MBAC 6060
CORPORATE FINANCE
FALL SEMESTER 2003
LEEDS SCHOOL OF BUSINESS
UNIVERSITY OF COLORADO at BOULDER
Jaime F. Zender
Baughn Professor of Finance
Room 422
Phone: 303-492-4689
Fax: 303-492-5962
E-mail: jaime.zender@colorado.edu
Webpage: http://leeds.colorado.edu/faculty/zender/
Office Hours: M-W (4:30 – 5:30) or by appointment
I. COURSE DESCRIPTION:
This course is an introduction to financial management. The goal is to provide all of you,
regardless of your ultimate MBA functional area concentration or career path, with a solid
understanding of the fundamental tools and decision-making processes of business finance.
Accordingly, the objective is to provide a conceptual framework to appreciate and understand the
problems facing the financial manager in the real world today.
Financial Management covers the following topics:
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financial analysis and planning,
•
Fisherian economics and financial mathematics,
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valuation of securities,
•
capital budgeting (the investment decision) under certainty,
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the linkage of corporate strategy to finance,
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capital market theory,
•
risk and return and asset pricing,
•
capital budgeting under uncertainty and the cost of capital,
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efficient capital markets,
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capital structure,
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dividend policy,
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investment banking,
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mergers and acquisitions, and
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derivative securities.
While MBAC 6060 is not designed to dwell on abstract theory, an understanding of the basic
theoretical underpinnings of finance is a prerequisite to intelligent analysis and problem solving.
The ultimate objective of the course is to provide the “well-educated” general manager with the
conceptual basis for making sound financial decisions in the modern business environment. The
practical importance of the material, leads us to discuss many examples and applications.
II. COURSE MATERIALS:
Required Texts:
Corporate Finance, 6th edition, by Stephen Ross, Randolph
Westerfield, and Jeffrey Jaffe, 2001, Irwin/McGraw-Hill (A
student problem manual is available.) This book is referenced on
the weekly assignment schedule (see Section VIII) as RWJ
Analysis for Financial Management, 6th edition, by Robert C.
Higgins, 2001, Irwin/McGraw-Hill. This book is referenced on the
assignment schedule as HIG. Higgins writes in an applied, “user
friendly” format for practicing financial managers. While not
providing comprehensive coverage of some finance topics, and not
emphasizing required theory, the book provides reinforcement and
additional intuition to the Ross, Westerfield, and Jaffe text. While
“non-finance” types may sell their RWJ text at the conclusion of
the course, I strongly recommend that all students keep the Higgins
text for future reference; it is indispensable for any manager.
There is also a small packet of cases available at the bookstore.
Webpage:
You will find various teaching notes, slides, and problem sets at:
http://leeds.colorado.edu/faculty/zender/mba6060/schedule.html
III. COURSE POLICIES:
As mentioned above, MBAC 6060 is an ambitious course. Many past students, at a variety of
universities, consider the class to be the most difficult course in the first year of their MBA
program (no, not just when I teach it). The pace is necessarily swift and mastery of the material
is time-consuming. Experience has shown that students who get behind are seldom able to
recover. Therefore, a strong and continuing time commitment is necessary. Please read the
following course policies carefully! I will not deviate from these policies!
Your grade will be determined as follows:
 Midterm Exam 1
20% November 6th
 Midterm Exam 2
20% November 20th
 Comprehensive Exam
30% December 15th
 Homework and Cases
20% Throughout the semester
 Class Participation
10% Throughout the semester
Exams likely will contain a mixture of essay questions, problems, and, perhaps, some multiplechoice questions. Materials covered in the lectures, readings, and assignments will be the focus
of the exams. To stress your mastery of concepts rather than you ability to memorize, you may
bring in one 8-1/2 by 11 inch sheet of paper (one sided) containing your personal notes,
important equations, favorite quotes, etc. A typewritten page is acceptable.
No "makeup" exams will be given unless they are arranged for in advance of the examination
date! If you miss a midterm exam, you will receive your weighted-average grade on the other
midterm and final exam. The final exam must be completed in order to pass the course!
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Students who wish to appeal their score on any exam must submit the exam and a brief
discussion in writing on why a different grade is warranted. Any appeal to an exam grade must
be delivered to me no later than one week following the date the exam is returned. Furthermore,
I reserve the right to re-grade all questions on the exam (I make errors in being too generous as
well as too stingy!).
I will hold optional review sessions at (hopefully) convenient times before the two midterms and
the final exam. These sessions will have no set format or length; I will simply respond to your
questions for as long as it takes. Review session times will be arranged to best fit our schedules.
The Harvard Cases are to be handed in for grading, one per group. Limit yourselves to 2-3 pages
of discussion plus any supporting tables you wish to attach. The numbered homework
assignments (1, 2, 4, 5, 6) are also to be handed in and are also to be done in your groups
(number 3 is optional only due to timing, I strongly encourage it as preparation for the first
exam). These homework assignments are designed to be slightly more aggressive than we will
see in class in order to serve as a learning opportunity.
Class participation is an important indication of daily preparedness. Thoughtful and assertive
feedback from you facilitates the learning process and makes classes lively and interesting. Good
questions are an important form of participation. Come to class prepared to ask and answer
questions posed by your classmates or myself. Over the years, I have developed a system for
evaluating class participation that, I believe, is as objective as possible. I will explain my system
during the first class period. During the semester, everyone will have ample opportunities to earn
an "A" grade in class participation.
Homework assignments are given for (almost) each class. The assignments are structured to
reinforce the major themes of the class for that day, and to illustrate the types of problems you
can expect to find on the exams. These assignments will not be collected; however, you should
consider them mandatory! Solutions to the problems will be available on the course webpage.
However, simply reviewing the answers is a very poor substitute for attempting the problems
yourself. To get the most out of class, and keep up with the swift pace, you should carefully read
the assigned chapters and attempt the problems before the corresponding lecture. Many students
have found success doing the homework assignments in small groups.
Professionalism is expected! I have a zero tolerance policy for plagiarism and cheating.
Many of the cases and homework assignments have been used before and I caution you
that it is a violation of the Honor Code to receive any unauthorized assistance in
completing these assignments. Outside of your group, no assistance is authorized.
IV. LECTURE NOTES:
The lecture notes are posted on the course web page as well as lecture modules 1 – 20. Please be
advised, however, that reading these notes should not be viewed as a substitute for attending
class and carefully taking your own notes. The lecture modules were developed by me and my
colleague Ron Lease in order to provide a different presentation of the material than that given in
class. This is an attempt to acknowledge that for every student there is a different way to present
the material that will make it most understandable, and the more ways I can present the material
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the better. While the modules are designed to cover most of the highlights of the lectures, many
of the more subtle points are "fleshed out" in the lectures as a result of questions that come up in
class, or alternative ways that I find to explain the materials in "real time." Typically, additional
examples will be covered in class. In combination, by carefully reading the chapters, reviewing
your own comprehensive class notes, reviewing the slides and the “posted” lecture modules, and
working and understanding the chapter problems, problem sets, cases, and other assignments,
you should obtain an in-depth understanding of the materials in corporate finance.
V. E-MAIL:
I will be communicating with you as a group via the list MBA2005@lists.colorado.edu for any
generic class communications, e.g., assignment changes. If you don’t want to hear from me you
can always just delete the e-mails as they come in; a popular option. The “notes” section of the
webpage will also be used for this purpose.
VI. TEACHING ASSISTANT:
The teaching assistant for the course this year is Elizabeth Hause. Elizabeth is likely to be your
most valuable resource for understanding the material in class. She will hold formal T.A.
sessions on Tuesdays and Thursdays from 12:30 PM – 1:30 PM in Room 218. These sessions
will cover specific material in a somewhat informal classroom setting. The schedule of materials
is posted on the “schedule” section of the class website. Elizabeth will also hold office hours on
Tuesdays and Thursdays in the afternoon from 3:30 PM – 4:30 PM in Bus 480. Get to know her
and be very nice to her; she’s doing a lot for us.
VII. OTHER IMPORTANT ISSUES:
University policy requires that students with disabilities who qualify for academic
accommodations provide a letter from Disability Services (DS) and discuss specific needs with
the professor, preferably during the first two weeks of class. DS determines accommodations
based on documented disabilities (303-492-8671, Willard 322,
www.colorado.edu/disabilityservices)
I will make every effort to provide accommodation for students who, because of religious
obligations, have conflicts with scheduled exams or assignments. The schedule for these
requirements is at the end of the syllabus. Please notify me at least 2 weeks in advance of any
such conflict so that we may devise an appropriate solution.
As a result of extensive discussions with, and recommendations from faculty and students, a new
classroom behavior policy and associated procedures have been adopted. Please consult the
information at the following site: (http://www.colorado.edu/policies/index.html).
The new Student Honor Code system has been implemented in all schools and colleges please
consult these new policies and procedures at the following site:
(http://www.colorado.edu/academics/honorcode/).
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VIII. CLASS SCHEDULE:
Class Date Topic
1
10/20 Course Introduction,
Review of Financial
Accounting, and
Creation of Cash Flow
Information
2
10/22 Pro-forma Financial
Statements: An
Introduction
3
10/24 Financial Analysis and
Planning: Guest Lecture
Mary Beth Lewis
CFO Noodles &
Company
10/27 Financial Mathematics
and Net Present Value
4
5
10/29 Net Present Value
6
10/31 Security Valuation
7
11/3
Security Valuation
8
11/5
Midterm Exam #1 and
Capital Budgeting Rules
9
11/7
Capital Budgeting Rules
10
11/10 Capital Budgeting
Applications
Assignment – to be completed prior to class
Please have these read prior to the first class.
Read: Syllabus, Lecture Module #1
Read: Chapters 1 & 2 (HIG), Statement of Cash
Flow, Valuation Cash Flow (attempt exercise), Net
Working Capital and Cash Flows
Prob: 2.1, 2.2, 2.4, 2.5, 2.8 (RWJ)
Read: Chapters 3 & 4 (HIG),
Read: How to Go Broke while Making a Profit
Read: Financial Analysis & Planning
Read: The 5 C's of Credit
Prob: 4.2 (HIG)
HBS Case: Case of the Unidentified Industries
Case: Cache Valley Products
Case: Wasatch Electronics
Both sections scheduled for 3 PM in Room 224
Read: Chapters 3 and 4 (RWJ)
Prob: 4.1-4.7, 4.11, 4.15, 4.16, 4.19, 4.24, 4.25, 4.28,
4.29, 4.31, 4.32, 4.36, 4.38, 4.39, 4.43, 4.44, 4.484.51
Read: Chapter 4 (RWJ)
Read: Chapter 7 (pgs 231-240) (HIG)
Problem Set #1 due in class
Read: Chapter 5 (RWJ) Room 224 at 2 PM
Prob: 5.1, 5.3, 5.5, 5.7, 5.9, 5.11 - 5.13, 5.16, 5.17
Read: Chapter 5
Problem Set #2 due
Optional Review session 11/4 TA session
Read: Chapter 6 (RWJ)
Prob: 6.1, 6.3, 6.6-6.9
Read: Chapter 6 (RWJ)
HBS Case: Lockheed TriStar
Read: Chapter 7 (HIG pgs 240-258)
Read: Chapter 7 (RWJ)
Read: Chapter 7 Appendix (HIG)
Read: Capital Budgeting: An alternative format
Prob: XYZ Company
Problem Set #3 due
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11 11/12 Capital Budgeting Applications
12 11/14 Capital Market History
and
Risk and Return
13 11/17 CAPM
14 11/19 CAPM and
Capital Budgeting Under
Uncertainty
15 11/21 Capital Budgeting Under
Uncertainty and
Efficient Markets
16 11/24 Midterm Exam #2
17 11/26 Capital Structure Basics
18 12/1
Limits to the Use of Debt
and
Dividend Policy
19 12/3
WACC
20 12/5
Investment Banking
Guest Lecture:
Robert Kaufman
Q Advisors
M&A Valuation
21 12/8
22 12/10 M&A and
Derivative Securities
12/15 Final Exam 10:15 – 1:15
Rooms 216 and 218
Read: Chapter 8 (RWJ)
Prob: Coleman Coupling
Prob: Deer Valley Ski Resort
Read: Chapters 9 and 10 (RWJ)
Prob: 9.1-3, 9.5, 9.7, 9.8, 9.10, 9.12, 9.14
Problem Set #4 due
Read: Chapter 10 plus Appendix (RWJ)
Optional: Chapter 11 (RWJ)
Prob: 10.1, 10.3, 10.7, 10.9, 10.10, 10.12,
10.16, 10.20, 10.22
Problem Set #5 due
Read: Chapter 12 (RWJ)
Prob: 12.1, 12.3, 12.5, 12.6, 12.7
Read: Chapter 13 (RWJ)
Read: Lecture Mod 14
Prob: 13.3, 13.4, 13.6, 13.13-15, 13.19
Problem Set #6 due
Optional review session Read: Chapter 15 (RWJ) (Ch 14 for review)
Prob: 15.1, 15.4, 15.7, 15.10, 15.12-15.14
Read: Chapter 16 (RWJ)
Read: Chapter 6 (HIG)
Prob: 16.1, 16.3, 16.7, 16.9, 16.13
Read: Chapter 18 plus Appendix (RWJ)
Read: Lecture Module 18
Prob: 18.3, 18.4, 18.6, 18.10-18.12
Read: Chapter 17 plus Appendix (RWJ)
Read: Chapter 8 plus Appendix (HIG)
HBS Case: Marriott Corp. Cost of Capital
Read: Chapters 19 & 20 (RWJ)
Prob: 19.1-19.5, 19.8-9, 20.2-20.5, 20.13-14
Read: Chapter 5 plus Appendix (HIG)
Both sections scheduled 10 AM in Room 224
Read: Chapter 9 (HIG)
Read: Lecture Module 19
Read: Chapter 30 (RWJ)
Prob: 30.4, 30.5, 30.11, 30.14
HBS Case: Free Cash Flow Valuation Methods
Read: Chapters 22 and 23 (RWJ)
Prob: 22.3, 22.6, 22.7, 22.8, 22.13, 22.14
Optional review session
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