Haas School of Business
University of California, Berkeley
EWMBA 231-11: Corporate Finance
Instructor: Mukesh Bajaj
Office Hours: TBA
Office phone: (510) 450-6736
GSI: Raymond Leung
Required Text: Brealey, Myers, & Allen; Principles of Corporate Finance, Tenth Edition ("BMA").
Case Material: Listed Harvard Business School Case Materials (listed below) to be provided to you by the EWMBA Program.
Clarkson Lumber Company, Harvard Business School case 297-028
Marriott Corporation: The Cost of Capital (Abridged), Harvard Business School case 289-047
American Home Products, Harvard Business School case 283-065
Arundel Partners: The Sequel Project, Harvard Business School case 292-140
Phillip Morris Companies and Kraft, Inc., Harvard Business School case 289-045
Other Recommended Reading:
Wall Street Journal, Barrons, The Economist, and Business Week for news regarding current corporate financial issues. Additional notes or readings may be handed out in class from time to time.
Course Content and Objectives:
The purpose of this course is to help you think like a CFO. It seeks to determine how the financial manager can add value to the firm by examining the links between corporate finance and corporate strategy. The view of corporate finance presented in this course stems from an analysis of two related issues: 1) how firms create value, and 2) how corporate finance facilitates the process of value creation. As part of this process, we will examine the qualitative factors that help determine financial strategy, concentrating on the costs of financial distress and the value of financial flexibility, thereby putting the design of financial packages in perspective.
The course will use lectures, and case analysis to study the major financial decisions facing a CFO and to illustrate the applicability of financial analysis to strategic decision making. The emphasis throughout is on developing new ways of thinking to cope with a variety of financial problems. Many of these problems have no right solution, so judgment will necessarily play a major role in the decision-making process. We will apply some of the concepts and techniques learned in EWMBA 203 (and other Core and elective courses) to actual situations involving strategic decisions. In addition to analyzing particular financing problems, we will consider how financing problems relate to the strategic objectives of the firm.
Another aspect of the course is that we will try to integrate material from a number of different areas. Although this course is primarily concerned with financial decisions, these decisions cannot be made without an understanding of the competitive environment in which the firm finds itself, and without an understanding of the accounting principles that lead to the financial statements that are used in decision making. Thus, in order to do well in this course, it is important that you recall what you have learned in all your coursework, not just your finance courses.
Here are the key learning objectives of EWMBA 231:
1. To explore the interrelated character of company decisions in different areas.
2. To explore the full range of issues associated with financing tactics and the attainment of the strategic objectives of the firm.
3. To examine the interaction of competitive strategy and financial policy (and the use of finance as a competitive weapon).
4. To learn how to explain and argue a position under adverse conditions.
Case Memoranda (chose two, team): 20%
Class Participation: 20%
Problem Set Assignments (all six, team): 20%
Midterm Examination: 20%
Final Examination: 20%
Once enrollment has stabilized, I will ask you to form groups of four to five to work outside of class to discuss and analyze the cases. Each group should submit a five to six pages long, typed (12-point type), double-spaced memorandum of analysis and recommendations, plus supporting appendices, at the beginning of the case discussion. These cases will be graded on a High Pass/Pass/Fail basis. Write the memorandum as if you were addressing the CEO in the case. Memoranda will not be accepted after the class has met. Each team will be required to turn in two case memoranda on cases the team choses. You must pass all the cases in order to pass the course. Be prepared to discuss the cases in class, even if you did not submit a case memorandum for the case being discussed.
For each case I will provide a number of "study questions." These questions are designed to get you going in addressing the case. Note that a case write-up does not consist of answering the study questions. The study questions should be the start of your thinking about the case, not the end.
Assigned Problem Sets
I will hand out certain problem sets for which I will require you to submit solutions at the beginning of the class, on the day the solutions are due. Late submissions will not be expected. These are team assignments. The solutions need to be neatly typed up and you are required to show sufficient detail behind your work in order to get partial or full credit for the problem set.
Because of the nature of this course (and the grading criteria), it is important that you attend every class, arrive on time, and be prepared to participate. To help me out, please bring your name card and place it on the desk in front of you. I may not remember who said what without those cards. After the enrollment in the course has stabilized, I will pass around a seating chart. At that point, I ask that you remain in that seat for the entire term. This will help ensure that class participation is accurately recorded and rewarded.
Midterm and Final Exams
These exams will be in-class exams. They are open book examinations. You can use calculators but you are not allowed to use computers.
TENTATIVE COURSE SCHEDULE
August 20: Session 1 at C125 Cheit, UC Berkeley Campus ("Berkeley")
Lecture:Introduction and organizational matters and an overview of corporate finance
Pre-read:Chapters 1-3, BMA.
Problem set 1 is assigned, due at the beginning of Session 2.
August 27: Session 2 at C125 Cheit, Berkeley
Lecture: The Value of Common Stocks and Net Present Value Rule
Pre-read: Chapters 3-6, BMA
Problem set 2 is assigned, due at the beginning of Session 3. For the teams working on Case 1, case report is also due at the beginning of Session 3.
September 3: No lecture (Labor Day Weekend)
September 10: Session 3 at Network Meeting Center (Techmart), 5201 Great America
Parkway, Santa Clara, CA 95054 ("Santa Clara")
Lecture:Financial Planning and Sustainable Growth
Case 1: Clarkson Lumber Company
September 17: Session 4 at Berkeley
Lecture: Risk and Return, Portfolio Theory and Cost of Capital
Pre-read: Chapters 7-9, BMA
Problem set 3 is assigned, due at the beginning of Session 5 on October 1 (Note the due date).
September 24: Session 5 at Santa Clara
Lecture: Best Practices in Capital Budgeting
Pre-read: Chapters 10-12, BMA
October 1: Session 6 at Berkeley
Lecture: Financial Decisions and Market Efficiency
Pre-read: Chapters 13-15, BMA.
Problem set 4 is assigned, due at the beginning of Session7.
October 8: Session 7 at Berkeley
Lecture: Payout Policy and Capital Structure
Pre-read: Chapters 16-18, BMA.
Problem set 5 is assigned, due at the beginning of Session 8. For the teams working on Case 2, case report is also due at the beginning of Session 8.
October 15: Session 8 at Santa Clara
Lecture: Cost of Capital and Valuation
Pre-read: Chapter 19, BMA
Case 2: Marriott Corporation: The Cost of Capital (Abridged)
For the teams working on Case 3, case report is due at the beginning of Session 9.
October 22: Session 9 at Berkeley
Lecture: Long-Term Financing and Liability Management
Case 3: American Home Products
October 29: Session 10 at Santa Clara
November 5: Session 11 at Santa Clara
Lecture: Understanding and Valuing Options
Pre-read: Chapters 20-21, BMA
Problem set 6 is assigned, due at the beginning of Session 12. For the teams working on Case 4, case report is also due at the beginning of Session 12.
November 12: Session 12 at Berkeley
Lecture: Real Options
Pre-read: Chapter 22, BMA
Case 4: Arundel Partners: The Sequel Project
November 19: Session 13 at Santa Clara
Lecture: Mergers, Corporate Control, and Governance.
Pre-read: Chapters 31-33, BMA
For the teams working on Case 5, case report is also due at the beginning of Session 14.
November 24: No lecture (Thanksgiving Holiday)
December 3:Session 14 at Santa Clara
Lecture:Overview of the Class
Case 5:Phillip Morris Companies and Kraft, Inc.
December 10: Final Exam at Berkeley