NUS Business School Department of Finance

FIN3101 CORPORATE FINANCE

Session: Semester I, 2011/2012 (Aug 2011 Nov 2011) Instructor Dr Hassan Naqvi (naqvi@nus.edu.sg) Course Objectives This course aims to provide students with an in-depth understanding of Corporate Finance. Students will be exposed to key financial issues faced by modern-day finance managers of corporations. The course will also equip students with conceptual and analytical skills necessary to make sound financial decisions. Cases will be used to illustrate the concepts taught in lectures. Textbook and Reference Main Textbook: (RWJ) Corporate Finance 9th edition, 2010 Ross, Westerfield, and Jaffe McGraw-Hill International Edition Supplementary Textbooks: Principles of Corporate Finance, by Brealey and Myers, The McGraw-Hill Companies Financial Markets and Corporate Strategy, by Grinblatt and Ttiman, The McGraw-Hill Companies Students are also encouraged to read The Wall Street Journal, Financial Times, and/or The Economist.

#07-62, BIZ1 Tel: 6516-5552

Assessments Methods Class Participation and Discussion Assignments (group basis) Case studies and Critiques (group basis) Test 1 Test 2 Total

5% 15% 25% 20% 35% 100%

FIN3101 CORPORATE FINANCE Semester I 2011/2012 Limited Open Book Tests No formula sheet will be provided in the tests. Students are allowed to bring in ONE (1) sheet (A4 size, double-sided) of notes. The tests may consist of open-ended questions that examine the total understanding and creativity of the student with respect to the course materials. Class Participation Students are expected to have done pre-class readings and be actively involved in class discussions. Extra credit will be granted to those who can contribute towards class discussions and/or the discussion forum. Case Assignments Each class will be divided into 9 groups for case assignments. Students are to form groups based on instructions given by their instructor. We will cover three cases during the semester. Out of the nine groups, there will be three primary groups for each case. Groups 1A, 1B & 1C will take on the primary responsibility for case 1; groups 2A, 2B & 2C for case 2 and groups 3A, 3B & 3C for case 3. The 3 primary groups for the case will each submit a doublespaced, typewritten comprehensive report not exceeding 10 pages of text and not exceeding overall total of 15 pages including texts, tables and appendices, by the due date. In addition, they have to distribute copies of their reports to the other 6 (non-primary) groups by the same due date. The 6 non-primary groups are required to submit a one-page critique of one of the reports in class before the case presentation. The assignment of the non-primary groups will be as follows: Case Number 1 1 1 2 2 2 3 3 3 Presenting (Primary) Group 1A 1B 1C 2A 2B 2C 3A 3B 3C Critique (Non-Primary) Group 2A, 3A 2B, 3B 2C, 3C 1A, 3A 1B, 3B 1C, 3C 1A, 2A 1B, 2B 1C, 2C

During case presentation, the three groups with primary responsibility will be given 30 minutes each to present their analysis. Comments will be solicited from the non-primary group. All students are expected to actively participate in the case discussions. Tutorial and Discussion
Students are expected to come prepared for the tutorial. Each tutorial consists of a number of questions and/or mini-cases related to topics that are covered in class. Students are expected to have the written answers for all the questions. To stimulate group-based learning, group-based answers will be collected for marking. Instructor can randomly ask a student to represent his/her group to present the answers in class. Please ensure that every group member really understands the answers. The group membership is the same as that for case study.

FIN3101 CORPORATE FINANCE Semester I 2011/2012

Submission Policy Assignments, and case reports are done on a group-basis. The hard copies must reach the instructor by the due date and time. Late submissions will be penalized by at least 20 percent.

FIN3101 CORPORATE FINANCE Semester I 2011/2012

Schedule Week
Week 1: Topic 1: Introduction Organizational structure The role of the financial manager

Topic and Readings

Readings: RWJ Chapter 1 Topic 2: Capital Budgeting Review of NPV, Payback, IRR, PI, etc. Sensitivity and Scenario analysis Real options Readings: RWJ Chapter 4, 5, 6, 7 Week 2: Topic 3: Overview of Risk and Return Bond valuation Common stock valuation Review of portfolio theory CAPM Fama-French (1992) model

Readings: RWJ Chapter 8, 9, 10, 11, 12 Week 3 Topic 4: Market Efficiency Readings: RWJ Chapter 14 Topic 5: Raising Capital Readings: RWJ Chapter 15, 20

FIN3101 CORPORATE FINANCE Semester I 2011/2012

Week 4

Topic 6: Capital Structure Irrelevance Financial leverage and firm value Modigliani-Miller model without taxes Modigliani-Miller model with taxes Weighted average cost of capital (WACC)

Readings: RWJ Chapter 16 Assignment due: Tutorial 1 Week 5 Topic 7: Alternative theories of Capital Structure Costs of financial distress Tradeoff theory of capital structure Risk shifting hypothesis Debt overhang Milking the property Free cash flow hypothesis Pecking order hypothesis How firms establish capital structure

Readings: RWJ Chapter 17 Presentation and discussion of Tutorial 1 Assignment due: Tutorial 2 Week 6 Topic 8: Mergers and Acquisitions Readings: RWJ Chapter 29 Presentation and discussion of Tutorial 2 Recess week From 19-25 September

Week 7

Test 1 Date: Saturday Oct 1 Can bring in 1 A4 size sheet of notes, single side and financial calculator

FIN3101 CORPORATE FINANCE Semester I 2011/2012 Week 8 Topic 9: Dividend Policy Lintners stylized facts Different types of dividends Standard method of cash dividend payment MM dividend irrelevance Stock repurchase Imperfect capital markets Informational content of dividends Free cash flow theory vs. Singnalling hypothesis Clientele Theory

Readings: RWJ Chapter: 19 Assignment due: Case 1 Week 9 Presentation and discussion of Case 1 Critique due at beginning of class Assignment due: Tutorial 3 Week 10 Topic 10: Risk Management Hedging with derivative contracts Readings: RWJ Chapter 25 Assignment due: Case 2 Presentation and discussion of Tutorial 3 Week 11 Presentation and discussion of Case 2 Critique due at beginning of class Assignment due: Case 3 Week 12 Test 2 covers all topics. Allowed to bring 1 A4 size double-sided sheet of notes and a finance calculator Week 13 Presentation and discussion of Case 3 Critique due at beginning of class