HOFSTRA UNIVERSITY
FRANK G. ZARB SCHOOL OF BUSINESS
“Educating for Personal and Professional Achievement”
DEPARTMENT OF FINANCE
FINANCE 110 - FUNDAMENTALS OF CORPORATE FINANCE
(undergraduate course)
Spring 2014 Semester, Sec. 02, TR, 9:35-11:00AM, CRN: 20031, Breslin 103
INSTRUCTOR’S NAME
OFFICE HOUR
LOCATION OF OFFICE
PHONE EXTENSION ON CAMPUS
E-MAIL ADDRESS
Dr. Ehsan Nikbakht, CFA
TR 12:40 PM to 2:10 PM
Weller Hall 116A
463-5679
FINEZN@HOFSTRA.EDU
GENERAL INFORMATION
Location of Department Office
Telephone number of Department
Department Chairperson
221 Weller Hall
463-5698
Dr. K.G. Viswanathan, CFA
DESCRIPTION OF COURSE
A study of the theoretical principles and analytical techniques used for the financial evaluation of
capital budgeting, capital structure and dividend policy decisions under conditions of uncertainty.
Evaluation of corporate acquisitions; financial statement analysis and overview of working capital
management; and study of the international dimensions of corporate finance. Overview of the
influence of the globalization process, legal and regulatory, political and social, and environmental
forces on corporate finance decisions and practices. Discussion of the ethical perspectives of
corporate financial decisions.
PREREQUISITES OF COURSE
PREREQUISITES: Junior Standing or above; FIN 101, ECO 2, ACCT 102.
COREQUISITES: QM 122.
READING SOURCES


Textbook: Brigham and Houston, Financial Management, 13th Edition, South-Western
Cengage Learning, 2013.
Calculator: Students may use any financial calculator that has the financial functions (PV,
FV, NPV, IRR, etc.). The Texas Instruments BA II Plus is strongly recommended. Excel is
also used in solving problems.
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PROGRAM-WIDE LEARNING GOALS:
Critical Thinking: Each student will be able to apply critical thinking skills for effective decision
making.
 Each student will identify key problems/opportunities for effective decision making in a
business situation.
Global Business Knowledge: Each student will be able to understand the issues of the contemporary
global business environment.
 Each student will demonstrate an understanding of contemporary global concepts/practices.
INSTRUCTOR’S COURSE-SPECIFIC GOALS
The objective of the course is to teach students the theoretical principles and analytical techniques
that apply in the financial management of firms that operate in the domestic as well as international
markets. Students are also expected to increase their awareness of how global, political and social,
legal and regulatory, and environmental forces impact and interact with corporate financial decisions
and practices. Finally, course assignments aim at expanding the students' problem solving abilities
by integrating computer applications.
SCHOOL OF BUSINESS POLICY ON MAKEUP EXAMINATIONS
To be eligible for a makeup examination, a student must submit to the instructor written
documentation of the reason for missing a scheduled examination due to medical problems or death
of an immediate family member. The instructor (not the student) determines whether and when a
makeup is to be given. If a makeup examination is to be given, the instructor will determine the type
of makeup examination. If the student misses (for any reason) the scheduled makeup examination,
additional makeups are not permissible.
UNIVERSITY POLICY ON INCOMPLETE GRADES
When requested by the student, the instructor may grant, at her/his discretion, a grade of Incomplete
(‘I’). An ‘I’ grade should be given only when unforeseen circumstances prevent the student from
completing course work on time. As part of the normal final-grade process, the instructor must
submit an ‘I’ grade on-line to the Office of Academic Records with a default grade, the grade the
student will receive if the missing work is not completed. The default final grade must be a letter
grade other than UW. In unusual circumstances, the faculty member may submit an ‘I’ grade without
prior discussion with the student. The instructor will decide the time frame in which the student will
complete the required course work. However, the deadline may not exceed the last day of the next
full semester following the granting of an ‘I’ grade.* In cases where lab work is required or the
student is working on an Independent Study, additional time may be granted. A student will not be
allowed to attend the regular class meetings at the next offering of the course. The instructor will
inform the student of the completion requirements and terms.
The instructor is required to submit a grade for the student within 30 days after the student has
submitted work to fulfill the terms specified. If the instructor cannot oversee the completion of the
incomplete work with the student, the instructor will arrange for oversight within the department
with the Dean’s permission. If the incomplete work is not completed by the deadline, the ‘I’ grade
will convert to the default grade previously submitted by the instructor.
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* Students cannot graduate with any ‘I’ grade (received fall 2008 or later) on their records.
Candidates for graduation requesting an ‘I’ grade will graduate at the first graduation date available
(January, May, August, or December) after completion of the work. If work is not completed and the
‘I’ grade turns into an ‘F,” it may prevent graduation. A student may request, from the Office of
Academic Records, the default grade to replace the ‘I’ grade prior to the set deadline to ensure timely
graduation.
UNIVERSITY POLICY ON ACADEMIC HONESTY
Academic dishonesty is a serious ethical and professional infraction. “Hofstra University places high
value upon educating students about academic honesty. At the same time, the University will not
tolerate dishonesty, and it will not offer the privileges of the community to the repeat offender.”
Please refer to the Undergraduate Policy at http://www.hofstra.edu/pdf/Faculty/Senate/senate_FPS_11.pdf
for details about what constitutes academic dishonesty, including plagiarism, and Hofstra’s
procedures for handling violations.
DEPARTMENT STATEMENT ON ACADEMIC HONESTY
The Department of Finance is dedicated to maintaining the highest level of academic honesty in all
of its classes. The University Policy on Academic Honesty states that expulsion from the University
is a possible punishment for academic dishonesty. The University Policy also states that students
“must avoid not only cheating, but the very appearance of cheating.” Activities such as looking at the
examination of another student, talking, or passing notes during examinations give the appearance of
cheating, and therefore will be regarded as cheating. Submission of assigned work that is identical in
any abnormal way to the work of another student is subject to reasonable interpretation as cheating.
Students knowingly providing work to others are as guilty of cheating as those who accept their
work. (For further information on academic honesty, please refer to the “Policy on Academic
Honesty” in the Hofstra University General Bulletin.)
STUDENT WITH DISABILITIES STATEMENT
If you believe you need accommodations for a disability, please contact Services for Students with
Disabilities (SSD). In accordance with Section 504 of the Rehabilitation Act of 1973 and the
Americans with Disabilities Act of 1990, qualified individuals with disabilities will not be
discriminated against in any programs, or services available at Hofstra University. Individuals with
disabilities are entitled to accommodations designed to facilitate full access to all programs and
services. SSD is responsible for coordinating disability-related accommodations and will provide
students with documented disabilities accommodation letters, as appropriate. Since accommodations
may require early planning and are not retroactive, please contact SSD as soon as possible. All
students are responsible for providing accommodation letters to each instructor and for discussing
with him or her the specific accommodations needed and how they can be best implemented in each
course.
For more information on services provided by the university and for submission of documentation,
please contact the Services for Students with Disabilities, 212 Memorial Hall, 516-463-7075.
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ATTENDANCE POLICY
Class attendance is required. Attendance is taken in each session. Proof of health and/or family
reasons are required for class absence.
METHODS OF EVALUATING STUDENTS
10% of your course grade is allocated to class attendance and participation. It is strongly recommend
that you review the assigned chapters/readings before attending the class. On certain days, if laptops
are available in the classroom, you are required to use Excel to solve and discuss problems.
GRADING POLICY
There will be two exams in this course – a midterm exam (part 1 and 2) and a final exam. The final
exam is cumulative of all chapters, readings, assignments, and discussions that we had in class. See
below for the breakdown of the components to determine a final grade. No extra credit or extra
assignment will be considered in final evaluation.
Midterm Exam
Class Attendance and Participation
Final Cumulative Exam
Total
40%
10%
50%
100%
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COURSE CALENDAR
Week
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Date
M
1/27
T
1/28
R
1/30
T
R
T
R
T
R
T
R
T
R
T
R
T
R
T
R
T
R
T
R
T
R
T
R
T
R
T
R
2/4
2/6
2/11
2/13
2/18
2/20
2/25
2/27
3/4
3/6
3/11
3/13
3/18
3/20
3/25
3/27
4/1
4/3
4/8
4/10
4/15
4/17
4/22
4/24
4/29
5/1
5/6
5/8
T
5/13
Topic
All Classes Begin
Intro to the Course and Administrative
Info; Chapter 1
Chapter 5
Chapter 5, 3
Chapter 3,4
Chapter 11
Chapter 11
Chapter 12
Chapter 12
Chapter 10
Chapter 10
Chapter 14
Chapter 14
Chapter 15
Chapter 15
Spring Recess - Classes Not in Session
Spring Recess - Classes Not in Session
Chapter 16
Chapter 16
Chapter 17
Chapter 17
Chapter 21
Chapter 21
Classes Not in Session
Chapter 18
Chapter 18
Review of Selected Topics/Chapters
Assigned Readings
Assigned Readings
Assigned Readings
Snow/Study/Ready Day
for Undergraduate classes only.
Graduate classes will meet.
Finals Week for ALL classes
Assignment
N/A
Odd-Numbered Problems
(ONP) 1-21
ONP 1-21
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
N/A
Class Discussion
Class Discussion
Class Discussion
Note: All items on the syllabus are tentative and subject to change at the instructor’s
discretion.
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.
INTRODUCTION AND OVERVIEW
An overview of financial management, the objective of finance, forms of business
organizations, balancing shareholders value and the interest of the society, and a review of
time value of money and applications including: time lines, future values, present values,
finding the interest rate, finding the number of years, different types of annuities,
perpetuities, uneven cashflows, and amortized loans, and the review of formulas.
TEXT: Chapter 1 and 5
SUGGESTED READINGS:
James S. Wallace, “Value Maximization and Stakeholder Theory: Compatible or Not?”
Journal of Applied Corporate Finance, Vol. 15, No. 3 (March 2003), pp. 120-127.
Benson, B. W., & Davidson, W. N. (2010). The Relation between Stakeholder
Management, Firm Value, and CEO Compensation: A Test of Enlightened Value
Maximization. Financial Management (Blackwell Publishing Limited), 39(3), 929-964.
doi:10.1111/j.1755-053X.2010.01100.x
Samuelson, J., & Preisser, C. (2006). A Critical Mass for the Long Term. Harvard
Business Review, 84(2), 62-64.
2.
FINANCIAL STATEMENTS, CASH FLOW ANALYSIS AND TAXES
Financial statements and reports, the balance sheet, the income statement, statement of cash
flows and statement of stockholders equity, free cash flows, taxes, basic analysis of financial
statements and ratios to evaluate the liquidity, financial leverage, efficiency, and profitability
of firms. Simple forecasting concepts and the preparation of cash budgets and pro-forma
statements.
TEXT: Chapter 3 and 4
SUGGESTED READINGS:
Ahmet Tezel and Ginette M. McManus, “Disaggregating the Return on Equity: An
Expanded Leverage Approach,” Journal of Applied Finance, Vol. 13, No. 1
(Spring/Summer, 2003), pp. 16.
Amy Hutton, “Beyond Financial Reporting—An Integrated Approach to Corporate
Disclosure”, Journal of Applied Corporate Finance, Vol. 16, No. 4 (Fall 2004), pp. 8-16.
Howell R. Tying Free Cash Flows To Market Valuations. Financial Executive [serial
online]. May 2002;18(3):17-20. Available from: Business Source Premier, Ipswich, MA.
Accessed December 1, 2012.
3.
CAPITAL BUDGETING TECHNIQUES
Examination of the criteria for investment decisions: The Net Present Value, the Internal
Rate of Return, and the Payback Period; advantages and disadvantages. The relationship
between NPV and IRR and conflicts in the ranking of projects. Definition and measurement
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of relevant cash flows for capital budgeting decisions. Conceptual issues in cash flows,
analysis of an expansion project, replacement analysis, risk analysis in capital budgeting, and
beta risk. Unequal project lives. Ethical issues in corporate investment decisions.
TEXT: Chapters 11 and 12
SUGGESTED READINGS:
Baker, H., Dutta, S., & Saadi, S. (2011). Management Views on Real Options in Capital
Budgeting. Journal Of Applied Finance, 21(1), 18-29.
Burns, R. M., & Walker, J. (2009). Capital Budgeting Surveys: The Future is Now.
Journal Of Applied Finance, 19(1/2), 78-90.
Cokins, G. (2008). Repairing the Budgeting Process. Financial Executive, 24(10), 45-49.
4.
THE COST OF CAPITAL
The justification and computation of a weighted average cost of capital (WACC). Estimating
the component costs of capital by means of various approaches: cost of debt before and after
tax, cost of preferred stock, cost of retained earnings, cost of common stock. The CAPM
approach, bond yield plus risk premium approach, dividend yield plus growth rate, and
factors affecting the WACC. Adjusting the cost of capital for risk and problems with cost of
capital estimates.
TEXT: Chapters 10
SUGGESTED READINGS:
Jacobs, Michael T. and Anil Shivdasani. “ Do You Know Your Cost of Capital?” Harvard
Business Review, July/August 2012, pp. 119-124.
Gil Cohen and Joseph Yagil, “A Multinational Survey of Corporate Financial Policies”,
Journal of Applied Finance, Vol. 17, No. 1 (Spring/Summer 2007), pp. 57-69.
Doherty, N. A. (2005). Risk Management, Risk Capital, and the Cost of Capital. Journal
Of Applied Corporate Finance, 17(3), 119-123.
Bernardo, A. E., Chowdhry, B., & Goyal, A. (2007). Growth Options, Beta, and the Cost
of Capital. Financial Management (Blackwell Publishing Limited), 36(2), 5-17.
5.
CAPITAL STRUCTURE DECISIONS
The concepts and measurement of operating and financial leverage. Defining business and
financial risk. The relationship between firm value and capital structure. Measuring the
capital structure. Capital structure changes over time. Methods used to set the capital
structure and various factors influencing the capital structure decisions of corporations.
Determining the optimal capital structure. Modigliani and Miller propositions and discussing
implications. The definitions of levered and unlevered cost of equity and average cost of
capital, equity and firm market value. The impact of bankruptcy and agency costs in
determining the capital structure of the firm. The effect of taxes. Trade- off theory, signaling
theory, pecking order hypothesis. Variation in capital structure.
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TEXT: Chapter 14
SUGGESTED READINGS:
Stephen Ross, “Capital Structure and Cost of Capital”, Journal of Applied Finance, Vol. 15,
No. 1 (Spring/ Summer 2005), pp. 5-23.
Lord, R. A., & Farr, W. (2003). Collusion and Financial Leverage. Financial Management
(Blackwell Publishing Limited), 32(1), 127.
Jiraporn, P., Kim, J., Kim, Y., & Kitsabunnarat, P. (2012). Capital structure and corporate
governance quality: Evidence from the Institutional Shareholder Services (ISS). International
Review Of Economics & Finance, 22(1), 208-221. doi:10.1016/j.iref.2011.10.014
6.
THE DIVIDEND POLICY DECISIONS
Dividends vs. capital gain. Dividend irrelevance and M&M theory on dividend policy. Why
some investors prefer dividends. Dividend policy issues, information content/signaling
hypothesis. Client effects. Setting the target payout ratio and the net residual theory and
computations. Dividend reinvestment plans, stock dividend and stock splits. Stock
repurchase. Implications for practice (Microsoft’s dividend policy)
TEXT: Chapter 15
SUGGESTED READINGS:
Bradford Cornell, “Dividends, Stock Repurchases, and Valuation,” Journal of Applied
Finance, Vol. 15, No. 2 (Fall/Winter2005), pp.13-24.
Pinkowitz, L., Williamson, R., & Stulz, R. M. (2007). Cash Holdings, Dividend Policy,
and Corporate Governance: A Cross-Country Analysis. Journal Of Applied Corporate
Finance, 19(1), 81-87. doi:10.1111/j.1745-6622.2007.00127.x
Desai, M. A., Foley, C., & Hines, J. R. (2007). Dividend Policy Inside the Multinational
Firm. Financial Management (Blackwell Publishing Limited), 36(1), 5-26.
7.
OVERVIEW OF WORKING CAPITAL MANAGEMENT
Working capital. Policies for current asset investment and current asset financing. The cycle
of cash conversion. The cash budget. Cash and marketable securities including currency,
demand deposits, and marketable securities. Inventories. Accounts receivable. Accounts
payable. Bank loans including promissory notes, lines of credit, revolving credit. Cost of
bank loans. Managing Short term financing, An overview of financial planning and
forecasting. Forecasting financial statements
TEXT: Chapter 16 and 17
SUGGESTED READINGS:
Lee Pinkowitz and Rohan Williamson, “What is the Market Value of a Dollar of
Corporate Cash?”, Journal of Applied Corporate Finance, (Summer 2007), pp. 74-81.
Etiennot, H., Preve, L. A., & Allende, V. (2012). Working Capital Management: An
Exploratory Study. Journal Of Applied Finance, 22(1), 162-175.
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“Driving Additional Value Within AP”, Financial Executive, (October 2007), pp. 60-64.
8.
CORPORATE ACQUISITION AND CONTROL ACTIVITIES
An overview of corporate acquisition and control activities of mergers, tender offers,
leveraged and management buyouts, sell offs and divestitures. Rationale for mergers. Types
of mergers. Merger analysis. The role of investment bankers. Value creation in mergers.
Basics of private equity.
TEXT: Chapter 21
SUGGESTED READINGS:
Kenneth R. Ahern and J. Fred Weston, “M&As: The Good, the Bad, and the Ugly”,
Journal of Applied Finance, Vol. 17, No. 1 (Spring/Summer 2007), pp. 5-20.
Ivanov, V. I., & Xie, F. (2010). Do Corporate Venture Capitalists Add Value to Start-Up
Firms? Evidence from IPOs and Acquisitions of VC-Backed Companies. Financial
Management (Blackwell Publishing Limited), 39(1), 129-152. doi:10.1111/j.1755053X.2009.01068.x
Kearney Sr., J. D. (2012). STRATEGIC vs. FINANCIAL BUYER: Choosing the Best
Option. Financial Executive, 28(6), 30-33.
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9.
BANKRUPTCY, REORGANIZATION, AND LIQUIDATION
Brief discussion of the financial consequences of business failures leading to bankruptcy, and
reorganization or liquidation. Consequences for managers, stockholders, debtholders and
other firm stakeholders.
SUGGESTED READINGS:
S. Hillegeist, E. Keating, D. Cram, P. Donald and K. Lundstedt, “Assessing the
Probability of Bankruptcy”, (April 2002). Available at SSRN:
http://ssrn.com/abstract=307479 or DOI: 10.2139/ssrn.307479
E. Hotchkiss, K. John, K. Thorburn, S. Karin and R. Mooradian, “Bankruptcy and the
Resolution of Financial Distress”, (January 2008). Available at SSRN:
http://ssrn.com/abstract=1086942
Marshall, J. (2001). Defaults on the Rise. Financial Executive, 17(2), 10-11.
10.
OVERVIEW OF THE GLOBALIZATION PROCESS IN CORPORATE FINANCE
An overview of the impact of global developments in the organization and structure of
corporations, capital costs, and relationships of industrial and banking firms on the financial
performance of the American firm. Brief discussion of trends and consequences in crossborder corporate acquisitions and investments.
SUGGESTED READINGS:
M. King and U. Mittoo, “What Companies Need to Know About International Listings”,
Journal of Applied Corporate Finance, Vol. 19, No. 4 (Fall 2007), pp. 60-74.
Hao, Q., & Lahiri, S. (2009). Competition for foreign direct investment: The role of
technology and market structure. International Review Of Economics & Finance, 18(4),
680-690. doi:10.1016/j.iref.2009.03.001
Marshall, J., & Heffes, E. M. (2006). New Markets Pose Growing Challenge. Financial
Executive, 22(2), 10.
11.
INTERNATIONAL FINANCIAL DECISIONS
Introduction to foreign exchange rates and currency risk, and the investment and financing
decisions of multinational corporations.
TEXT: Chapter 19; Class Lecture and Handout
SUGGESTED READINGS:
David Glassman, “Multinationals in the Middle Kingdom: Performance, Opportunities
and Risks”, Journal of Applied Corporate Finance, Vol. 18, No. 3 (2006), pp. 120-131.
Crabb, P. R. (2002). Multinational corporations and hedging exchange rate exposure.
International Review Of Economics & Finance, 11(3), 299.
Kawaller, I. G. (2008). Hedging Currency Exposures by Multinationals: Things to
Consider. Journal Of Applied Finance, 18(1), 92-98.
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12.
OVERVIEW OF LEGAL AND REGULATORY AND SOCIAL AND POLITICAL
ISSUES IN CORPORATE FINANCE
An overview of the legal and regulatory provisions that apply to business combinations,
tender offers, proxy fights and other control activities, and bankruptcy. Impact of
institutional investors and the role of managers, stockholders, and other stakeholders in the
financial decisions of modern corporations.
SUGGESTED READINGS:
Marshall, J. (2005). Testing the Winds of Reform. Financial Executive, 21(4), 39-41.
Barbara Lougee and James Wallace, “The Corporate Social Responsibility (CSR) Trend”,
Journal of Applied Corporate Finance, Vol. 20, No. 1 (Winter 2008), pp. 96-108.
Yun, Z. (2009). The Relation between IPO Underpricing and Litigation Risk Revisited:
Changes between 1990 and 2002. Financial Management (Blackwell Publishing Limited),
38(2), 323-355. doi:10.1111/j.1755-053X.2009.01038.x
13.
OVERVIEW OF ENVIRONMENTAL ISSUES IN FINANCE
An overview of major environmental concerns when investors and corporations make
investment decisions. Incorporating externalities and subsidies in investment evaluation.
SUGGESTED READINGS:
Mac Cormac, S., & Haney, H. (2012). New Corporate Forms: One Viable Solution to
Advancing Environmental Sustainability. Journal Of Applied Corporate Finance, 24(2),
49-56. doi:10.1111/j.1745-6622.2012.00378.x
Barman, T., & Rapacioli, S. (2012). From the blogs. Financial Management (14719185),
16.
Marshall, J. (2005). Corporate Social Responsibility. Hard Choices on Soft Issues. Financial
Executive, 21(6), 44-50
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