The Wharton School
University of Pennsylvania
Advanced Corporate Finance
FNCE 203
Spring 2003
Dr. Hülya Eraslan
Office: SH-DH 3408
Phone: 8-9424
e-mail: eraslan@wharton.upenn.edu
Office Hours: 1:30-3:00 on Fridays
WebCafe: TBA
Teaching Assistants: TBA
Overview and Format: The objective of this course is to utilize finance theory in a decisionmaking and applied context with a focus on restructuring activities. The course uses a mixture of
lectures, cases and guest speakers. We will cover a range of topics including capital budgeting,
capital structure policy, use and valuation of derivatives, mergers and acquisitions, debt
restructurings in financial distress and bankruptcy.
Course Materials: There is no textbook for the course. A course bulk pack that includes cases
and readings is available from Wharton Reprographics. Supplementary material will be handed
out in the class.
Grading: Final grades in the course will be based case presentation and class participation
(10%), written case analyses (15%), a class project (5%), two midterm exams (35% each).
Groups: Students should form groups of four to work on the cases during the first week of
classes. Each group is also expected to present their class project. You are allowed to form groups
across different sections. However, if your group consists of students registered in different
sections, I will decide in which section you present your class project. At the end of the semester,
students will be asked to evaluate the contribution of group member (including self) to the group
assignments.
Class contribution: This course, by its nature, depends on a lot of student contribution
in class to maximize learning. To earn a good grade, each student is expected to be
familiar with the case, to understand his or her group’s analysis and conclusions, and be
ready to answer questions when cold called. Students are not allowed to attend other than
the one they are registered in unless they have a presentation scheduled in that section. I
should emphasize that, activities that disturb class, such as chatting with each other and
frequent use of “air time” will count negatively for the class contribution grade.
Written case analysis: For each case requiring a written analysis, each group should submit an
executive summary not exceeding two pages with group members, section numbers and group
number listed on the cover page. Supporting computations and tables can be included as exhibits
not exceeding four pages. All exhibits should be clearly labeled and easily readable. All the
assumptions and formulas used should be provided in an appendix not exceeding one page.
The written analyses should be submitted at the beginning of the class during which the case is to
be discussed. If a group consists of members across different sections, that group should submit
the case at the beginning of the earliest section for which a group member is registered.
You may use any publicly available information about the case. You cannot, however, use old
notes, handouts, or solutions to the cases (regardless of the source) for your written reports and/or
for class discussions. The purpose of the written analyses is to motivate high level of class
preparation. There are no single correct solutions for the cases and therefore you will not be
graded for “correct” solutions in your case write-ups.
WebCafe: There will be a webCafe room for this class to be announced in class. For fairness,
any questions that are of interest to whole class will be answered only in webCafe room. The
room will also be my primary source of communication for the announcements regarding the
class.
Regrading Policy: Regrading requests must be made within ten days after receiving the graded
material. All such requests must be made in writing. Any exam or case submitted for regrading of
a question will be subjected to a complete regrading. In the past, this resulted in lower grades for
some students.
Makeup Exams: If you miss one of the exams due to a documented serious emergency, I will
allow you to take a make up exam for the missed exam. Serious emergency is a subjective
concept, and I will be the judge of that after the emergency has occurred. Minor illnesses,
conflicts with other classes, interviews, and travel plans are not serious emergencies.
Religious Holidays: If your religion interferes with one of the midterm dates or assignment
dates, please let me know within two weeks from the first day of class.
Course Outline and Readings
I. Introduction and Course Overview
II. Financial Analysis and Planning
“Note on Bank Loans”
Business Week, “How Efficient Is That Company?”
Clarkson Lumber Company
III. Capital Budgeting, Cost of Capital and Valuation
A. Capital Budgeting
Higgins Chapter 7
Empirical Chemicals (A & B)
B. Cost of Capital
Bruner, Eades, Harris, Higgins, “Best Practices in Estimating the Cost of Capital”
Marriott Corporation: Cost of Capital
C. Review of Valuation Methods
Luehrman, “What’s It Worth”
Inselbag and Kaufold, “How to Value Recapitalizations and Leveraged Buyouts”
Kaplan and Ruback, “The Market Pricing of Cash Flows Forecasts: Discounted Cash
Flow versus the Method of Comparables”
American Chemical Corporation
RJR Nabisco
Southport Minerals, Inc.
IV.
Mergers and Acquisitions
Regulatory Considerations
Common Takeover Tactics and Defenses
Wall Street Journal, “Why All Takeovers Aren’t Created Equal”
The Acquisition of Consolidated Rail Corp. (A)
The Acquisition of Consolidated Rail Corp. (B)
V.
Restructurings and Bankruptcy Reorganization
Note on Bankruptcy in the United States
Valuation of Companies within Workout and Turnaround Situations
Loan Workouts: What They Are and Why They Are Needed.
Franks and Torous, “A Comparison of Financial Recontracting in Distressed Exchanges
And Chapter 11 Reorganizations”
Gilson, John and Lang, “Troubled Debt Restructurings: An Empirical Study of Private
of Firms in Default”
Asquith, Gertner and Scharfstein, “Anatomy of Financial Distress: An Examination of
Junk-Bond Issuers”
National Convenience Stores
Marvel Entertainment
Cumberland Worldwide Corporation (A)
VI.
Financial Policy
The Economist, “Corporate Finance Survey”
Structuring Corporate Financial Policy: Diagnosis of Problems and Evaluation of
Strategies
Smith, “Raising Capital: Theory and Evidence”
Coleco Industries, Inc
VII.
Warrants and Convertibles
Brennan and Schwartz, “The Case for Convertibles”
Stein, “Convertible Bonds As Backdoor Equity Financing”
Chrysler’s Warrants
Due to the uncertainty of the date of availability of the guest speakers, the course schedule is
tentative. An updated schedule will be announced on the first day of classes. The cases with “w”
next to it require written analysis.
14-Jan
16-Jan
21-Jan
23-Jan
28-Jan
30-Jan
4-Feb
6-Feb
11-Feb
13-Feb
18-Feb
20-Feb
25-Feb
27-Feb
4-Mar
6-Mar
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2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
18-Mar
20-Mar
25-Mar
27-Mar
1-Apr
3-Apr
8-Apr
10-Apr
15-Apr
17-Apr
22-Apr
24-Apr
17
18
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20
21
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25
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Introduction
Clarkson Lumber Company
Capital Budgeting
Empirical Chemicals
Cost of Capital
Marriott Corporation: Cost of Capital
Review of Valuation
American Chemical Corporation
RJR Nabisco
Southport Minerals, Inc
The Acquisition of Consolidated Rail Corp. (A)
The Acquisition of Consolidated Rail Corp. (B)
Midterm
Bankruptcy
Valuation in Financial Distress
Guest Speaker-TBA
Spring Break
Marvel Entertainment
National Convenience Stores
Guest Speaker-TBA
Workouts and Distressed Exchange Offers
Cumberland—A
Capital Structure Policy
Coleco Industries, Inc.
Warrants and Convertibles
Chrysler
Midterm
Project presentation
Project presentation
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