Advanced Topics in Finance
FIN 647
P.V. Viswanath
Comments for beginning of class
Fall 2003
Issues from Sept. 16
 Lease capitalization – we will go over it
 How to come up with the financial analyst type of balance
sheet – we are only going to do parts of it, such as
capitalizing R&D
 More discussion on Financial Ratios – Agree in principle; I
am choosing a few topics, for lack of time – particularly
things that you don’t see that much elsewhere.
 Difficult to see projection screen. – Where are you sitting?
Can we reduce the intensity of the lighting?
 Where does the Statement of Cash Flows enter the picture?
– The information to compute FCF can be obtained from the
Statement of Cash Flows; approximately, FCFF = Operating
Cash Flow – Net Cap Spending – Change in Net WC.
P.V. Viswanath
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Issues from Sept. 16
 How am I going to do all this in practice? – You’ll only find
out when you try. This is why you have an assignment.
 Tell us what we’re doing next class – Good point; however,
you should also check the schedule on our class website.
 Have all the calculations on one slide – this is difficult;
however, you can print out the slides, so that all of the
information is visible to you simultaneously.
 Would a company with higher leverage be more likely to go
bankrupt? Yes.
 Spend less time on simple topics – agree; problem is that it’s
not always clear what’s simple, what’s difficult. Speak up in
class – that would help me.
P.V. Viswanath
3
What will we do Sept. 30
 Continue with Valuation
 Start Risk and Return
P.V. Viswanath
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Issues from Sept. 30
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Review previous class at beginning of next class
Do problems from chapter in class
Reading material for treatment of leases
EAR vs. APR
Don’t rush in the last 10 minutes
Do not ask students randomly
More problems
P.V. Viswanath
5
What we will do Oct. 7
 Continue with Risk and Return
 Proceed with computing cost of capital
P.V. Viswanath
6
Issues from Oct. 7
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Beta!
Use a dark pen on board
What’s the covariance formula?
Notes or textbook?
How to calculate beta
More information regarding quizzes
More practice problems
Easier quizzes
P.V. Viswanath
7
What we will do Oct. 14
 Go over issues from Oct. 7
 Go over slides for Chapter 7
 Provide information on Oct. 21 quiz
P.V. Viswanath
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What we will do Oct. 21
 Brief quiz on Chapters 6 and 7
 This quiz will be like quiz 1; only definitions and
brief questions. Examples of these questions can be
found on the web from the Practice link in the
Course Outline. However, this time, the questions
will not be restricted to the ones on the web.
 We will continue with chapter 7 and hopefully get
to some problems.
P.V. Viswanath
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Issues from Oct. 14
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More about beta
What’s the meaning of a negative beta?
Uncertainty of reinvestment
Implied equity premiums
Regression model
Newspaper articles
Too much material
P.V. Viswanath
10
Issues from Oct. 14
 Don’t embarrass students, when you ask questions in
class
 Finish early
 Slow down
 Strobe lights!
 Class averages
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Assignment 1 – 8.93
Assignment 2 – 8.68
Quiz 1 – 36.39
Quiz 2 – 30.46
P.V. Viswanath
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What we will do Oct. 21
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Quiz 3
Continue with implied historical premium
Beta estimation using regression
Interpreting the regression output
P.V. Viswanath
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What we will do Oct. 28
 Analyze a newspaper article – bring in your own, as
well/ e-mail them to me.
 Continue with Chapter 7
 Estimating the cost of debt
 Computing the hurdle rate
P.V. Viswanath
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Issues from Oct. 21
 WACC
 Bottom-up beta; Leveraged and unleveraged beta; Beta
estimation
 Do we need to know all that statistics?
 Eliminate the break and leave at 8
 T-statistic from Excel
 Continue doing problems!
 Relevance of Jensen’s alpha
 Volatility
 How to compute indexes
 Use existing example, rather than new numbers
P.V. Viswanath
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What we will do on Nov. 4
 Mid-term
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Media Article
Definitions from Chapters 2-7
Short questions from Chapters 2-7 similar to the practice ones, but
not limited to those.
Problems similar to end-of-chapter problems from
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Present Value (Chapters 3/5)
Leveraged/Unleveraged betas (Chapter 7)
Bottom up betas (Chapter 7)
CAPM expected return/beta problems (Chapter 7)
 Read up on Chapter 16
P.V. Viswanath
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Issues from Nov. 11
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Bankruptcy Costs
Modigliani Miller
Practice Questions
Dissatisfaction with media question on exam
Grade Distribution
Optimal Financial Structure
Exam Review
Balance Sheet in M&M Theorem?
Review everything
Stay on course and examples
What other leakages?
Mergers and Acquisitions as a source of leakage
P.V. Viswanath
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Grade Distribution
Grade Distribution
120
100
Quiz 3
Midterm
60
40
Quiz Mean
35.32
20
Midterm Mean
86.96
28
25
22
19
16
13
10
7
4
0
1
Grade
80
Student
P.V. Viswanath
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