Course Syllabus
FINA 5700: Finance Capstone
Thursdays 6:30 to 9:20PM, Wooten 117
Spring 2011
Professor:
Dr. John Kensinger
CBA 168G
940-565-3050 (office)
940-566-2713 (home)
940-566-4234 (fax)
email: kensingerj@mac.com
web: www.coba.unt.edu/firel/kensinge/fina5700
Office hours: Tuesday & Thursday 5:15 PM to 6:15 PM in office (also available after
class in the classroom)
Texts and Readings:
1. Package of Harvard Business School Cases.
2. Michael Porter, Competitive Advantage, Free Press (1985, new introduction 1998)
ISBN 0-684-84146-0.
3. Donald H. Chew (editor), The New Corporate Finance Where Theory Meets Practice,
3rd Edition, McGraw-Hill (2001) ISBN 007233973X Pbk.
4. Readings packages will be handed out in advance of class discussions.
5. Additional reference readings are indicated in the course schedule, and are available
in Brealey, Myers & Allen, Principles of Corporate Finance, McGraw-Hill (10th Ed.
2011) ISBN 13 9780077356385. These reference readings are provided as an aid for
students desiring additional help, and are highly recommended.
Disability Accommodation
The College of Business Administration complies with the Americans with
Disabilities Act in making reasonable accommodation for qualified students with
disability. If you have an established disability as defined in the Americans with
Disabilities Act and would like to request accommodation, please see me as soon as
possible (by the third class meeting, please). My office hours and office number are
shown on this syllabus.
Student Quorum
In order to offer some relief for students who may get caught in occasional traffic
delays, we will wait up to 10 minutes to begin covering new material if fewer than 80%
of the enrolled students are present. If we are delayed waiting for a quorum, we will
spend the time reviewing questions students may have about prior material. Regardless
of the presence of a full quorum, however, we will not delay any longer than 10 minutes.
When enough students are present at the scheduled starting time, of course, we will begin
coverage of new material immediately.
Course Syllabus
FINA 5700: Finance Capstone
Spring 2011
Brief Description of the Course
The course consists of group discussions of seventeen cases and two sets of readings,
as well as three lecture sessions. Most of the problems raised in the cases are strategic in
nature rather than tactical. In addition to the lectures and case discussions, we will be
using several articles from the business press to focus on controversial issues and
discrepancies between theory and practice.
Purpose of the Course
The overall purpose is for you to apply what you have learned in earlier courses to the
solution of realistic business problems, from the perspective of a global financier. All of
the concepts and tools of finance will be integrated around five key paradigms and three
separation principles, and these will be related to the concepts of business strategy. For
their solution, the cases require not only an orderly use of the paradigms and principles of
finance, but also an innovative application of the principles of business strategy.
Cell Phones:
Cell phones must be turned off and put away during examinations. Absolutely no
text messaging or wireless email is allowed during examinations. Those leaving the
examination room for any reason may not use cell phones and other wireless devices or
discuss the exam with anyone while the examination is still under way.
Grading
Course grades will be calculated using the following weights:
Course Grade
20% Class participation
40% Midterm Examination
40% Final Examination
In addition to the midterm and final examinations, participation in class discussions
will be evaluated. All requirements, including class participation, must be met
satisfactorily in order to complete the course. During discussions, students may be called
on at random to answer short questions, or give an extemporaneous discussion (5 minutes
or less).
The examination questions will be essays that are extemporaneous analyses of short
cases. The goal will be to apply the major concepts of finance to specific situations and
draw valid conclusions. The point is not to show everything you know, but to use what is
relevant for the case at hand. A very common error is to write things that don’t bear on
the case.
Makeup or re-scheduled exams will be allowed with valid medical justification,
because of some other documented personal emergency, or by prior arrangement to
accommodate some other unavoidable conflict. Routine makeup exams must be
completed prior to the next class meeting (to schedule the makeup, contact the FIREL
department office, 940-565-3050). In case of prolonged incapacitation that is
documented, other arrangements will be tailored to fit the particular situation.
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Course Syllabus
FINA 5700: Finance Capstone
Spring 2011
Class Schedule
Jan 20:
Introductory Lecture: The touchstones of finance
Additional reading:
Chew: Preface and Introduction
Reference: Brealey, Myers & Allen:
Chapter 1: “Goals and Governance of the Firm”
Chapter14: “An Overview of Corporate Financing”
Chapter 34: Conclusions: What We Do and Do Not Know About
Finance”
Jan 27:
Library Assignment:
The purpose of the library assignment is for you to become familiar with
the wide variety of analyst’s reports that are available for publicly traded
corporations, and in particular to become familiar with the things analysts
consider in making their recommendations. In many ways, the cases we will be
considering involve the same things the analysts consider.
The University library offers a help desk that could provide assistance, and
I recommend you visit them. The Internet is also a very valuable resource. Try
visiting the Charles Schwab or Merrill Lynch website and navigate to their
research tools. The Schwab website, for example, offers research links to its own
equity ratings, plus the Standard & Poors reports.
Please pick about half a dozen companies to consider (these could be
companies you are interested in learning more about, or ones you have read about
recently). When you look at sets of reports for several companies, you will soon
get a sense of what the analysts look for, and how they respond to strategic
actions by management. In order to make the necessary time available, you may
use the class time January 27 for your library visit (we will not have a regular
meeting then). When we meet again on February 3, please be prepared to share
your observations about what management might be able to do in order to gain
more favorable response from the analysts, and more value for the company’s
stock (if you like, you could also offer your impressions about how well the
analysts’ reports actually reflect the true value drivers for the stocks).
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Course Syllabus
Feb 3:
FINA 5700: Finance Capstone
Spring 2011
Lecture: Financial theory and corporate strategy
1st case: “Tomago Aluminium” handout
2nd case: “Dialog Semiconductor” handout
Additional reading:
Chew: Part I: Man & Markets (read editor’s introduction plus ch. 1-4)
Porter: Study Chapters 1&2 carefully and critically. Read the remainder
of Part I the way you would a magazine article. Skim Parts II, III,
and IV in order to become familiar with the applications available in
the book—then later you will be able to find the parts that are
relevant to specific cases under discussion.
Articles (handouts):
Michael E. Porter, “From Competitive Advantage to Corporate
Strategy,” Harvard Business Review (May-June 1987) pp. 43-59.
Michael E. Porter, “The Five Competitive Forces That Shape
Strategy,” Harvard Business Review (January 2008).
Alfred Rappaport, “CFOs and Strategists: Forging a Common
Framework,” Harvard Business Review (May-June 1992) pp. 84-91.
Simon M. Keane, “Can a Successful Company Expect to Increase Its
Share Price? A Clarification of a Common Misconception,” Journal
of Applied Corporate Finance (Fall 1990), pp.82-88.
Michael E. Porter, “The Competitive Advantage of Nations,”
Harvard Business Review (March-April 1990) pp. 73-93.
Jeffrey F. Rayport & John J. Sviokla, “Exploiting the Virtual Value
Chain,” Harvard Business Review (Nov-Dec 1995) pp. 75-85.
Martha Amram and Nalin Kulatilaka, “Disciplined Decisions:
Aligning Strategy with the Financial Markets,” Harvard Business
Review (January-February 1999) pp. 95-104.
Alfred Rappaport, “Ten Ways to Create Shareholder Value,”
Harvard Business Review Online (September 2006).
Andrew H. Chen, James A. Conover, and John W. Kensinger,
“Proven Ways to Increase Share Value,” Journal of Applied Finance
Vol.12 No.1 (Spring/Summer 2002) pp. 89-97.
Reference: Brealey, Myers, & Allen
Chapter 10 “Project Analysis”
Chapter 11 “Investment, Strategy, and Economic Rents”
Feb 10:
Managing for Value
3rd case: “Lockheed Tri-Star and Capital Budgeting,” handout
4th case: “Congoleum Corporation,” Case Package
Additional reading: Chew, Chapters 9-11, Economic Value Added (EVA)
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Course Syllabus
Feb 17:
FINA 5700: Finance Capstone
Spring 2011
Incremental analysis and project financing
5th case: “The Super Project,” Case Package
6th case: “Southport Minerals, Inc.,” Case Package
Additional reading:
Chew:
Chapter 26 “Using Project Finance to Fund Infrastructure
Investments”
Articles (handouts):
John Kensinger & John Martin, “Project Financing: Raising Money
the Old-Fashioned Way,” Journal of Applied Corporate Finance
(Fall 1988) pp. 69-81.
Feb 24:
Making investment decisions when options are involved
7th case: “E.I. DuPont de Nemours & Company: Titanium Dioxide,” Case
Package
8th case: “The Starship Project,” handout
Mar 3:
Discussion of capital budgeting in practice.
Background reading:
Readings packet on capital budgeting (handout)
Chew:
Editor’s introduction for Part II
Chapter 6 “Finance Theory and Financial Strategy”
Chapter 7 “The Economics of Organizational Architecture”
Chapter 45 “Continental Bank Roundtable on the Role of Corporate
Boards”
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Course Syllabus
FINA 5700: Finance Capstone
Spring 2011
Mar 3:
Lecture: The basics of Option Pricing Theory (OPT), and applications in
financial decision-making
“Capital Projects as Real Options,” Case Package
Articles (handouts):
Timothy A. Luehrman, “Strategy as a Portfolio of Real Options,”
Harvard Business Review (September-October 1998) pp. 89-99.
Van Putten & MacMillan, “Making Real Options Really Work,”
Harvard Business Review (Dec 2004) pp. 134-141.
Michael Brennan & Eduardo Schwartz, “A New Approach to
Evaluating Natural Resource Investments,” reprinted in Donald
Chew (editor), The New Corporate Finance: Where Theory Meets
Practice, 1st Ed. (New York, McGraw-Hill: 1993), pp. 98-107.
Lenos Trigeorgis & Scott Mason, “Valuing Managerial Flexibility,”
Midland Corporate Finance Journal (Spring 1987) pp. 14-21.
Siegel, Smith, & Paddock, “Valuing Offshore Oil Properties with
Option Pricing Models,” Midland Corporate Finance Journal
(Spring 1987) pp. 22-30.
John Kensinger: “Adding the Value of Active Management into the
Capital Budgeting Equation,” Midland Corporate Finance Journal
(Spring 1987) pp. 31-42.
Reference: Brealey, Myers, & Allen
Chapter 20 “Understanding Options”
Chapter 21 “Valuing Options”
Chapter 22 “Real Options”
Also see the section titled “Financial Planning as Managing a
Portfolio of Options” in Chapter 29.
Mar 10:
Financial leverage
9th case: “Netscape’s IPO,” Case Package
10th case: “Arundel Partners,” Case Package
Additional reading: Chew
Editor’s introduction for Part VI
Chapter 36 “The Modern Industrial Revolution, Exit, and the Failure
of Internal Control Systems”
Chapter 37 “The Motives and Methods of Corporate Restructuring”
Mar 17:
SPRING BREAK
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Course Syllabus
Mar 24:
FINA 5700: Finance Capstone
Spring 2011
Financial leverage as harvest strategy
11th case: “Colt Industries, Inc.” Case Package
12th case: “Gulf Oil Corporation,” Case Package
Additional reading: Chew
Chapter 38 “How Stock Swap Mergers Affect Shareholder and
Bondholder Wealth”
Chapter 39 “To Purchase or to Pool: Does It Matter”
Mar 31:
MIDTERM EXAMINATION
Apr 7:
Leveraged buyout associations: better than corporations?
13th case: “RJR Nabisco,” Case Package
14th case: “Philip Morris Companies and Kraft, Inc.” Case Package
Articles (handouts):
Mohan and Chen, “A Review of the RJR-Nabisco Buyout,” Journal
of Applied Corporate Finance (Summer 1990), pp.102-8 (handout).
Michael Jensen, “Eclipse of the Public Corporation,” Harvard
Business Review, September-October 1989 (handout).
Additional reading: Chew
Chapter 40 “Lessons from a Middle Market LBO: The case of O.M.
Scott”
Chapter 41 “Leveraged Recaps and the Curbing of Corporate
Overinvestment”
Chapter 42 “Some New Evidence that Spinoffs Create Value”
Chapter 43 “The Evolution of Buyout Pricing and Financial Structure
(Or What Went Wrong) in the 1980s”
Chapter 44 “LBOs The Evolution of Financial Structures and
Strategies”
Apr 14:
Looking for synergy and hidden value
14th case: “Cooper Industries, Inc.” Case Package
16th case: “MRC Inc. (A)” Case Package
Additional reading:
Peter F. Drucker, Chapter 51, “Building Unity Out of Diversity,”
Management: Tasks, Responsibilities, Practices (handout)
Apr 21:
Lecture 4: Corporate restructuring, where are we going?
17th case: “The Challenge Ahead: Economic Growth, Global Interdependence,
and the New Competition,” Case Package
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Course Syllabus
FINA 5700: Finance Capstone
Spring 2011
April 28: Restructuring in response to economic globalization
Readings packet on investor activism and corporate restructuring
Articles (handouts):
John Kensinger and John Martin, “Financing Network
Organizations,” Journal of Applied Corporate Finance (Spring
1991) pp. 66-76.
Reference: Brealey, Myers, & Allen
Chapter 31 “Mergers”
Chapter 32 “Corporate Restructuring”
Chapter 33 “Governance and Corporate Control Around the World”
May 5:
Financial Execution
18th case: “Arley Merchandising Corp,” Case Package
19th case: “The Learjet Venture,” handout
Additional reading: Chew
Chapter 24 “The Origin of Lyons: A Case Study in Financial
Innovation”
Chapter 25 “The Uses of Hybrid Debt in Managing Corporate Risk”
May 12:
CUMULATIVE FINAL EXAMINATION (regular class time and place)
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