University of Hong Kong
School of Economics and Finance
ECON6033 CORPORATE FINANCE
Semester B, 2008/2009
Instructor: Dr. Xianming ZHOU
Office Hours: 5:30 pm – 6:30 pm, Friday, Room 924, K. K. Leung
Phone: 2857-8564; E-mail: xianming.zhou@hku.hk
Course Objectives
This course is structured to analyze important financial decisions made at the firm level,
which include: what capital structure to adopt (financing decision); how to value a firm or
an investment project (valuation and investment decision); how to raise capital in the
equity market (equity issuance decision); how to return cash to investors (dividend and
share repurchase decision); what mechanisms to put in place to discipline the manager or
controlling shareholders (corporate governance decision); and whether a firm should
engage in a merger and acquisition and how to value the target firm (M&A decision).
The objective of this course is to expose students to the types of financial issues that they
are likely to encounter as corporate managers and investors. The course will use seven
weeks to discuss fundamental issues in financial theory and related analytical techniques,
and use the remaining weeks to discuss corporate finance cases and a term project. By
going through analyses and discussions of real-life financial situations facing corporate
managers and investors, students will gain experiences in the application of financial
theory and techniques to evaluate a firm’s investment and financing decisions. At the end
of the course, students are expected to be able to define a firm’s financial problem and to
determine an appropriate course of action.
Course Material and References
1. Ross, Westerfield, Jaffe, and Jordan, Modern Financial Management, 8th edition
(2008), McGraw-Hill (required text)
2. Selected cases from Darden School of Business and Harvard Business School
3. Class notes and assigned readings
Assessment
1. Problem sets: 10%
2. Case write-ups: 26%
Students will form case/project groups. Four cases in corporate finance will be discussed.
For each case, each group will submit a case analysis (before class discussion on the
case). Detailed requirements for case write-ups will be discussed in class.
3. Presentation and class participation: 24%
This component will be determined on the basis of both group performance and
individual contribution to class discussion.
Active class participation is anticipated for each student. Student performance in class
participation will depend on case preparation, which is made evident by meaningful
comments and appropriate responses to questions as well as asking clear, constructive
questions. A necessary requirement for participation is presence. Absence from class
discussions will materially reduce your participation grade.
4. Final examination: 40%
Schedule of Classes
Week
Topic
Readings and cases
1
Introduction, financial statements, financial planning
Chapters 1, 2, 3
2
Discounted cash flow, value of bonds and stocks
Chapters 4, 5
3
Investment rules, capital investment decisions
Chapters 6, 7
4
Risk and return, CAPM
Chapters 9, 10
5
Cost of capital, capital structure
Chapters 12, 15
6
Case 1: Cost of capital
Ameritrade
7
Valuation, long-term financing, IPOs
Chapter 17, 19
8
Case 2: Valuing the enterprise
Arcadian
9
Case 3: Valuing an IPO
Jetblue IPO valuation
10
Mergers and acquisitions
Chapter 29
11
Case 4: Merger-negotiation
To be announced
12
Corporate governance issues
Class notes