Readings

Chapters refer to Brealey, R., and S. Myers. Principles of Corporate Finance. 7th ed. Irwin/McGraw Hill. ISBN: 0073368695. Articles in the reading packet are referenced using the authors’ last names. The study questions listed after each class are recommended, not required, and can be found at the end of the chapter under “Practice Questions.”

SES # TOPICS KEY DATES
Part 1 - Introduction
1 Introduction

What is Finance? What Types of Questions Will We Answer?

Chapter 1

Dial, J. and K. Murphy. Incentives, Downsizing, and Value Creation at General Dynamics. Journal of Financial Economics 37, 1995, pp. 261–314.

2 Principles Of Valuation

Opportunity Cost Of Capital; Present Value; Discount Rates; Comparables

Chapter 2, 3

Study Questions:
Chapter 2: 6, 7, 10
Chapter 3: 1, 3, 5, 10, 12, 21, 27, 30

Part 2 - Project and Firm Valuation
3 Evaluating Projects

Net Present Value; Measuring Cashflows, Using Accounting Data

Chapter 6, 12.1 - 12.3

Myers, S. Finance Theory and Finance Practice. Interfaces 14, 1984, pp. 126-137. Reprinted in Midland__Corporate Finance Journal 5, Spring 1987.

Study Questions:
Chapter 3: 4, 7, 6, 13
Chapter 6: 6, 8, 9, 11, 18

4 Case Reinhardt, Forest. Acid Rain: The Southern Co. (A). Boston, MA: Harvard Business School, 1993. Case No. 9-792-060.
5 Evaluating Projects (2)

Real Options, Internal Rate Of Return

Chapter 5, 10, 11

Study Questions:
Chapter 5: 3 - 8
Chapter 10: 3 - 5, 10, 11

6 Firm Valuation

Growth and Free Cashflows

Chapter 4

Study Questions:
Chapter 4: 5 - 8, 11

7 Firm Valuation (2)

Valuation Models, Accounting vs. Economic Returns

Chapter 12.4 - 12.6

Kim, M. and J. Ritter. Valuing IPOs. Journal of Financial Economics 53, 1999, pp.409-437.

Study Questions:
Chapter 4: 1, 10, 12, 17, 19

8 Case Piper, Thomas R. Cooper Industries, Inc. Boston, MA: Harvard Business School, 1993. Case No. 9-274-116.
Part 3 - Risk and Return
9 Introduction to Risk and Return

Historical Evidence; Measuring the Risk of a Portfolio; Statistics Review

Chapter 7 (pp. 153-165)

Study Questions:
Chapter 7: 1, 3, 4, 5

10 Portfolio Theory

Risk in a Portfolio Context, Diversification; Optimal Portfolios

Chapter 7 (165-end), 8.1

Study Questions:
Chapter 7: 6 - 11, 15
Chapter 8: 2 - 4

11 CAPM

Quantifying the Trade-off between Risk and Return; Measuring the Risk of a Stock

Chapter 8.2 - 8.5

Study Questions:
Chapter 8: 1, 5, 7, 8, 11 - 13

12 Discount Rates in Practice

Estimating Betas, Market Risk Premium, Multifactor Models, WACC

Chapter 9

Graham, J. and C. Harvey. The Theory and Practice of Corporate Finance: Evidence From the Field. Durham, NC: Duke University Working Paper, 2000, pp. 1-10.

Study Questions:
Chapter 9: 1, 3, 5 - 9, 14

13 Case Mitchell, Mark. Cost of Capital at Ameritrade. Boston, MA: Harvard Business School, 2001. Case No. 9-201-046.
Part 4 - Financing Policy
14 Raising Capital

Sources of Funds; Trade-offs; Empirical Evidence; Stock Market Reaction

Chapter 14, 15

Smith, C. Raising Capital: Theory and Evidence. Midland Corporate Finance Journal 4, pp. 6-22, 1986.

15 Capital Structure (1)

The Choice between Debt and Equity; MM Theorem; Leverage and Risk; Fallacies

Chapter 17

Graham, J. and C. Harvey. The Theory and Practice of Corporate Finance: Evidence From the Field. Durham, NC: Duke University Working Paper, 2000, pp. 10-22.

Study Questions:
Chapter 17: 2 - 6, 10 - 13

16 Capital Structure (2)

Taxes and the After-Tax WACC, Financial Distress, Debt Overhang

Chapter 18, 19.1 - 19.4

Myers, S. The Search for Optimal Capital Structure. Midland Corporate Finance Journal 1, 1983, pp. 6-16. Reprinted in D. Chew, Ed. _The New Corporate Finance: Where Theory Meets Practice._McGraw Hill, 1993, pp. 142-150.

Bank of America Roundtable on the Link between Capital Structure and Shareholder Value. Journal of Applied Corporate Finance 10 (2), 1997. Reprinted in D. Chew, Ed. The New Corporate Finance: Where Theory Meets Practice, 3rd edition. McGraw Hill, 2001, pp. 247-274.

Study Questions:
Chapter 18: 1 - 7, 10 - 12

17 Two Cases

Mitchell, Mark L., and Janet Mitchell. UST, Inc. South-Western College Publishing, 1996. ISBN No. 0-538-85800-1.

Baldwin, Carliss Y., Scott P. Mason, and Jennifer H. Hughes. Massey-Ferguson Ltd. - 1980. Boston, MA: Harvard Business School, 1990. Case No. 9-282-043.

18 Market Efficiency

Empirical Evidence; Implications for Corporate Managers

Chapter 13

Ball, R. The Theory of Stock Market Efficiency: Accomplishments and Limitations. Journal of Applied Corporate Finance 8, 1995, pp. 4-17.

Study Questions:
Chapter 13: 1, 2, 3, 11, 13

Part 5 - Miscellaneous Topics
19

Options

Risk Management, Option Strategies, Black-Scholes Model, Implied Volatility

Chapter 20, 21

Case: Tufano, Peter, and Michael Lewittes. Sally Jameson: Valuing Stock Options in a Compensation Package. Boston, MA: Harvard Business School, 1993. Case No. 9-293-053.

Study Questions:
Chapter 20: 3, 4, 8 - 10, 16
Chapter 21: 10, 14, 15

20 Final Exam Exam

Course Info

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