Syllabus and Outline

• Philosophy
• Topics & Setup
  • Background
  • Topics
• Regular classes
  • Corporate Finance
  • Valuation
• Executive programs
  • Corporate Finance
  • Valuation
• Online Classes
  • Corporate Finance
  • Valuation
  • Investment Philosophy
• Seminars/Short sessions
• Other

 

Disclaimer and Official Name Change

Though this class is titled Financial Management, it is really a Corporate Finance class. In fact, it is identical in every respect to the Corporate Finance class that I teach in the MBA program. To preserve my sanity and to reduce the number of pages I have to edit, this class will be referred to, from this point on for the rest of the semester, as the Corporate Finance class.

General Information

• Office: Room 9-96
• Phone: 998-0340
• E-mail: adamodar@stern.nyu.edu
• Home Page: www.stern.nyu.edu/~adamodar
• Home Page for this class: www.stern.nyu.edu/~adamodar/New_Home_Page/finmgt.html
• Office Hours
  • Monday 9.45-10.20,2.30-3.20
  • Wednesday 9.45-10.20, 2.30-3.20
  • The "fair game" principle applies.
• All classes will be web cast. The web casts will be online within 2 hours of the class and you can access them by clicking here.

What is corporate finance?

Every decision that a business makes has financial implications, and any decision which affects the finances of a business is a corporate finance decision.

Defined broadly, everything that a business does fits under the rubric of corporate finance.

Course Objectives

• To give you the capacity to understand the theory and apply, in real world situations, the techniques that have been developed in corporate finance.

• To give you the big picture of corporate finance so that you can understand how things fit together.

• To show you that corporate finance is fun.

• Invest in projects that yield a return greater than the minimum acceptable hurdle rate.
  • The hurdle rate should be higher for riskier projects and reflect the financing mix used - ownersí funds (equity) or borrowed money (debt)
  • Returns on projects should be measured based on cash flows generated and the timing of these cash flows; they should also consider both positive and negative side effects of these projects.
• Choose a financing mix that minimizes the hurdle rate and matches the assets being financed.
• If there are not enough investments that earn the hurdle rate, return the cash to the owners of the firm.
  • The form of returns - dividends and stock buybacks - will depend upon the stockholders' characteristics.

Outline for Class

• Understand the objective function: Session 1-4
• The Investment Principle
  • Risk and Hurdle Rates Sessions 5-12
  • Measuring Returns Sessions 13-15
• The Financing Principle
  • The Optimal Financing Mix Session 16-19
  • The Right Kind of Debt Session 20
• The Dividend Principle
  • How much to return to owners Session 21-23
  • How to return Session 23
• Linking financial decisions to value Sessions 24-27
• Review Session: 28

Class Material

I. Text: Lecture Notes; They are sold in the book store in two parts. The lecture notes are also available in pdf format on the web.

II. Supplementary Text: Applied Corporate Finance: A User's Manual, Second Edition, by Aswath Damodaran. See the material on my web site.

III. Practice Problems/Exams: Every midterm and final exam that I have ever given will be available on my web site. There are also problems in the supplementary book, and solutions.

IV. Computer Spreadsheet Programs: accessible on my home page.

Other Readings

• The New Corporate Finance Reader, edited by Donald H. Chew.
  • This book has a number of readings on topics in corporate finance, which are both readable and informative.
• Capital Ideas by Peter Bernstein
  • This book looks back at the development of many of the most important ideas in corporate finance.
• A Random Walk down Wall Street by Burt Malkiel
  • This is not a corporate finance book, but it provides a 'skeptic's' view of Wall Street and its ways.
• Sense and Nonsense in Corporate Finance by Louis Lowenstein
  • This book contests much that is taken as accepted wisdom in corporate finance. I agree with very little in this book, but it is worth reading for a contrary viewpoint.

Grading Distribution

• All corporate finance sections are governed by the same distribution.
  • A: 20-25%
  • B: 50-55%
  • C,D & F: 15-25%

Grading Basis

Group Work: Students should work in groups of five. Each group will be required to work on one case and one comprehensive project (See attached description).

Case: Due Session 17 (November 5)

Group Project: Due Session 28 (December 12 at 5 pm) 30%

• Individual Work:
  • Quizzes: This will be three open-book and open-notes quizzes worth 10% each.
    • Quiz 1: Session 11 - Covers sessions 1-10 (October 15)
    • Quiz 2: Session 17 - Covers sessions 11-16 (November 7)
    • Quiz 3: Session 24 - Covers session 17-22 (November 28)
  • Final Exam: This will also be an open-book and open-notes cumulative exam worth 30%.

Rules of Engagement

• Rules of group work:
  • Pick your own groups. (If you have trouble getting picked, I will help)
  • All group work will be self policed, except in extreme circumstances.
  • There will be one grade per group, no matter how the work load is distributed among the group members
• Rules on individual work
  • All exams and quizzes are strictly individual work.
  • There will be no make-up quizzes. If you miss a quiz due to ill health, the grade will be redistributed over the remaining part of the course.
• I will be the grader, and I do make mistakes. If I screw up, bring it to my attention and I will fix it.
• Rules on Participation
  • All participation is welcome.