Updated 10/27/03
This site contains (almost) all of the extra material related to Finance 634 for the 2003 Fall semester. More will be added as we move through the class. Check this site often for updates.
FIN 634 Course Syllabus -- Check often
Chapters 1 and 2:
Lecture slides: FIN 634 Intro.ppt
Answers to Chapter 1 questions are here.
Related articles:
Read this Chief Executive Magazine article from early 2000 on rating boards of directors, and be sure to check their best 5 and worst 5 lists. See any surprises?
Read this article from CFO Magazine concerning the role of auditors in restoring confidence in corporate accounting, and this article concerning (gasp!) tying executive compensation to performance.
Read these three WSJ articles on corporate governance.
Read this article from www.thestreet.com on the rules of the dividend tax cut.
Chapter 3:
Lecture Spreadsheet: Download Time Value Spreadsheet. If you want to work the spreadsheet, download this one, too.
Other class materials:
Time Value handouts
Publisher's answers to end-of-chapter problems
My answers to some end-of-chapter problems
Amortization table model
Appendix on NPV rule
Option Car Loan SolutionGet some helpful financial calculator instructions from Dr. Pam Peterson at http://garnet.acns.fsu.edu/~ppeters/fin3403/work/hp10b.html
Check the current treasury bill/bond rates at Bloomberg.
Check out current mortgage and loan rates at www.bankrate.com
Check out corporate bond rates at bonds.yahoo.com/rates.html
Get familiar with our class textbook's website at http://smartfinance.swcollege.com
Wachowicz's Web World -- An AMAZING resource of resources
Excel review materials from the Fuqua School of Business
Readings:
Inflation Indexed Bonds
Chapters 2, 16, and 17Assignment (40 points) due Midnight 9/7/03 by email:
Create a spreadsheet model that evaluates two car loans for any purchase with the following limits:
The loan will be between one and six years
A down payment may be required, but not all loans will require it
A rebate may be given, but not all loans will give it
The payments will always be monthly
The interest rate will always be compounded monthly
The interest can be 0%, but cannot be negative
The interest rate will be constant throughout the term of the loans
Either or both loans may involve a balloon payment
The buyer may plan to sell the vehicle prior to the end of the loan term, but will not sell before 1 year has elapsed. After that, the sale could come at any time (but you can assume it will come immediately after a monthly payment)Your model should allow the user to enter relevant information about the loan, and get back good information about which loan to choose and the relative advantages and disadvantages of each. It should also tell the user under what conditions he or she would be indifferent between the two loans.
You will be graded on accuracy (50%), how well you fulfilled the requirements of the assignment (30%), and the appearance and usability of your model (20%).
This is an individual assignment.
Chapter 4: Valuation of Stocks and Bonds
Lecture notes are here.
Solutions to chapter problems are here.
My calculator solutions to some of the problems are here.Other related materials:
Find out about the Russian default in this article.
See the dymanic yield curve at http://www.stockcharts.com/charts/YieldCurve.html
Bond quotes shown in class from BondPickers.com are here.
Corporate bond spreads for all rating categories: http://www.bondsonline.com/asp/corp/spreadbank.html
A review of the CAPM and risk/return matters is here.
Useful links:
The SEC's corporate finance site is at http://www.sec.gov/divisions/corpfin.shtml.
Get specific information about individual bonds at http://www.moodys.com/cust/default.asp
Bond quotes are available at quote.yahoo.com (search on a ticker symbol or name)
Get stock quotes and a lot of other information about individual issues, including betas, at http://www.bloomberg.com/ or at Disclosure Global Access (you must be attached to the UM campus network to access this site).
Check out some of the useful bond calculators at http://www.financenter.com/consumertools/#bond
Chapter 9: Cost of Capital
Notes are here.
Answers to chapter problems are here. You should work all of these problems.
Other Class-Related Material:
Historic returns for stocks and bonds are here.
Levered and unlevered betas for all major industry groups are here.
Costs of capital/equity/debt for industry groups are here.
Want to know what the Cost of Capital for space tourism is? Here is a very interesting application of what we have been studying.
Check out some of the useful information at the Ibbotson Cost of Capital Center, particularly the sample data on the industry analysis page.
Here is a good summary of the WACC estimation process.
Read about Economic Value Added (EVA) here, and also listen to the video about how corporate executives use EVA. Another good summary is here. An EVA example spreadsheet is here. Cumulative EVA's for all major industry sectors are here. A portion of an annual report for a company that reports its EVA is here.
Assigned Reading:
Read this paper: What is Your Real Cost of Capital
Notes for the exam:
The exam will begin at 10:00 AM in 120 Conner. Please feel free to bring food/drink. If needed, we will move into 122 before 1:00 so you can finish without time pressure. I would expect that nobody will need more than three hours, but if you do you can have until 2:00. (Again, please feel free to bring food/drink.)
Approximately 60% of the exam will be problems, on which you will show all of your work. Partial credit will be given on these problems if I can read what you wrote and your steps are labeled and easy to follow. Obviously, any problems that we covered in class or that appear in your assigned chapter problems would be likely to appear here, so it would be good to focus your attention there before studying anything else. There will be lots questions from the Time Value topic area, a few from the Stock/Bond Valuation area, and at least one concerning cost of capital.
The other 40% will be a combination of true/false, multiple choice, and short answer. These questions will come primarily from the assigned chapters and articles. Obviously, topics and concepts that were discussed in class are the most likely to be included in this section.
There will also be up to 10% available from extra credit questions/problems.
You need to bring your financial calculator and some pencils. You may also bring one 3x5 card with anything on it you would like -- two sides, one layer, no magnifying glass.
It is unlikely that I will have access to email from Wednesday through Sunday. If you have a question or problem that requires assistance, use the class listserve and help each other. I will be available for questions most of the day on Tuesday.
Capital Structure: Chapters 11, 12, and 13
Lecture slides: Chapter 11 Chapter 12 Chapter 13
Other lecture material:
Spreadsheet to illustrate the effects of leverage on cost of capital and firm value
Damodaran's spreadsheet to estimate the optimal capital stucture
Damodaran's spreadsheet of debt-related variables by industryEnd-of-chapter problem solutions: Chapter 11 Chapter 12 Chapter 13
Assigned Reading:
Assignment: 100 Points Due Midnight Sunday November 2 (the midnight at the end of Sunday)
Submit this assignment in a spreadsheet that will serve as a formal report to your supervisor, who is interested in this information but is not financially astute. She is a well-qualified and well-educated business professional, so your job is to present this material in a manner that will make sense to her and that will impress her with your professionalism and thoroughness. You may choose to do one report/spreadsheet for each company rather than to combine them all into one spreadsheet, but that is your choice.
Tasks:
Select three companies that have the following characteristics:
- Publicly traded US non-financial company that has been publicly traded for at least three years.
- Must have a significant amount of long-term debt (at least 15% at book value) in the capital structure.
- Does not publish its EVA in its annual report or on its website.
- Each of the three must be in a different business/industry category.
- Must be companies that no other class member is using. Email me the names of the three companies that you want to use and I will confirm that they are not being used by someone else -- first come, first served.
For each company:
- Estimate the company's cost of capital, giving clear explanations for your calculations and clear justifications for any assumptions you are making. Compare the estimated cost of capital to the industry average and justify any deviation.
- Estimate the DOL, DFL, and DTL for the company and compare them to the industry average, noting any trends over the last three years and explaining whay those trends may be occurring. Explain the implications of each company's leverage situation on its value and its ability to raise debt and equity capital.
- Estimate the EVA for the company in the three most recent fiscal years. Use this as the basis for an analysis of the performance of the company over this three year period and assess the implications for performance in the current fiscal year.
- Analyze each company's capital structure and show whether its current capital structure is its optimal capital structure. Explain the implications of its current capital structure on the company's value, its stock price, and its future performance.
Be sure to list all information sources that you used.
THIS IS AN INDIVIDUAL ASSIGNMENT
Dividend Policy: Chapter 14
Lecture notes are here.
Solutions to end-of-chapter problems are here.Assigned Reading:
Dividends are In Again (CFOnet article)
Buybacks or Giveaways? (CFOnet article)
These articles on dividend policy at Investopedia.com
and this article on the effects of the tax law changes on dividend payoutsAssignment for the next class (due by 9:00 PM Wednesday -- Class is at 1:00 PM Thursday):
Read the case that was handed out in class. Assume that you are a major shareholder of this company. Write a 2-3 page letter to Mr. Bethune that states why the company SHOULD NOT go forward with the plan for the stock repurchase as stated. That is, you should play Devil's advocate. Support your arguments with analysis of the financial and other information presented in the case, but don't use information (about the future) that was not available to the decision makers at the time. Note that you can either argue that there should be no repurchase or that there should be a substantial reduction in the amount of the repurchase. Whichever way you go, state your opinion of the strategy that the company should follow and support it. 25 Points.
Mergers and Acquisitions: Chapter 24
Answers to the questions and problems are here.
Check out the CFO-Net valuation calculator
CFO-Net article on current accounting methods for goodwill, and associated problems
and also this earlier article on the same topic. Here is a good synopsis of the change.Read Oracle's version of the Peoplesoft hostile takeover attempt, and also Peoplesoft's version.
The following assignment was emailed to you on 11/19/03:
Your last assignment will be an easy one, and will be good preparation for our last class session on mergers. Part one of the assignment is to write up answers to all of the questions (not problems) on pages 877 and 878 at the end of Chapter 24. Please use Word for this so you can email the submission to me. Part two is to work Problem 24-4 on page 879. Your solution can be in Word, Excel, or a combination. The total points on this assignment will be 60, with 40 on the questions and 20 on the problem. This will give a total of 245 points for the assignments for the entire class, but I will leave the weighting at 200 in computing the final grade -- meaning that you have 45 extra credit points on this assignment.
Doing the last assignment this way will allow us to spend our class time on more interesting things than going over the material that is already in the chapter, since you will know the material well after completing the assignment.
The assignment is due to me by class time on December 1. Please remember that this is an individual assignment.
Notes for Exam 2:
The exam time is Thursday at 1:30 PM.
For each chapter that we covered, make sure you know the answers to all of the end-of-chapter questions. In particular, concentrate on these questions:
Chapter 11: 1,2,4,6,7,9,10,12,13,16,20
Chapter 12: 3,5,6,8,14
Chapter 13: 4,6,9,11,12
Chapter 14: 1,5,8,9,11
Chapter 24: AllKnow how to work the following problems:
Chapter 11: 3,6
Chapter 12: 10
Chapter 13: None
Chapter 14: None
Chapter 24: 4Also make sure you review all of the material that we talked about in class (review the lecture notes).
The exam will be about 50% MC/TF and the rest short-answer questions or problems. It is written with the assumption (which may be erroneous) that you can complete the exam in 1.5 hours. Even so, you can take the entire 3-hour period if you need it.
You can bring one 3X5 index card with anything on it -- two sides, one layer, and no magnifying glass.
Good luck, and may the Force be with you.
Sample Exams:
Fall 2002:
Exam 1 Solutions for 1-9 Solutions for 10-End
Exam 2
Exam 3 with solutionsFall 2001:
Others to be added
Fall 1999:
Exam
1 Part 1 Fall 1998:
Exam 1 Part 1
Exam
1 Part 2
Exam
2 Part 1
Exam
2 Part 2
Exam
3
Other Years:
Exam
1 Part 2 Errors corrected 9/2/2002
Exam
2 Part 1
Exam 2 Part 2
Exam 3
Spring 1996 Exam I
Fall 1995 Exam I
Spring 1995 Exam I
Spring 1995 Exam 2
Fall 1995 Exam 2
Spring 1996 Exam 2
Explanation of calculations for Problem 6 on Spring 96 exam
Spring 1996 Exam 3
Fall 1995 Exam 3
Dr. Delvin D. Hawley, PhD
Senior Associate Dean
School of Business Administration
The University of Mississippi
University MS 38677
Telephone 662-915-5496
Fax: 662-915-5821
E-Mail:
dhawley@bus.olemiss.edu