Corporate Finance Topics
(C15.0008)
Summer, 2006

Office: KMC 10-74
Telephone: (212) 998-0718
Email: anashikk@stern.nyu.edu

Course Description
This course covers advanced topics in corporate finance including financing policy/capital structure, financial distress, agency issues, valuation, dividend policy, mergers and acquisitions, and real options. The basic idea of the course is that all corporate financial decision-making boils down to a valuation problem since corporations aim to maximize value. The objective of the course is to explain the theory of corporate finance and demonstrate some of its real-world applications. The prerequisites for this course are C15.0002 Foundations of Financial Markets and C15.0007 Financial Management. A basic command of materials from these courses, including discounted cash flow valuation, capital budgeting, cost of capital, the CAPM and basic capital structure theory will be assumed. I will only briefly review some of these concepts in class.

Required and Recommended Materials
The textbook for the course is a customized version of Stephen A. Ross, Randolph W. Westerfield, and Jeffrey F. Jaffe, Corporate Finance, Seventh Edition, McGraw-Hill Irwin, 2005. The customized text comes with a solutions manual for the end-of-chapter problems (shrink-wrapped together). There are also two required HBS cases:
• “American Home Products Corp.”
• “USG Corporation”
The cases should come in a separate soft-bound booklet. There will be lecture notes, handouts (e.g., case questions) and supplementary materials (e.g., sample Excel spreadsheets) for many classes. Lecture notes and handouts will be available on Blackboard before the relevant class session.

Session	Date	Topics	Details
1	Mon, Jun 26	Introduction	Course overview, DCF Valuation
2	Wed, Jun 28	Options 1	Put/Call Options, Law of one price, Binomial Valuation
3	Mon, Jul 3	Options 2	Real Options, Valuing Real Options
4	Wed, Jul 5	Long Term Financing I	Equity, Debt, Preferred Stocks
5	Mon, Jul10	Long Term Financing II	IPOs &SEOs, Warrants and Convertibles
6	Wed, Jul12	Capital Structure I, Review	Mid-Term Review, Debt/Equity as options, Valuation, Taxes
7	Mon, Jul 17	Capital Structure II	Taxes, Distress Costs, Agency Problems
8	Wed, Jul 19	Capital Structure III	Case - AHP, Optimal Capital Structure, Distress
9	Mon, Jul 24	Dividend Policy	Theory and Practice
10	Wed, Jul 26	Valuation	WACC, Valuation using multiples
11	Mon, Jul 31	Mergers and Acquisition	Introduction, Stock vs Cash, Hostile Takeovers, Case USG
12	Wed, Aug 02	Hedging and Risk Management, Course Review	Hedging, Risk Managements, Problems and Questions

Course Requirements
Group assignments
Groups should consist of 3-4 students. They should be formed as early as possible (during the first couple of weeks). Groups are expected to stay together for the whole term. All members of a group are responsible for all aspects of group projects. Each group will be responsible for preparing the assigned cases, which will be discussed in class, and for writing a short analysis. The case write-ups should consist of answers to the case questions, which will be handed out approximately 2 weeks prior to the due date. Write-ups should be limited to three pages, along with spreadsheet printouts, etc. Everyone is expected to contribute. Cases often do not have a single correct answer. Moreover, they are often ambiguous, do not provide complete information, and require you to make assumptions (just like the real world). In grading the case write-ups, I will look for logic, consistency, thoughtful application of finance theory, and justification for any assumptions that you need to make.

Individual Assignments
Individual assignments: The individual assignments consist of 4 problem sets, a mid-term and a final examination. Problem set questions will be handed out in class (and will be available on Blackboard). You will be expected to hand in individual solutions with your name prominently displayed on top. You may discuss the problem sets with other students. Problem sets will be checked but not graded. All students making a credible effort to answer the questions will get full credit. This grading policy should not be construed as an excuse to blow off the problem sets. The mid-term and final exam questions will draw heavily from the problem sets.

Other requirements
Students should attempt to do end-of-chapter problems from the textbook. Problems will be suggested for every class. Answers to these problems will not be collected, and the solutions are available in the solutions manual. I will not take formal attendance. However, class participation accounts for 5% of the final grade. You will find the lectures and class discussions very useful in learning the material. Also, the presentation of the material in the lectures might differ slightly
from that in the textbook and the lecture notes are not completely self-contained, so there is some value in being in class. You are expected to contribute to classroom discussions and hence the assigned reading should be done before the corresponding class session. You will also be expected to keep up with current business news by reading a publication such as the Wall Street Journal.

Policies and procedures
All written assignments (problem sets and cases) should be handed in before the end of the class session in which they are due. They can be given to me in class, emailed, or left in the digital drop box on Blackboard. Regardless of the method of delivery, the deadline refers to the time at which I receive the assignment, not the time at which you send it. Assignments that are late but within 24 hours of the deadline, will receive 1/2 credit. No assignments will be accepted after 24 hours.