Boston College
Wallace E. Carroll Graduate School of Management
MF 722 Financial Management
First-Year MBA core course in Finance
Spring 2002
Robert A. Taggart
Fulton Hall 320B
Web site: www2.bc.edu/~taggartr
Tel. 552-6104
FAX: 552-0514
Email: robert.taggart@bc.edu
Office Hours: Thursday, 2:00 - 4:00 P.M. I will also be happy to meet with you on a
walk-in basis when I am free, or please call Ms. Marrilyn Reid at 5524634 to schedule an appointment.
Class Hours: Section 1: Tues., Thurs. 11:00 AM - 1:00 PM
Section 2: Tues., Thurs. 8:30 - 10:30 AM
Fulton 130
Fulton 130
I. Objective: Impart concepts and tools for analyzing such major corporate decisions as
capital budgeting and financing; introduce students to the relationship
between security market risk and return.
II.Course
Material:
1. Stephen A. Ross, Randolph W. Westerfield and Bradford D. Jordan,
Fundamentals of Corporate Finance 5th ed. Irwin/McGraw-Hill, 2000
(chapter and problem assignments listed below are from this textbook;
suggested problems are from the "Questions and Problems" sections at the
end of each chapter).
2. Three case studies: "Pressco, Inc. (1985)," "Netscape's Initial Public
Offering," and "Marriott Corporation (A)" (available as a packet in the BC
Bookstore).
III. Course
Work:
1. Class sessions will be devoted to discussion of the reading and
suggested problems. In order for everyone to derive maximum benefit
from the classes, it is important to do the assigned reading and try the
problems before class.
2. Advance preparation will be especially important for the three in-class
case discussions on Thurs., Jan. 24 (Pressco), Thurs. Feb. 21 (Netscape)
and Tues., February 26 (Marriott). Please read the cases carefully in
advance and be prepared to discuss the questions listed in Section V of this
syllabus.
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3. Written work for the course will consist of a case write-up, a problem
set, a mid-term and a final exam. Both exams will be given in class on an
open-book, open-notes basis.
4. Group work: You are invited to work on the case write-up and the
problem set in groups if you find this helpful. Students may hand in one
case or problem set write-up for a group of up to three students, with all
members of the group receiving the same grade.
5. Approximate grading weights:
(1) Case Write-up
(2) Problem Set
(3) Mid-term exam
(4) Final exam
15%
15%
30%
40%
I reserve the right, however, to weight the later course work slightly more
heavily in cases where strong improvement is shown and to adjust final
grades for strong class participation.
6. Important dates:
1. Case Write-up
2. Mid-term exam
3. Problem Set
4. Final exam
Class #4
Class #6
Class #11
Thurs., Jan. 24
Thurs., Jan. 31
Tues, Feb. 19
As scheduled, 2/28 or 3/1
IV. Course Outline:
Class # & Date
Topics and Assignments
1.Tues. 1/15
Stock Valuation and the Net Present Value Rule
Reading:
Review Chap. 8 in Ross, Westerfield, Jordan
and Chap. 6 of MM 720 course packet
Suggested Problems: Chap. 8, #5, 6, 21
Chap. 6 of MM 720 course packet, #4-6
2. Thurs. 1/17
The Net Present Value Rule and its Competitors
Reading:
Chapter 9
Suggested Problems: #2, 6-13, 15, 17, 18
3. Tues. 1/22
Estimating Net Present Value: Cash Flows and Taxes
Reading:
Chapter 10, pp. 278-303
Suggested Problems: #8-14
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4. Thurs. 1/24
Capital Expenditure Analysis: Pressco Case
Reading:
Pressco Case (in case packet)
Note: Pressco Case Write-up Due at this Class - see Discussion
Questions and Guidelines in Sections V and VI below
5. Tues. 1/29
Estimating Net Present Value: Special Applications
Reading:
Chapter 10, pp. 303-307, Chapter 11, pp.
317-324, 338-342
Suggested Problems: Chap. 10, #21-26, 28
6. Thurs. 1/31
Mid-term Exam
7. Tues. 2/5
Security Rates of Return; Effects of Inflation; The Concept of
Capital Market Efficiency
Reading:
Chapter 12
Suggested Problems: #4, 5, 8
8. Thurs. 2/7
Basics of International Financial Markets: Relationships Among
Exchange Rates, Interest Rates and Inflation Rates
Reading:
Chapter 21, pp. 658-675
Suggested Problems: #3, 4, 6, 7, 10, 11, 14
9. Tues. 2/12
Risk, Return and Diversification: Principles of Portfolio
Management
Reading:
Chapter 13, pp. 382-399
Suggested Problems: #7, 9
10. Thurs. 2/14
The Market Risk-Return Tradeoff: The Security Market Line
Reading:
Chapter 13, pp. 399-408
Suggested Problems: #11-17
11. Tues. 2/19
The Weighted Average Cost of Capital
Reading:
Chapter 14
Suggested Problems: #9-19, 23
Note: Problem Set Due at this Class
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12. Thurs. 2/21
Equity Financing and the Securities Issuance Process
Reading:
Chapter 15
Netscape Initial Public Offering Case (in
case packet)
Suggested Problems: See Discussion Questions in Section V
below
13. Tues. 2/26
Leverage
Reading:
Marriott Corporation (A) Case (in case
packet)
Suggested Problems: See Discussion Questions in Section V
below
V. Case Discussion Questions
Please be prepared to discuss these questions on the scheduled case discussion days:
Pressco, Inc. (1985)
Thursday, January 24
1. What is the net present value of the mechanical drying equipment investment
opportunity (as of December 1985) assuming a 12% cost of capital for Paperco?
Assume the rumored new tax proposal is not enacted and that the new drying
equipment replaces the old in December 1986.
2. What is the net present value of the investment opportunity assuming that (a) the new
tax proposals are enacted, (b) the new drying equipment replaces the old in December
1986, and (c) Paperco signs a binding purchase contract soon enough to be
"grandfathered" as to the 8% investment tax credit and the use of ACRS depreciation?
3. What is the net present value of the investment opportunity assuming that (a) the new
tax proposals are enacted, (b) the new drying equipment replaces the old in December
1986, and (c) Paperco does not sign a binding purchase contract soon enough to be
"grandfathered" as to the 8% investment tax credit and the use of ACRS depreciation?
Netscape's Initial Public Offering
Thursday, February 21
1. Why has Netscape been successful to date? What appears to be its strategy? What
must be accomplished if it is to be a highly successful going concern in the long run?
How risky is its current competitive position?
2. Does Netscape need to go public to satisfy its capital needs? What sources other than
the public equity market could be tapped to satisfy those needs?
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3. What might explain the phenomenon of "underpricing" in the IPO market? Should the
Netscape board be concerned about underpricing?
4. Can the recommended offering price of $28 per share for Netscape's stock be
justified?
Marriott Corporation (A)
Tuesday, February 26
1. Why is Marriott's chief financial officer proposing Project Chariot?
2. Is the proposed restructuring consistent with management's responsbilities?
3. Should Marriott recommend the proposed restructuring to the board?
VI. Guidelines for Pressco Case Write-up (due Thursday, January 24)
1. Your write-up should address the three questions listed for the Pressco case in Section
V above.
2. The text of your write-up should be no more than two double-spaced, typed pages.
Exhibits may be attached.
3. Exhibits should be easy to follow with key points or numbers clearly labeled. Key
assumptions should be stated explicitly either in the text or in the exhibits.