Department of Finance
National Chengchi University
Fall 2012(updated on 8/18)
Financial Theory and Policy
Thursday 09:10AM – 12:00AM
Room: 商館 260312
Instructor: 徐燕山
Office: 商館 261246
Office Hrs.: Tues 14-16
Email:
Phone:
ysshiu@nccu.edu.tw
81246
Course Description:
This course covers the major topics in corporate finance such as capital budgeting,
cost of capital, capital structure, dividend policy, merger and acquisitions, and real
options. In addition, other advanced topics such as security design and risk
management will be covered. The objective of the course is to provide an
understanding of both the theory of corporate finance and how it applies to the real
world. Every effort will be made to integrate current business news into the
presentation and discussion of the material.
Required and Recommended Materials:
The textbook for the course is
S. Ross, R. Westerfield, and J. Jaffe, Corporate Finance, 9th edition,
McGraw-Hill, 2010.
There are two required HBS cases:
“The Super Project” 9-112-034
“Marriott Corporation: The Cost of Capital (Abridged)” 9-289-047
Lecture Notes:
You can download the lecture notes from the University’s e-learning website (WM3).
Course Requirements:
The course requirements consist of three group projects, two case studies, and a
final exam. Groups should consist of no more than 3 students. Each group will be
responsible for preparing all the cases and group projects, which will be discussed
extensively in class, and writing a short analysis.
All the case reports and project
reports must be sent to my e-mail account, ysshiu@nccu.edu.tw, before/at the
midnight (pm 12:00) preceding the due date (i.e., a class meeting day). If you
send out your report within three hours late after the due time (i.e., the report is
sent in between 12:00pm and 3:00am), 20 points will be subtracted from your
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grade you get for your project.
If another three hours late (i.e., the report is
sent in between 3:00am and 6:00am), an additional 20 points will be subtracted.
If there is another three hours delay (i.e., the report is sent in between 6:00am
and 9:00am), an additional 20 points will be subtracted. If you still do not send
in your report before 9:00am, you will receive NO grade point on your project.
In addition, you must also hand in a hardcopy of your report at the beginning of
the class. If you do not hand in the hardcopy, 10 points will be subtracted from
your grade.
The case write-ups should consist of answers to the case questions, which will be
handed out approximately 2 week prior to the due date. Write-ups should be limited
to three pages, plus appendices with spreadsheet printouts, etc.
Everyone should come to class prepared to contribute and express their opinions.
Please keep a copy of your write-up to help you answer questions during class
discussion. Specific groups will also be assigned case questions for which they are
expected to lead the discussion. In contrast to problem sets and exams, cases do not
have a single correct answer. Moreover, they are often ambiguous, do not provide
complete information, and require you to make assumptions.
In grading the case write-ups, I will not be looking for an answer; rather I will judge
the process that went into getting to the answer. I will be looking for logic,
consistency, thoughtful application of finance theory, and justification for any
assumptions that you need to make. Preparing cases can be a time-consuming and
frustrating experience.
It is best to start as early as possible.
The final exam will be held on January 17th, 2013, from 9:10am to 11:00am. There
will be no make-up exams, so mark these dates in your calendar. Students should
attempt to do end-of-chapter problems from the textbook. Some representative
problems are listed on the course outline. Answers to these problems will not be
collected, and I shall provide you the solutions to the problems.
This course is challenging and cumulative in nature. For this reason, it is important
not to fall behind, as it is difficult to catch up. Class attendance is mandatory. Students
are expected to arrive to class on time and stay to the end of the class period.
Chronically arriving late or leaving class early will have an impact on a student’s
grade. Unexcused absence from more than two classes will materially affect your
grade. To be qualified for enrolling in this class, you MUST show up at our first
class meeting on September 20. Any student who fails to show up will be demanded
to drop this course.
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Grading Policy:
The final grade will be determined as follows:
Class participations
10%
Group projects
45%
Case write-ups
20%
Final exam
25%
Class Schedule:
The cases and group projects are listed in the week when they are due.
RWJ refers
to Ross, Westerfield, and Jaffe, Corporate Finance. Readings should be done prior
to the class week in which the material is discussed.
Week
1
9/20
Topics
Readings and Assignments
Introduction
Course overview
Group formation
Corporate finance
Corporate organization
Goals of the corporation
Corporate Governance
RWJ: Chapter 1
Capital Markets
2
9/27
Capital Budgeting I
Introduction to capital budgeting
Estimating cash flows
Example: The Baldwin Company
The time value of money
Why NPV?
RWJ: Chapters 2, 3, 4, 6.1, 6.2
Problems: 3.7, 4.24, 4.48, 6.1
Each group handing in their choice
of the industrial firm listed on TSE
3
10/4
Capital Budgeting II
Alternative decision rules
Inflation and capital budgeting
RWJ: Chapters 5, 6.3, 6.5, 7
Problems: 5.1, 5.8, 6.6, 6.13, 7.10
Scenario/sensitivity/breakeven
analysis
Investments of unequal lives
4
10/11
Options and Corporate Finance I
Review of option pricing
Debt and equity as options
Case: The Super Project
RWJ: Chapter 22
Problems: 22.26, 22.27
5
10/18
Options and Corporate Finance II
Real options
RWJ: Chapters 23, 24
RWJ: chapters 15, 20
3
Problems: 15.10, 20.6, 20.8
6
10/25
Long-Term Financing
Types of financing
Historical financing patterns
Warrants and convertible bonds
Raising equity capital
Raising debt capital
Project 1: Free cash flows to firms
RWJ: Chapters 15, 10, 11, 12
Problems: 11.24, 11.38, 12.10
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11/1
Review of Risk and Return
Portfolio theory and diversification
The CAPM
Beta and leverage
RWJ: Chapter 13
Problems: 13.7, 13.10, 13.12,
13.14
Each group handing in their choice
Cost of Capital
Costs of equity and debt
WACC
Equity beta and leverage
of the IPO firm listed on TSE
Market Efficiency
The EMH
Implications for corporate finance
RWJ: Chapters 14, 18
Problems: 18.3, 18.9, 18.13
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11/8
Valuation with leverage
APV, FTE, and WACC
9
11/15
Capital Structure I
Review of stock valuation
Irrelevance and Modigliani/Miller
Tax effects
Recapitalization: an example
Case: Marriott Corporation
RWJ: Chapters 9.1-9.4, 16, 17
Problems: 16.4, 16.7, 16.16, 16.20,
17.5, 17.6
10
Capital Structure II
11/22 Agency and financial distress costs
Optimal capital structure
Bankruptcy and reorganization
RWJ: Chapter 30
11
Project 2 Presentations
Project 2: IPOs
12
12/6
Dividend Policy
Theory and evidence
Dividend decision in practice
Stock dividends, splits, and
repurchases
RWJ: Chapter 19
Problems: 19.4, 19.5, 19.17
13
12/13
Mergers and Acquisitions
Introduction to M&A
RWJ: Chapter 29
Problems: 29.4, 29.10
11/29
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Valuation
Stock vs. cash acquisitions
The empirical evidence
Takeover defenses
14
12/20
Hedging and Risk Management
Review of hedging instruments
Ways to mitigate financial risk
Risk management irrelevant
Risk management relevant
RWJ: Chapter 25
Problems: 25.7, 25.10, 25.20
15
12/27
Leasing
Lease Analysis
RWJ: Chapter 21
Problems: 21.4
Why leasing works
16
1/3
Project 3 Presentations
17
1/10
Project 3 Presentations
(continued)
Project 3: Firm valuation: FCFF,
EVA, and Real options
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Assignment 1:
Financial Theory and Policy Student Data Sheet
To be returned by September 27.
Name
Email address
Your bigger goals of taking this course:
Please include below a small photo of yourself.
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