Case Western Reserve University, Weatherhead School of Management
BAFI 359: Intermediate Corporate Finance
Fall 2005
Professor:
Scott A. Fine
Contact Info:
WSOM Office:
WSOM Phone:
Cell Phone:
Home Phone:
E-Mail:
366 Peter B. Lewis Building
216.368.0909
216.533.3590 (voicemail available 24 hrs.)
216.751.7599 (8:00 am – 10:00 pm)
scott.fine@case.edu
Class Meeting Time: 10:00 a.m. – 11:15 a.m. Tuesday and Thursday
Classroom:
Peter B. Lewis Building, Room 202
Office Hours:
9:00 a.m. – 5:00 p.m. Mondays and by appointment. Students are
strongly encouraged to pre-arrange visits, as I am often out of town.
Pre-Requisite:
BAFI 355 Corporate Finance. In addition, students are expected to
have access to a personal computer and an understanding of
Microsoft Excel. Finally, students must be open to ambiguity – this
will not be a “problem set” course with absolutely clear answers.
COURSE OBJECTIVE AND TEACHING GOALS
Perhaps a better title for this course would be “Applied Corporate Finance.” Given the
professor’s background as a practitioner, emphasis will be placed on how finance is
applied in the real world. In addition to revisiting topics first introduced in BAFI 355, we will
explore other important topics in applied corporate finance, including (i) managing the
short-term and long-term financing needs of the enterprise, (ii) financing strategy and
capital structure planning, (iii) capital budgeting and resource allocation, and (iv) valuing
the enterprise in both the public equity markets and the private markets (mergers and
acquisitions and leveraged buyouts).
Through the case study method, we will analyze a variety of real business situations. My
teaching goal for this course is two-fold:
1. Equip you with some of the basic analytic tools used in applied finance, including
financial forecasting and planning models, discounted cash flow analysis and
comparable company/security analysis. While we will only have time to explore
these tools on a rudimentary level, these tools form the analytic foundation for
careers in commercial and investment banking, investment management,
corporate finance and treasury management.
2. Improve your problem-solving skills, teach you how to think on your feet, develop
your presentation skills and hone your business judgment. By the end of course,
you should be comfortable with the key elements of business analysis and
judgment - defining problems, gathering, organizing and analyzing relevant
information, developing alternative solutions to problems and recommending and
defending what you believe to be the best alternative. In most case studies, as in
life, critical information will be inconsistent and, at times, incomplete, and there will
be plenty of superfluous data (noise).
CASE METHOD AND CLASS CONDUCT
This will be the first case method class for most of you. As we will discuss during the first
class, the case method only works if you come to each class prepared and participate
actively during class. The first few cases will be done as a class, with significantly more
direction from me than would typically be the case in order to orient you towards this
method of teaching.
Groups
All course work will be done in teams of 4-5 students. Once formed, teams will remain in
place for the entire semester. Groups should be formed the first week, and a list of all
team members should be submitted to me by the end of class on Tuesday, September
6th. Beginning with Thursday, September 8th, team members should sit together with
their groups. This will allow team members to confer with each other during class.
Students should also sit in the same seat every class, and prominently display their name
cards.
Because work will be done entirely in groups, it is important for you to self-police
balanced contributions from each group member. Keep in mind that each team member
will have particular skill strengths and weaknesses, and that each member will have
different peaks and valleys in terms of other demands during the semester. However,
over the course of the semester, each team member should strive to make a fair
contribution, and to try each role within the group (leader/manager, analyst, writer,
editor, secretary). As described in GRADING, part of your grade will be based on peer
evaluations within your group. This will provide a direct incentive to remain an active
contributor.
If you have a free rider in your group, and due warning does not remedy the situation,
please have your group bring it to my attention immediately. In extreme cases of
differential work efforts within your group, you may be allowed to change your group
composition with my express consent, but only after due discussion with and notification of
all involved parties.
Preparation and Case Write-ups
Case write-ups are required for many of the designated cases (see COURSE
SCHEDULE), and are due at the beginning of the class in which the assigned case will be
discussed. Since preparation and the ultimate write-up will be a group effort, only one
write-up should be submitted for each group. Please ensure that each team member has
a copy of the write-up that can be easily referred to during the class discussion, including
any exhibits and/or analyses.
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In analyzing each case, you should take the perspective of an advisor to the key decision
maker in the case (e.g., Board of Directors, CEO, CFO, general manager, lender,
investor). A recommended format for each case write-up is as follows:
1. Statement of the problem – State the main issue(s) as precisely as possible,
typically in a few sentences or a paragraph.
2. Facts and assumptions – State the relevant facts of the case. Those facts that
are not obvious from the case should be supported either with a calculation in the
text or a reference to a supporting exhibit. Clearly state any assumptions,
including a justification for your assumptions. This section will typically be about a
half-page.
3. Analysis – This contains your analysis of the various courses of action, and
should form the body of your write-up. This section will typically be about one and
one-half pages.
4. Recommendation and justification – This will generally be about a half-page.
Note that these are merely suggested guidelines. The specific situation in each case will
dictate overall organization and emphasis.
Case write-ups should be typed and stapled. Each write-up should have a cover page
with the name of the case, the names of your group members and the date. The body of
the write-up should be no more than three written pages, with a maximum of five pages of
exhibits to support your recommendation. Exhibits should be clearly marked, and any
assumptions you have made should be crystal clear. I am a professor, not a clairvoyant;
as a result, I cannot decipher your logic out of thin air. Brevity is preferred; avoid
extraneous material. All written assignments and the group presentation should be done
to the same standards as a real work setting. In all cases, please proofread your work to
check for grammar, spelling, etc.
Group Presentations
Each group will be responsible for making one class presentation during the semester.
When a group is responsible for presenting a case, they will not also be required to submit
a write-up. Groups can choose from a list of available cases. This choice must be made
by Tuesday, September 13th.
The following guidelines should be considering in preparing your group presentation:
1. Presentations should follow the same general guidelines as case write-ups, and
should be completed to a standard consistent with what you would present in an
actual work situation. Most successful presentations will include an Executive
Summary, Issues to Consider (the problem definition), Analysis and Discussion of
Alternatives, a Recommendation/Action Plan and, to the extent appropriate, Next
Steps/Follow-up Items. As with case write-ups, these topic headings are general
guidelines. Each case may require a slightly different outline and focus.
2. The presentation should last no more than 30 minutes, and each group member
should be responsible for at least some portion of the presentation, if possible.
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Experience suggests that each slide will take somewhere between one and three
minutes, depending on the content and the presenter.
3. A copy of the presentation should be distributed to the entire class at the beginning
of the presentation, including highlights of any analysis, exhibits and
recommendations.
4. You should provide one organized copy of important backup materials to me, in
addition to a copy of the presentation you provide to the class.
5. Presentations should be made using Microsoft PowerPoint. If you are not familiar
with how to use PowerPoint, use this assignment as an opportunity to learn about
its user-friendly features.
As an alternative, overhead transparencies are
acceptable along with other visual displays of information and analysis.
6. Although your presentation will, no doubt, contain summary conclusions from your
analysis, you should be prepared to review your analysis in detail, including
detailed Excel calculations.
Please note that the non-presenting teams will still be required to submit a case write-up.
During the presentation, these teams will play the role of the key decision maker. Class
members, using their own case write-ups and any notes taken during the presentation,
should be prepared to actively question those making the presentation. Throughout the
case presentation and the critique, the non-presenting class members have the
responsibility of raising questions or making relevant observations. I may call on nonpresenting class members at random during presentations.
WORK FLOW AND GRADING
I suspect that the work flow in this course will be a unique experience for many of you.
To a certain extent, you will be allowed to customize the concentration of your work load
during the term. After some initial practice cases that we will do as a class and some
computer sessions, we will begin our hardcore case discussions. Like Vin Diesel, they
will come Fast and Furious, usually one per week.
In total, there will be eleven cases eligible to be written up. Of these, four must be
written up by your group per the specifications set forth in “Preparation and Case WriteUps” above. One must be done as a presentation with your group per the specifications
set forth in “Group Presentations”. One must be done individually by each member of
your group per the same specs as a group write-up. This will essentially serve as a
take-home midterm, and allow me to directly measure individual performance. The
remaining five must be outlines of the case in terms of the problem(s) at hand, the range
of alternatives that need to be evaluated, the type of analysis that you’d undertake, etc.
The purpose of submitting these is to prove to me you’ve read the case in preparation of
our class discussion. These will not be graded – you will simply get one point if you
submit an outline. One outline should be submitted by the entire group.
The eligibility of each case for a written write-up (WU), presentation (P) or individual
write-up (I) are designated next to each case in the more detailed work plan that follows.
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There are several other requirements that I will impose. Each team should review their
work load in other classes during the term, and decide which four cases they want to
write-up, which case they want to present, and which case they want to write-up
individually. Preferences for your group should be submitted no later than Tuesday,
September 13th. You should include first and second choices for presentations and
individual write-ups. You should also include a prioritized list of the next three cases
you’d write-up beyond the four you submit. I’m asking you to do this so we have enough
teams that have fully prepared each case. I will post the allocation of assignments no
later than Thursday, September 15th. If you have any major problems with final
assignments, you must let me know that day. Once we have finalized assignments, they
will not be changed during the term.
Finally, for the group write-ups, each member will be responsible for doing the primary
writing on at least one case and the primary analysis on another case, and the member
responsible for each of these should be clearly marked on the cover page of the writeup.
Your grade will be based on the following:
Case Write-ups
Presentation
Individual Case Write-up
Outlines
Class Participation
Peer Review
40%
15
20
5
10
10
(Four, each worth 10%)
(One)
(One)
(Five, each worth 1%)
(I will focus on both quality and quantity)
(Based on an evaluation form)
To make the grading more equitable and to assist in addressing the free rider problem,
each student will complete a peer review for other members of their group. The reviews
will be kept confidential. A peer review form will be provided to you towards the end of
the semester, and should be returned to me by the end of the last class.
CASES AND READINGS
You should purchase a Course Packet and Case Textbook, both of which are available in
the CWRU Bookstore. These materials contain all of the required cases and most of the
supplemental reading materials for the course. The Course Packet also contains
questions for consideration in each case. I will hand out directions to access links to
exhibits in spreadsheet format, when available. I will hand out supplemental reading
information from time-to-time.
Many of the cases will be taken from an excellent introductory level case study book:
Bruner, Robert F., Case Studies in Finance: Managing for Corporate Value
Creation, 4th Edition (New York: McGraw-Hill Irwin, 2003)
The publisher has agreed to custom print the cases selected from this book so that you
don’t need to purchase the entire book. This specialty publication is only available at the
CWRU Bookstore. We will be using the same cases as last year (but these are different
from prior semesters). As a result, if you buy a used text, make sure it is the correct
version. If you can find an inexpensive copy of Bruner’s textbook, all of the Bruner cases
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are contained in this book. Note that in either event, you’ll still need to buy the CWRU
Notes since there are other readings and cases.
I also encourage you to use reference materials when preparing the cases. The following
two books are appropriate reference books:
Brigham, E.F. and J.F. Houston, Fundamentals of Financial Management, Concise
4E, (Orlando: Harcourt, 2003)
Ross, S.A., R.W. Westerfield and J. Jaffe, Corporate Finance (New York: The
McGraw-Hill Irwin, 2005)
I would also strongly encourage all students to read The Wall Street Journal on a daily
basis, as well as weekly periodicals such as Business Week, Fortune and Forbes.
IMPORTANT NOTE REGARDING ACADEMIC INTEGRITY
Please be very careful that you do not plagiarize any material. If your write-up contains
any information from outside sources, make sure the sources are properly cited. You
may discuss the case with your classmates, including those in other groups. This
promotes learning. However, the work your group hands in should reflect your own
thinking.
There is a big difference between discussing a problem or a general approach or
analysis, and copying detailed elements of other groups’ write-ups. If you are caught
cheating and/or using any unfair means, you may receive a failing grade. I will not have
any option but to report the matter to the appropriate disciplinary body within
WSOM/CWRU. Please do your utmost to uphold professional conduct that you can be
proud of.
COURSE SCHEDULE AND ASSIGNMENTS
The following schedule describes the topics to be covered as well as reading and/or
case study assignments. Reading and case studies are listed on the date they will be
discussed in class. As a result, all case write-ups are due at the beginning of class on
the date listed. There will be no exceptions to this policy. This schedule is subject to
change. I will hand out a new schedule if we veer from this plan.
Note that a designation of (CTx) indicates that the case or note in question is item
number “x” in the case textbook, and a designation of (CP) indicates that the item is
contained in the course packet.
With respect to assignments, a designation of WU signifies that a case write-up can be
submitted. A designation of P signifies that the case is an option for the group
presentation. A designation of I signifies that the case is an option for an individual
write-up by group members.
Tues. August 30th
Required Reading:
Course Overview and Introduction to Case Method
“Note to the Student: How to Study and Discuss Cases”
(CT)
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Thurs. September 1st
Case:
Setting Overall Themes (Practice Case Discussion)
“Warren E. Buffett, 1995” (CT1)
Note: I will hand out a sample case write-up at the end of
the class to illustrate what my expectations are for your
work. You should still prepare for this case as though you
needed to write it up.
Tues. September 6th
Case:
Financial Analysis and Value Creation
(Practice Case Discussion)
“The Battle for Value: Federal Express Corporation vs.
United Parcel Services of America Inc.” (Abridged) (CT5)
Note: If we have finished the “Warren Buffett” case, we’ll
spend today looking at another practice case. If we
haven’t finished “Warren Buffett,” we’ll finish that and skip
this case.
Thurs. September 8th
Financial Analysis and Forecasting
(Lecture and Computer Excercise)
Required Reading:
“Note on Financial Forecasting” (CP)
Case:
“The Body Shop International PLC 2001:
An Introduction to Financial Modeling” (CT7)
Note: Although a case write-up is not required, it is
important for all students to do the casework, since it is an
important analytic framework for the remainder of the term.
This is also a good time for groups to begin working
together.
Tues. September 13th
Financial Analysis and Forecasting (Case)
Continued Analysis and Discussion of “The Body Shop”
Thurs. September 15th
Required Reading:
Debt Financing (Lecture)
Lecture Notes, TBD
“Note on Bank Loans” (CP)
Review BAFI 355 Material on Bonds (e.g., Chapter 8 of
Brigham and Houston)
Tues. September 20th
Case (WU):
Debt Financing – Structuring Long-Term Loans (Case)
“Padgett Paper Products Company” (CT8)
Thurs. September 22nd
Working Capital Management (Lecture)
Suggested Reading: “Working Capital Management” section from Finance
Reference book (e.g., Chapter 16 from Brigham and
Houston)
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Tues. September 27th
Case (WU):
Thurs. September 29th
Required Reading:
Debt Financing – Managing Seasonal Working Capital
Needs (Case)
“Kota Fibres, Ltd.” (CT9)
Equity Valuation (Lecture)
Lecture Notes, TBD
Suggested Reading: Chapter 9 from Brigham and Houston
(Stock Valuation)
Tues. October 4th
Case (WU, P):
Equity Valuation (Case)
“Eskimo Pie Corporation” (CP)
Thurs. October 6th
Required Reading:
Cost of Capital (Lecture)
“”Best Practices” in Estimating the Cost of Capital: Survey
And Synthesis” (CT12)
Suggested Reading: “Cost of Capital” chapter from Finance reference book
(e.g., Chapter 10 from Brigham and Houston)
Tues. October 11th
Case (WU):
Cost of Capital (Case)
“Nike, Inc.: Cost of Capital” (CT13)
Thurs. October 13th
Capital Budgeting and Resource Allocation
(Computer Exercise)
“The Investment Detective” (CT17)
Case:
Note: This case should be done by all students, either
individually or in groups, but does not need to be turned in.
Suggested Reading: “Capital Budgeting” chapter from Finance reference book
(e.g., Chapter 11 from Brigham and Houston)
Tues. October 18th
Case (WU, P, I):
Cost of Capital (Case)
“Teletech Corporation 1996” (CT15)
Thurs. October 20th
Case (WU, P, I):
Capital Budgeting and Resource Allocation
“Euroland Foods S.A.” (CT22)
Tues. October 25th
FALL BREAK; NO CLASS
Thurs. October 27th
Required Reading:
Capital Structure (Lecture)
“Capital Structure” chapter from Finance reference book
(e.g., Chapter 14 from Brigham and Houston)
“An Introduction to Debt Policy and Value” (CT28)
Note: We will review the problems presented in this note.
Please come to class having prepared answers.
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Tues. November 1st
Case (WU, P, I):
Capital Structure (Case)
“MCI Communications Corp.: Capital Structure Theory”
(CT30)
Thurs. November 3rd
Required Reading:
Corporate Financial Policy (Lecture)
“Structuring Corporate Financial Policy: Diagnosis of
Problems and Evaluation of Strategies” (CT29)
Tues. November 8th
Case (WU, P, I):
Corporate Financial Policy (Case)
“Polaroid Corporation” (CT31)
Thurs. November 10th
Dividend Policy (Lecture)
“Dividends” chapter from Finance reference book
(e.g., Chapter 15 from Brigham and Houston)
Lecture notes to be distributed.
Tues. November 15th
Case (WU, P, I):
Dividend Policy (Case)
“Eastboro Machine Tools” (CT24)
Thurs. November 17th
Required Reading:
Mergers and Acquisitions (Lecture)
I will post a presentation on Blackboard, which will form the
bulk of the lecture. The presentation will cover M&A
analytics.
“Mergers” chapter from Finance reference book
(e.g., Chapter 21 from Brigham and Houston)
Tues. November 22nd
Case (WU, P, I):
Mergers and Acquisitions (Case)
“Yeats Valves and Controls Inc.” (CT39)
Thurs. November 24th
THANKSGIVING HOLIDAY; NO CLASS
Tues. November 29th
Merger Simulation
Materials handed out in class in the prior week
Thurs December 1st
Required Reading:
Leveraged Buyouts (Lecture/Lab)
Lecture Notes to be distributed. We will most likely meet in
the Computer Lab. We will most likely have a guest. We
will work on the LBO model in class.
“Technical Note on LBO Valuation” (CP)
“Treasures in the Junkyard”, by Roy C. Smith, Chapter 7 in
The Money Wars, Truman Tulley Books, 1990. (CP)
Tues. December 6th
Case: (WU, P)
Leveraged Buyouts (Case)
Analysis of LBO/Recapitalization of “Yeats Valves” (CT39)
Note: I may distribute another case instead.
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Thurs. December 8nd
Class Wrap-Up; Revisiting “Berkshire Hathaway”
NO FINAL!
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