRIP) | |
No Class | NO CLASS (HKU TRIP) | |
7 | T (06/21/11) and F(06/24/11) | |
Final Exam | Monday (6/27/11) OR Tuesday (6/28/11) | Final Exam (Cumulative) |