MF807: Corporate Finance (MSF/MBA Course) (Last Offered in Fall 2010)
Prof. Thomas J. Chemmanur
Office: Fulton Hall 336
Phone: (617) 552 3980
E-mail: chemmanu@bc.edu
Syllabus: Click here
Case Book for the Course: Please click here to purchase: http://ebooks.primisonline.com
Problem Set Conversion Guide: Notes
GENERAL INTERESTING READINGS RELATED TO FINANCE (NOT REQUIRED FOR THE EXAM)
Video on Subprime: http://www.youtube.com/watch?v=mzJmTCYmo9g
Newspapers/Magazines
The Economist
The Financial Times
The Wall Street Journal
Investor’s Business Daily
Great, easier to read, finance books
A Random Walk Down Wall Street, Malkiel, Burton G. An informative overview of Wall Street and investing.
Against the Gods, Bernstein, Peter. Entertaining book on the history of risk.
Fooled by Randomness, Taleb, Nassim. Educational description of why luck plays a role in more parts of life than you might think.
When Genius Failed, Lowenstein, Roger. Interesting account of the failure of Long-Term Capital Management.
Capital Ideas, Bernstein, Peter. Outlines the history of financial ideas, in a very easy to follow narrative.
FUNDAMENTAL TOOLS OF CORPORATE FINANCE
Session 1 (Sep 13): Introduction and overview of the course. The financial environment and firm objectives. A quick review of discounted cash flow. Bond Valuation (begin).
BM Chapters 1, 2, 3 (ninth edition); Chapters 1 and 2 (tenth edition).
Please download Topic Note-1 and Topic Note-2 before coming to class
Introduction to the Course: Notes
Review of Present Value Computation: Notes
Class Notes of Bond Valuation: PowerPoint Slides
PROBLEM SET- I: BM Chapter 3 Practice Questions 12-24
PROBLEM SET- II: BM Chapter 4 Practice Questions 12-19 (ignore the graph requirements, i.e., Excel exercises).
Session 2 (Sep 20): Bond Valuation (continued). Stock valuation using the Dividend Discount Model.
BM Chapters 4 and 5 (ninth edition); Chapters 3 and 4 (tenth edition).
Please download Topic Note-3 before coming to class
Class Notes A: Stock Valuation (Please download before coming to class)
Class Notes B: Gordon Growth model (Please download before coming to class)
Application Article: "What's in store for stocks"
PROBLEM SET- III: BM Chapter 5 Practice Questions 16, 17, 19, 21, 24, 28
Link: Securities and Exchange Commission Website
Link: Yahoo! Finance
Link: www.forbes.com
Link: www.cbs.marketwatch.com
Link: www.bloomberg.com
Link: www.cnbc.com
Session 3 (September 27) : Stock Valuation (continued). Risk and Return in Finance. Expected return, variance, and co-variance. Choosing “efficient” portfolios. Systematic and Unsystematic Risk.
BM Chapters 8 and 9 (ninth edition); Chapters 7 and 8 (tenth edition).
Please download Topic Note-4 and Topic Note-5 before coming to class
Class Notes of Risk and Return
Review Article (not required for exam): "What Practitioners Need to Know (the Nobel Prize)"
Review Article (not required for exam): "What Practitioners Need to Know (about regressions)"
Review Article (not required for exam): "What Practitioners Need to Know (about uncertainty)"
Session 4 (October 4): The Capital Asset pricing Model. The determination of betas. Implementing Portfolio Theory in Practice; Capital market efficiency.
BM Chapters 8 and 9 and chapter 14.2, 14.3, and 14.5 for market efficiency (ninth edition); Chapters 7 and 8 and chapter 13.2, 13.3, and 13.5 (tenth edition).
Please download Topic note for market efficiency before coming to class
Class Notes of Risk and Return
Class Notes of Testing CAPM and Implementing Portfolio Theory
Web site that comes with the Brealey and Myers book: www.mhhe.com/edumarketinsight (Site id given on the second page of your Brealey et al text book)
Ken French's website: http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/
General Interest Article (Not Required for the Exam): Efficiency and beyond
PROBLEM SET- IV: BM Chapter 8 Practice Questions 11, 18, 20, 22, and 23; BM Chapter 9 Practice Questions 1, 2, 8, 11, 18, 19, 20, 21, and 22; BM Chapter 14 Practice Questions 9, 10, 11, and 16.
PROBLEM SOLVING IN CORPORATE FINANCE
Session 5 (October 18): What techniques should one use for capital budgeting? NPV, IRR, and Pay-back period rules. Complexities in capital budgeting. Capital budgeting in practice.
BM Chapter 6 (ninth edition); Chapter 5 (tenth edition).
Please download Topic Note-6 and Topic Note-7 before coming to class
Class Notes of Project Evaluation Techniques
Reading: "The theory and practice of corporate finance: evidence from the field" (Section 3 and 4)
Session 6 (October 25):
First Half: Mid-term Exam (in class).
Second Half: Computing Cash Flows in Capital Budgeting.
BM Chapter 7 (ninth edition); Chapter 6 (tenth edition).
Class Notes of Computing Cash Flows for Capital Budgeting
PROBLEM SET- V: BM Chapter 6 Practice Questions 8, 9, 11, 12, 15; BM Chapter 7 Practice Questions 1, 3, 16, 18, 21, 24.
Session 7 (November 1): First Half: Case Discussion and Write-up (I): Valuing Capital Investment Projects.
Second Half: What discount rate should you use? Calculating the Weighted Average Cost of Capital. Levered and Unlevered Beta. Practical Issues for calculating WACC.
BM Chapter 10 (ninth edition); Chapter 9 (tenth edition).
Please download Topic Note-8 before coming to class
Class Notes on Computing the Cost of Capital
Reading: Why the financial crisis has not changed the cost of capital
PROBLEM SET- VI: BM Chapter 10 Practice Questions 1, 5, 9, 10, 11, 12, 13, 14, 15, 18, and 22.
Session 8 (November 8): First Half: Case Discussion and Write-up (II): Ocean Carriers
Second Half: What discount rate should you use? Calculating the Weighted Average Cost of Capital. Levered and Unlevered Beta. Practical Issues for calculating WACC.
BM Chapter 10 (ninth edition); Chapter 9 (tenth edition).
Please download Topic Note-8 before coming to class
Class Notes on Computing the Cost of Capital
Reading: Why the financial crisis has not changed the cost of capital
PROBLEM SET- VI: BM Chapter 10 Practice Questions 1, 5, 9, 10, 11, 12, 13, 14, 15, 18, and 22.
Session 9 (November 15): First half: Case Discussion and Write-up (III): Marriott Corporation.
Second Half: Raising Money for Investment (I): Venture Capital Financing. The role of the venture capitalist and the private placement market in the early stages of financing a company. The incentive effects of alternative venture capital contracts.
BM Chapter 16.1 (ninth edition); Chapter 15.1 (tenth edition).
Class Notes on Venture Capital
Anatomy of a Term Sheet (PDF file)
More Term Sheet Explanations (PDF file)
Reading: How Good are Private Equity Returns?
Advanced Reading (Not Required for the Exam): Smart Investors Foolish Choices
Advanced Reading (Not Required for the Exam): Chemmanur, T., and E, Loutskina, "The Role of Venture Capital Backing in Initial Public Offerings: Certification, Screening, or Market Power? "
Link: Industry Perspectives on Private Equity
Link: Dow Jones Private Equity Analyst
Link: Private Equity Online (Free registration required)
Link: Private Raise (Free registration required)
Link: Red Herring Online
Link: Price Waterhouse Venture Capital Survey
Link: The VC Comic Strip
Link: An Interesting VC Blog
Link: Another Interesting VC Blog
Link: New York Times Deal Book
Link: TheFunded.com
Session 10 (November 22): First Half: Valuing a Firm: Alternative Valuation Techniques - Discounted Cash flow and Valuation by Comparables.
Second Half: Raising Money for Investment (II): Conclusion of discussion on Venture Capital Financing. Initial public Offerings.
Case Discussion (IV): Atlantic Corporation (no write-up required)
Class Notes A: Firm Valuation (Please download before coming to class)
Class Notes B: Three valuation examples (Please download before coming to class)
Reading: Kim, M., and J.R. Ritter: "Valuing IPOs"
Session 11 (November 29)
Initial public Offerings. Why go public? The costs vs. benefits of going public. Theories of IPO pricing. Raising Money for investment (III): The role of the underwriter in an IPO: The importance of underwriter reputation. The long-term (post-IPO) performance of newly public firms.
BM Chapter 16.1 and 16.2 (ninth edition); Chapter 15.1 and 15.2 (tenth edition).
BM Chapter 16.2 (ninth edition); Chapter 15.2 (tenth edition).
Class Notes on IPOs: Notes
Reading: Ritter, J. R., "The Long-Run performance of IPOs"
Reading: Loughran, Ritter, and Rydqvist: "Initial Public Offerings: International Insights"
Advanced Reading (Not Required for the Exam): Chemmanur, T., 1993 "The pricing of initial public offerings: A dynamic model with information production"
Advanced Reading (Not Required for the Exam): Ritter and Welch: "A Review of IPO Activity, Pricing, and Allocations"
Advanced Reading (Not Required for the Exam): Chemmanur, Thomas, and Imants Paeglis: "Management Quality, Certification, and Initial Public Offerings".
Advanced Reading (Not Required for the Exam): Chemmanur , Hu and Huang: "The Role of Institutional Investors in Initial Public Offerings"
General Interest Article (Not required for the exam): "The IPO Prospectus: How to Read the Fine Print".
Link: OpenIPO - level the playing field
Link: Red Herring Online
Link: RENAISSANCE CAPITAL - THE IPO EXPERTS - IPO CALENDAR AND PROFILES
Link: TechInvestor High-Tech IPO Watch
Link: Hoover's Online: IPO Central
Link: IPO Calendar
Link: IPO Montior.com
Link: IPO Boutique
Link: New York Times Deal Book
Link: Analyzing an IPO Prospectus
PROBLEM SET- VIII: BM Chapter 16: Problem 5 (a) and 5 (b); Problem 6; Problem 11.
Session 12 (December 6)
First Half: Case Discussion and Write-up (V): Google’s IPO.
Advanced Reading (Not Required for the Exam): Chemmanur and Liu: “How should a firm go public? A dynamic model of the choice between fixed-price offerings and auctions in IPOs and privatizations”.
Second Half:
Capital Structure or The Financing Decision: The financing decision under perfect capital markets. The Modigliani-Miller propositions on Capital structure. When does capital structure matter? Capital structure with taxes. Capital structure with costs of Financial Distress.
BM Chapters 18 and 19 (ninth edition); Chapters 17 and 18 (tenth edition).
Please download Topic Note-9 before coming to class
Class Notes on Capital Structure under Perfect Capital Markets
Class Notes on Capital Structure under Imperfect Capital Markets
PROBLEM SET- IX: BM Chapter 18 Practice Questions 2, 3, 5, 14, 15, 19, and 21.
Session 13 (December 13): Computational Class Project Due
Capital Structure (Continued): Capital Structure under Asymmetric Information. The Pecking order of Firm Financing. An overview of Corporate Financing.
BM Chapter 19 and BM Chapter 15 (ninth edition); Chapters 18 and 14 (tenth edition).
Please download Topic Note-10 before coming to class
Class Notes on Adjusted PV and Preferred Stocks
PROBLEM SET- X: BM Chapter 19 Practice Questions 2, 12, and 13 and Chapter 20 Practice Questions 1, 6, 8, and 11.
Session 14 (December 20): Final Exam