Olin’s Pillars of Excellence:
Olin students will:
The purpose of this course is to provide an understanding of the financing decisions made by corporations. While ACF I focuses on firms’ investment decisions, this course focuses on how firms fund those investments, how they return capital to investors, and on the interaction between investing and financing decisions. By the end of the course, you should be able to articulate how a variety of market frictions, such as taxes, financial distress costs,asymmetric information and agency conflicts create costs for firms, and how managers can use financial policy – capital structure, debt structure, and payout policy – to minimize these costs and create value for the firm.
The course packet includes copies of the case studies we will discuss in class, and should be available in the book store.
The course will primarily focus on Corporate Finance, 5th Edition, by Jonathan Berk and Peter DeMarzo,Pearson. The course will also integrate practice questions and quizzes from Pearson’s MyLab Finance that comes together with the book.
Nevertheless, the contents covered within this course are covered in most textbooks (or older versions of the book above). While our lectures present topics in a self-contained manner, reading assigned chapters from the textbook will reinforce your learning from the lectures.
At each class session I will hand out copies of lecture slides. Note that, in order to facilitate engagement in class, these notes will not contain answers to all the questions we will discuss, or examples we will work out in class. However, if you miss something, “filled-in” versions of the notes will be posted to Blackboard following each class. Lectures are recorded and available on Canvas.
The book by Berk and DeMarzo comes with an integrated tool called MyLab Finance that includes more practice problem sets (accessible via Canvas). You must purchase access to this tool, however. I have selected problems for the topics that we cover during the course. Quizzes are good for more basic concept checks. Homeworks are more complex and will provide a deeper understanding of each topic. These exercises are voluntary and will not be graded.
Weekly Assignments (5) 45%
Final Exam 45%
Class Participation 5%
Peer Evaluation 5%
How to prepare for class
We will rely on four primary learning tools:
Assignments and practice problems
Text book readings
These are designed to complement one another. While some students may wish to emphasize some tools more than others, depending on your learning style, I would not recommend neglecting any of them.
It is important that you come to class prepared on case discussion days. The better prepared you are, the better will be the classroom experience and the more we will all learn.
In our lectures, we will try to address three broad types of questions for each topic.
1. What does financial theory say about a given market friction?
Why is it costly to the firm? How can financial policy mitigate these costs?
2. Do firms actually behave this way?
Is there evidence from case examples, manager surveys or empirical studies that firms follow the predictions of the theory?
3. How then should I manage my firm?
Which types of firms does the theory apply to most? What are the relationships between firm characteristics and optimal financial policy?
How to do well on the assignments
The assignments are designed to help reinforce the material, apply concepts we’ve learned to actual firm data, and prepare for the exams. They will include a combination of analytical problems and questions pertaining to the cases we will discuss in class.
For group assignments, you need to form your own group, which must consist of 4-5 people, and you will work with the same group through the course. Those who cannot find a group on their own will be lumped together randomly or assigned by me to groups of fewer than 5 people. You must sign up your group members on Canvas.
Important assignment policies:
Requests must be submitted within 2-weeks after the assignment is returned.
How to do well on the exam
The exam will contain both qualitative and quantitative questions.
In order to do well on the qualitative portion, you need to understand the concepts. For some of the questions,there might be a “common sense” answer. Don’t be fooled. Think through the issues we have studied and apply them to the questions.
For questions with calculations, it is the justifications, logic and interpretations which are important and not the actual number. Bring a calculator but it need not be a fancy one. Show all your work.
The final exam will be closed books and closed notes, but you may bring a one-page “cheat sheet”.
The final exam covers the entire course.
Practice all the assignments as well as the quizzes available on MyLab Finance.
How to do well on class participation
My evaluation of class participation is based on the quality as well as quantity of your participation.
Answering questions, asking thoughtful questions and contributing comments that enhance our class discussion are all valid ways to participate.
Please make use of the office hours or make an appointment to see me or the TA. I am usually here and more than happy to find some time to meet with you. Your feedback on what is interesting or difficult is important. Finally,the course is short. If you find yourself lost, come see me as soon as possible. Do not wait for the exam before coming for help.