This 3-sentence summary provides the essential information about the MGMT E-2700 Corporate Finance course at Harvard University Extension School: The course will cover all aspects of corporate finance through lectures, problem sets completed online, a midterm exam, and a cumulative final exam. Topics include financial statements, investment and capital budgeting, the cost of capital, capital structure, and international corporate finance. Students will learn skills for making corporate investment and financing decisions through analyzing cases and problem sets.

1. MGMT E-2700 Harvard University Extension School
Corporate Finance Spring, 2016
Professor: Bruce Watson
mgmte2700@dce.harvard.edu
Lectures: Wednesdays 7:40 – 9:40 Science Center A
Teaching Assistants: Chris Valois
valois.mgmte2700@gmail.com
Sections and Office Hours TBA
Rob Munger
Sections and Office Hours TBA

2. SYLLABUS
This course provides an overview of the field of corporate finance. It will be valuable for finance and
non-finance professionals who work with a variety of different business organizations. One goal of the
course is to foster the development of skills for making corporate investment and financing decisions.
However, the course will also be useful for those engaged in the valuation of companies or their
securities, as well as those who simply want a better understanding of how business works.
Topics are organized around the standard corporate balance sheet. After a review of the requisite
financial accounting and the time value of money, the course launches into a dissection of the left-
hand, or “Assets,” side of the balance sheet. Capital budgeting and investment decisions are a critical
part of any enterprise, and the relevant approaches and criteria will be explored in detail. Techniques
such as sensitivity analysis, Monte Carlo simulation, and the “real options” approach will all be
covered.
The course then turns to the “right hand,” or financing, side of the balance sheet. Following an
overview of the sources of corporate funding, the two main categories of financing—debt and equity—
will be considered in turn. Striking the correct balance between these two is a critical issue for a
company, and a major area of research in corporate finance. Some of the major concepts involved will
be presented, starting with the measurement of the “weighted-average cost of capital.” There will also
be a discussion of how this measure can be applied in practice, including some of the pitfalls involved.
One of the major results in the field is embodied in the two propositions of the Modigliani-Miller
Theorem, which will be covered in some depth. Corporate capital structure, and the advantages and
disadvantages of leverage, provides a useful context for the Theorem, and will be discussed in the final
lecture.

3. Course Requirements
Exams
There will be two exams for the course, a midterm and a final. Both will be taken on-line on the
MyFinanceLab program.
The midterm will be available on MyFinanceLab starting at 7:40 PM (US Eastern Time) on
Wednesday, March 9. Students will have a 24-hour window, from 7:40 PM (US Eastern Time) on
March 9 to 7:40 PM (US Eastern Time) on March 10, in which to complete the exam. The exam is
one hour long, and, once begun, must be taken in one sitting. It cannot be partially finished, then
saved, then completed later.
The midterm will cover all the material presented in lecture, and in the corresponding chapters of the
book, from the first lecture on January 27 to the lecture on March 2.
The final will be available on MyFinanceLab starting at 7:40 PM (US Eastern Time) on Wednesday,
May 11. Students will have a 24-hour window, from 7:40 PM (US Eastern Time) on May 11 to 7:40
PM (US Eastern Time) on May 12, in which to complete the exam. The exam is two hours long, and,
once begun, must be taken in one sitting. It cannot be partially finished, then saved, then completed
later.
The final will be cumulative, and cover all the material presented in lecture, and in the corresponding
chapters of the book, from the first lecture on January 27 to the last lecture on April 27. However, it
will be weighted toward material presented since the midterm.
Detailed instructions on both exams will be sent to students well in advance of the exam dates.
Please Note:
• It is your responsibility to plan your travel ahead around exam dates. In particular, the date of
the final exam is determined by the Registrar and cannot be changed for any reason. Requests
to take the final on a different day, including requests for a make-up final, involve a formal
appeal process through the Extension School Examination Committee.
• No makeup midterms will be given.
• Please see the section below on “Grading” to understand how your semester grade will be
determined if you must miss the midterm for any reason.

4. Problem Sets
There will be nine problem sets assigned during the term. These will be multiple choice assignments
completed on MyFinanceLab. Problem set availability and due dates are given in the calendar below.
Further instructions about MyFinanceLab will be given before the first problem set is assigned.
The due date on problem sets cannot be extended for any reason. However, the lowest two of the
problem set scores for the semester will be dropped from the calculation of each student’s semester
grade. So, if you cannot do one of the problem sets some week, that will just be one of the scores that
gets dropped.
Grading
Your semester grade will be the higher of:
30% problem set scores 30% problem sets
30% midterm exam or 70% final exam
40% final exam
So, if you do poorly on the midterm, or are unable to take it for any reason, your final exam will
automatically be reweighted to be 70% of your semester grade, with the problem sets constituting the
remaining 30%. We will make these calculations automatically for each student—you don’t have to
“opt in” or “opt out” of one or the other weighting. We will make certain you receive the highest
grade to which you are entitled.
Grading Mechanics: Assigning Letter Grades Based on a Curve
Semester grades are determined by a curve. The nature of a curve is that your grade is based on your
performance relative to all other students in the class. It does not involve an “absolute standard,” e.g.,
90 – 100 = A, 80 – 90 = B, etc., which you may be used to from some other courses. I believe that a
curve is ultimately the fairest way to determine grades, since it does not set some arbitrary absolute
standard, but judges students on their performance relative to their peers.
With a curve, your grade is based on your percentile rank in the class, i.e., the percentage of students in
the class who scored below you. If you are in the 60th
percentile, for example, that means that 60% of
students had scores equal to or below yours, while 40% of students had scores above yours.

5. How We Calculate Total Semester Points
To determine your letter grade for the semester the curve is applied to your total semester points.
Your total semester points will be the higher of:
30% problem set scores 30% problem sets
30% midterm exam or 70% final exam
40% final exam
So, if you do poorly on the midterm, or are unable to take it for any reason, your final exam will
automatically be reweighted to be 70% of your semester grade, with the problem sets constituting the
remaining 30%. We will make these calculations automatically for each student—you don’t have to
“opt into” or “opt out of” one or the other weighting. We will make certain you receive the highest
grade to which you are entitled.
Your problem set average (dropping the two lowest) will be out of 100 pts. possible; your midterm will
be out of 100 pts. possible; and your final will be out of 133.33 points possible. Alternatively, we will
calculate your total semester points based on 100 pts. possible on the problem set average, and 233.33
pts. possible on the final. These two methods yield the two alternative weightings mentioned in the
first paragraph of this section. For each student, we will use whichever weighting results in a higher
semester point total for that student.
For example, suppose you average 83/100 on your highest problem sets (dropping your lowest two)
and 93/100 on your midterm. Now, let’s say there are 240 pts. possible on the final, and your score is
200/240 pts. Note that 200/240 = .833 (Meaning, you got 83.3% of the possible points on the exam).
We would then multiply .833 by 133.33, and by 233.33, to calculate your total points using the two
possible weightings on the final.
This would give you .833 × 133.33 = 111.11 pts. weighting the final at 30%, and .833 × 233.33 =
194.44 pts weighting the final at 70%.
So, for the semester, your total points would be 83 + 93 + 111.11 = 287.11 pts using the 30/30/40
weighting. Using the 30/70 weighting, your total points would be 83 + 194.44 = 277.44. So, we
would use the 30/30/40 method, since it gives you higher total points.

6. The Curve Used in Assigning Your Letter Grade for the Semester
To determine your semester grade, we will employ the (very generous) curve given below:
Letter Grade Percentile Rank Range of Letter Grade
A 83rd
Percentile – 100th
Percentile
A- 63rd
Percentile – 83rd
Percentile
B+ 44th
Percentile – 63rd
Percentile
B 34th
Percentile – 44th
Percentile
B- 24th
Percentile – 34th
Percentile
C+ 19th
Percentile – 24th
Percentile
C 14th
Percentile – 19th
Percentile
C- 9th
Percentile – 14th
Percentile
D 5th
Percentile – 9th
Percentile
E/F 0th
Percentile – 5th
Percentile
To return to our example above: Recall that your hypothetical semester point total is 287.11/333.33,
and suppose that 43% of students had semester point totals higher than yours (i.e. above 287.11), and
therefore 57% had semester point totals less than or equal to yours (i.e. at or below 287.11). This
means that you are in the 57th
percentile overall. Your semester grade, then, would be a B+.
Readings
Most of the reading assignments are drawn from the the textbook: Fundamentals of Corporate
Finance, 3rd
edition, by Jonathan Berk, Peter DeMarzo and Jarrad Harford. The majority of the
assigned reading in the text reinforces material you'll learn in class
If you have purchased a used copy of an earlier edition of Berk, DeMarzo and Harford, you should still
find it useful. However, the page numbers given below refer to the latest, 3rd
edition. If possible, I
urge you to obtain the 3rd
edition.
Other relevant reading will also be placed on the “Readings” page of the course web site when
relevant.

7. Student Profiles
Every term, the course enrolls people from an amazing variety of backgrounds and walks of life. And,
the reasons for taking the class are almost as diverse as students’ backgrounds. In order to share a little
of their life stories with their classmates, students are encouraged to submit a few lines about
themselves to the course email address: mgmte2700@dce.harvard.edu. These will be formatted and
posted on a “Student Profiles” page on the course web site.
Please note that this is completely voluntary, and also that the only people who will be able to view
what you submit will be your classmates and the teaching staff—nobody else. You do not have to
identify yourself with anything besides your first name if you don’t want to. Just submit a few lines
about your job, background, interests, and/or why you have decided to study corporate finance.
Even if you decide not to submit a profile, you will enjoy reading about some of your fellow students.

8. COURSE CALENDAR
Wed., Jan. 27 Introduction and Overview
Registering for MyFinanceLab
Forms of Business Organization
Introduction to Financial Accounting
Berk, DeMarzo and Harford Chap. 1
Wed., Feb. 3 Financial Accounting (cont.)
Financial Statements
Key Financial Metrics and Ratios
Berk, DeMarzo and Harford Chap. 2
Problem Set 1 Available on MyFinanceLab
Wed., Feb. 10 The Left-Hand Side of the Balance Sheet
Review of Present Discounted Value (PDV) and Net Present Value (NPV)
The Capital Budgeting Process and Decision Criteria
Using NPV to Make Investment Decisions
Berk, DeMarzo and Harford Chaps. 3, 4 and 8
Problem Set 1 Due
Problem Set 2 Available on MyFinanceLab
Wed., Feb. 17 Project Analysis Techniques
Sensitivity Analysis
Monte Carlo Simulation
Real Option Analysis
Berk, DeMarzo and Harford Chap. 9
Problem Set 2 Due
Problem Set 3 Available on MyFinanceLab

9. Wed., Feb. 24 The Right-Hand Side of the Balance Sheet
Overview of Corporate Financing
The Cost of Capital
Introduction to the Weighted-Average Cost of Capital (WACC)
Berk, DeMarzo and Harford Chap. 13
Problem Set 4 Available on MyFinanceLab
Wed., March 2 The Issuance of Corporate Securities
Venture Capital
Issuance of Corporate Securities
Berk, DeMarzo and Harford Chap. 14
Mon., March 7 Problem Set 4 Due
Wed., March 9 Midterm Exam Available on MyFinanceLab
to (covering material from Jan. 27 to March 4, inclusive)
Thurs., March 10
Wed., March 23 Debt Financing
Bank Loans
Types of Debt Securities
Berk, DeMarzo and Harford Chap. 15
Problem Set 5 Available on MyFinanceLab
Wed., March 30 Capital Structure
Perfect Capital Markets
The Modigliani-Miller Propositions
The Effect of Debt and Taxes
Berk, DeMarzo and Harford Sections 16.1 – 16.3
Problem Set 5 Due
Problem Set 6 Available on MyFinanceLab

10. Wed., April 6 Capital Structure (cont.)
Financial Distress
Optimal Capital Structure
Berk, DeMarzo and Harford Sections 16.5 – 16.7
Wed., April 13 Financial Modeling and Pro Forma Analysis
Growth and Firm Value
Valuing an Expansion
Berk, DeMarzo and Harford Chap. 19
Problem Set 6 Due
Problem Set 7 Available on MyFinanceLab
Wed., April 20 Short-Term Financial Planning
The Matching Principle
Short-Term Planning with Bank Loans
Commercial Paper
Berk, DeMarzo and Harford Chap. 20
Problem Set 7 Due
Problem Set 8 Available on MyFinanceLab
Wed., April 27 International Corporate Finance
The Role of Exchange Rates
Internationally Integrated Capital Markets
Internationally Segmented Capital Markets
Berk, DeMarzo and Harford Chap. 34
Problem Set 8 Due
Problem Set 9 Available on MyFinanceLab
Wed., May 4 Review Session for the Final Exam
Problem Set 9 Due
Wed., May 11 Final Exam Available on MyFinanceLab
to (cumulative—including all topics covered in the course; but weighted toward
Thurs., May 12 material covered since the midterm)