Advanced Corporate Finance


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Advanced Corporate Finance

  1. 1. Finance - GSM 435 School of Management Simmons College Fall 2008 Case Room #2 Thursdays 6:00 – 9:00 pm (with short break) Professor Indra Collins Guertler Office: Third Floor, 409 Commonwealth Ave, Boston, MA 02215 Telephone: (617) 521-3883 or 2405 Fax: (617) 521-3880 Cell: 508-785-3154 Email: Office hours: Before and after class, by appointment at other times, and by phone appointments as mutually convenient (including weekends). School of Management Mission: The mission of the Simmons School of Management is to educate women for power and principled leadership. We are committed to the advancement of knowledge and practice in management through excellence in education and research. Our academic programs offer rigorous, applied, management education designed for women. We focus on leadership, and our programs integrate the strategic, functional, and behavioral aspects of management. SOM students gain the knowledge, analytical skills, and confidence that they need to manage successfully in dynamic and global environments. We are invested in our students’ success and support them as they launch, advance, and change their careers. Course Overview: We will focus on the fundamental concepts and analytical tools that are used in financial decision making. Broadly, the financial manager’s decisions relate to making investment choices and funding them with newly raised money. These corporate finance decisions have both long-term and short-term consequences for everyone in the organization, and many external stakeholders as well. Electronic databases, Internet research, and spreadsheet assignments will be used to provide applications of the course material for non-financial managers. Each learning goal will be linked to the school’s mission of power and principled leadership. Learning Objectives: By the end of the course, each student should be able to: 1. Forecast financial statements, using a firm’s current financial data and assumptions about future strategic choices made by the firm’s leader (you) 2. Understand and apply time value of money principles in a variety of contexts using forecasted cash flows and an estimation of risk 3. Understand and apply future cash flow and risk analysis in a variety of contexts with links made to principled leadership and the effects on power 4. Evaluate capital budgeting techniques to identify potential investment opportunities that add value to the firm 5. Create a capital budgeting spreadsheet model and evaluate the decision to invest 6. Estimate the cost of capital for a firm and professionally explain the assumptions used in its estimation and use
  2. 2. 7. Evaluate costs, risk, advantages and disadvantages of new sources for a firm’s future funding needs Course Prerequisites: Economics, Quantitative Methods and Financial Statement Analysis Learning Materials ● Fundamentals of Corporate Finance (8th edition) by Ross, Westerfield and Jordan, McGraw-Hill Irwin, 2008 • The Wall Street Journal (student discount subscriptions available) • Financial Calculator with TVM, NPV and IRR keys (Simmons recommends TI model, but HP models are also good) Course Goals and Background: Finance a discipline that estimates the present value of all possible choices facing a person or an organization. It is the numerical equivalent of optimally analyzing a decision. The numbers of Finance are forecasts or estimates of the future, and so are based on assumptions about the future based on historical experience and judgment with professional intuition. You do not have to be a numerical person to do well in Finance. You do need to think clearly, consider all alternatives through spreadsheet modeling, communicate persuasively and then be flexible with the implementation of the leadership choice. A first course in Finance will introduce the student to new terms and concepts—some of which will, actually, be applications of what you already know intuitively and from your professional careers. Many of the applications in this course will involve quantitative reasoning—often, a way to logically solve a problem. Each class will have one component where the professor will introduce and practice new material. A suggested structure of analysis will be given. Then following class will allow students the opportunity to check their understanding with new situational material. This format of introduction with structure, followed by practice in the next class will encourage active learning as skills, critical assumptions and risks are identified and discussed. Daily goals will be presented for each class and problem category, which support the Learning Objectives of the semester. Discussion topics will be identified as possible essay questions on future exams. Lots of “doing” is a necessary part of the learning process. Consequently, there are homework assignments for each topic, which contribute to the class participation grade in the class. The exams are designed to cover a finite amount of material, while the spreadsheet assignments are designed to provide practical applications of the course material that will benefit you in your roles of managers and principled leaders. Because the finance topics in this course build on themselves and are inherently cumulative, it is important to stay current with the course assignments throughout the semester. Time with the professor is always available to review material that is not 2
  3. 3. fully mastered. You are welcome to contact the professor for assistance at any time through personal meetings, emails or telephone calls. Small study groups are highly recommended. All questions, comments and input, both during and outside of class, are encouraged. Study group time, if fully documented, will contribute to the class participation grade. Because we need to cover the course topics in a timely manner, all students are expected to be prepared for class so that they can be active participants in their learning experience. Preparation means you will be able to ask question about what you still do not understand and/or help the class review new applications of the material you have mastered. All students are also expected to attend class regularly. If you need to miss a class, however, please call or email, as a courtesy. Needless to say, you are responsible for any class notes, handouts, and assignments that may be distributed and/or covered in your absence. Homework for the class missed is expected to be turned in before or immediately after the absence to be credited toward your daily class participation grade. Absences will count against you. Homework for the missed class will count as you having attended the class with no participation. Missing more than one class will negatively affect your final grade. Assessment Techniques: Two examinations with open notes, two spreadsheet modeling assignments with professionally written analyses, collected homework, use of on-line trading game, class participation/preparation will be used in the determination of the course grade. Additional details will be provided in class, but the fundamentals are as follows. • The exam component of the course grade will consist of one take-home mid-term exam plus an in-class cumulative final exam. The exams will have similar problems to class work, prose based essays on the links between textbook material and current events, and interpretations of current event charts/graphs. No exemptions are planned and make-up exams will be given only under extraordinary, unavoidable circumstances and only if requested and approved in advance. Each student will be allowed to use a financial calculator plus all notes and homework from class, but no books or Internet will be permitted. Group study work before the exams is highly encouraged as long as it is cited. You will be asked to submit the notes used in the exam for class participation grading. Previous exams will be posted on eLearning and reviewed before the test. Exams will be thoroughly reviewed in class. Test dates: Mid-term: October 16th Final Exam: December 11th Out of class reviews for all exams will be scheduled beforehand, if requested by students. Please see schedule for possible dates. • The spreadsheet assignment component of the course grade consists of two assignments requiring flexible spreadsheet modeling techniques and a minimum 5- page analysis of the results. The assignments, designed to provide practical application of the course material, will be due following coverage of the particular 3
  4. 4. finance topic in class. The two individually prepared spreadsheet assignments will focus on 1) Forecasting financial statements (Learning Objectives #1 and #7), and 2) Capital budgeting (Learning Objectives #4, 5, 6). Additional guidelines on these assignments will be provided in class and posted on Vista.  Due dates for these assignments (hard copy ONLY plus CD or memory stick with spreadsheet model) are October 2nd for the assignment on forecasting financial statements and November 13th for the assignment on capital budgeting.  Grading rubrics will be distributed with the guidelines for the spreadsheet assignments. The grading rubrics will give details concerning assessment techniques. Students may resubmit either or both spreadsheet assignments once to improve their grade. Revisions are due within 1 week of receiving feedback.  Late assignments: For each week that a spreadsheet assignment is late, its grade will be dropped one half grade. For instance, if an assignment’s grade would be an A-, the recorded grade would be B+ if the assignment were one class late. Since Spreadsheet Assignment 2 is near the end of the semester, care needs to be taken to hand it in before the last class, especially if any revisions for extra points are planned. • On-line trading in equity securities will be included for the first time in this Finance class. Feedback from the Investments class has suggested that on-line trading be initiated early in the MBA program. The on-line trading is free and should be used to improve confidence in financial terminology, market timing and how the value of company stock is affected by news and company decisions. A minimum of 20 trades is expected, with documentation of investment reasoning. Rubric for the 50 points will be designed with class input and be available before the evaluation of performance. • The course grade will also include a class participation/preparation of homework/study group component. This component will reflect quality participation in class discussions of course topics and assignments as well as your overall level of preparation for class. Periodically, homework may be collected for feedback. All class notes and homework will be collected after each exam and returned to you. Homework must be turned in for missed classes as soon as your return and will count as if you attended class. Class participation should include at least a minimal level of ALL of the following: Leadership on the review of an assigned problem, current event article linked to learning, interpretation of a graph/chart from new source. Asking questions in class, while always encouraged and welcome, is NOT counted as class participation. 4
  5. 5. Grading Criteria: Take-home mid-term exam 200 points In-class Cumulative final exam 250 points Spreadsheet assignments (200 points each) 400 points On-line equity trading (at least 20 trades) 50 points Class participation/collected homework 100 points Total Points 1000 points Final grades will be curved based on total class results. Policy on Incomplete as a Final Grade: For all students, course work should be completed during the current semester. The grade of Incomplete may only be allowed in cases of exceptional, extenuating circumstances that are beyond the student’s control. Such circumstances may include a death in the family or personal illness. If an Incomplete is allowed, the course work must be completed within two weeks of the end of the semester. Normally, if work is not completed within this two-week time frame, the grade of Incomplete will be replaced by a grade of Failure. For additional information, please refer to the Simmons College Student Handbook. Americans with Disability Act: Simmons College complies with the ADA to guarantee that students with disabilities have equal access to college programs and facilities. Reasonable accommodations will be provided for students with documented physical, sensory, systemic, cognitive, learning, and psychiatric disabilities. If you have a disability and anticipate that you will need a reasonable accommodation in this class, it is important that you contact the Academic Support Center early in the semester. Call Ext. 2474, or stop by the center in the Palace Road building, Suite 304A. Students with disabilities receiving accommodations are also encouraged to contact their instructor within the first week or two of the semester to discuss their individual needs for accommodations. Simmons College Honor Code: We learn about ethics in Finance and the course intends that each student will apply them as well. This course and the professor expect you to adhere to the highest standards of honesty and integrity—in your dealings with the professor and with one another. Please read and take to heart the sections on the honor system in the Simmons College Student Handbook. You are expected to comply with all provision of the Simmons College Honor Code. Please also refer to the guidelines that accompany each exam and spreadsheet assignment. The faculty has specific and unalterable responsibility to report any Honor Code violation to the Honor Board. The faculty is not allowed to make individual rulings on potential Honor Code violations. 5
  6. 6. A student is not expected to collaborate with another student on a graded deliverable in this class. All graded deliverables are to be a student’s individual work and not based on discussions or sourced from the Internet. All financial modeling is to be done from a blank spreadsheet file. Each grading criteria will have an express Honor Code requirement, with required signature and date, attesting that the student has followed the guidelines of the assignment or exam and has completely followed the Simmons College Honor. Linkage between the Learning Objectives and the Assessments Used Learning Objective Assessment Used for Grading 1. Forecast financial statements, using • Spreadsheet Assignment #1 with a firm’s current financial data and Rubric given to students during assumptions about future strategic Class 1 choices made by the firm’s leader (you) 2. Understand and apply time value of • Mid-term Exam and Final Exam money principles in a variety of • In-class demonstration of skills contexts using forecasted cash • Collected and graded homework flows and an estimation of risk 3. Understand and apply future cash • Mid-term Exam and Final Exam flow and risk analysis in a variety • In-class demonstration of skills of contexts with links made to • Collected and graded homework principled leadership and the effects on power 4. Evaluate capital budgeting • Mid-term Exam and Final Exam techniques to identify potential • In-class demonstration of skills investment opportunities that add • Collected and graded homework value to the firm 5. Create a capital budgeting • Spreadsheet Assignment #2 with spreadsheet model and evaluate the Rubric given to students during decision to invest Class 7 6. Estimate the cost of capital for a • Mid-term Exam and Final Exam firm and professionally explain the • In-class demonstration of skills assumptions used in its estimation 6
  7. 7. and use • Collected and graded homework 7. Evaluate costs, risk, advantages and • Mid-term Exam and Final Exam disadvantages of new sources for a • In-class demonstration of skills firm’s future funding needs • Collected and graded homework Assignment Class 1, Thursday September 4th 1. Read Chapter 1 of Fundamentals of Corporate Finance, 8th edition a. Next week’s readings are a review of Accounting using Chapters 2 and 3 on financial statements and ratio analysis. We will introduce some of these concepts in class this week if you want to get ahead in your reading. 2. Link the main ideas of Chapter 1 to the goals of our school (power and principled leadership). How is power enhanced/decreased? Where are opportunities for principled leadership? a. Three decisions of a financial manager b. Forms of an organization c. The goal of finance (and the other goals of organizations that you hear so much about in the news, see page 8) d. Sarbanes-Oxley e. Agency Theory f. Financial Market cash flows and mechanics g. Ethical Issues (please go beyond the short list below) i. ‘Going dark’ ii. Executive compensation 3. Fill in the introduction sheet (attached to the eLearning mail) 4. Review the two worksheets on improving financial statements (attached to the eLearning mail) 5. Begin to think about choosing a company upon which you will focus during this semester. a. It should be a company you want to study because your output will help you in future career opportunities. b. Collect the three financial statements for this company and begin following it on 7