MBA 6223 — Finance Fall 2015

Professors Berk Sensoy and Jay Wellman Class Schedule Time: Section 1: Tuesday and Thursday, 1:15 PM – 2:45 PM, Gerlach 365 Section 2: Tuesday and Thursday, 3:00 PM – 4:30 PM, Gerlach 375 Section 3: Thursday, 6:00 PM – 9:15 PM, Gerlach 365 Section 4: Tuesday, 6:00 PM – 9:15 PM, Gerlach 365 This is a co-taught course. There are a total of 28 90-minute class sessions. Each evening class meets for two sessions per day. Professor Sensoy will teach the first 14 sessions, and Professor Wellman the remaining 14. Their contact information is below. Professors: Berk Sensoy Jay Wellman Office: 812 Fisher Hall Office: 850 Fisher Hall E-mail: sensoy.4@osu.edu E-mail: wellman.67@osu.edu Office Hours (First 7 weeks): Office Hours (Second 7 weeks): Tu Th 12:00 PM –1:00 PM Tu Th 10:30 AM – 11:30 AM Tu Th 4:45 PM – 5:45 PM Tu Th 4:45 PM – 5:45 PM To avoid waits for office hours, please email us in advance to claim a time. If you cannot make these office hours, please email to suggest an alternative time. Teaching Assistants: Abhijit Saha Office: Gerlach 248 E-mail: saha.56@osu.edu Office Hours: Th 4:45 PM – 5:45 PM, Fr 9 AM – 10 AM Please do not hesitate to contact the professor or the TAs if you need assistance. Course Description This course provides a market-oriented framework for analyzing the major types of financial decisions made by corporations. The first part of the course provide an introduction to present value techniques, capital budgeting principles and problems, asset valuation, and the fundamentals of portfolio theory and asset pricing. The second part of the course discusses market efficiency, options, capital structure in a perfect market, debt and taxes, financial distress, payout policy, capital budgeting and valuation with leverage, valuation and financial modeling, risk management, raising equity capital, mergers and acquisitions, and ethics in corporations

Course Materials

1. Berk, J. and P. DeMarzo. Corporate Finance. 3rd edition, Prentice Hall, 2014.

[Referred to as BD below.]

The required textbook can be purchased at the OSU bookstore in two formats: the regular book (ISBN 9780133424157) and a “student value” edition (ISBN 9780133424140). The student value edition is the whole book, but has no cover and is three-hole punched. Both formats come with an access card for the electronic text version of the book and the publisher’s online learning tool (MyFinanceLab). We will use MyFinanceLab for the homework assignments. Unfortunately, the publisher has several different versions of the book, including an undergraduate version. To make sure you buy the right thing, please make sure the ISBN of what you are about to buy matches those given above. Please note that Amazon and other sources are usually cheaper than the OSU bookstore. You can search online retailers by ISBN to ensure the correct match. Please also note that any book marked as a global or international edition will not have a functioning MyFinanceLab access code. If you prefer an electronic text only, you can buy it along with MyFinanceLab access from the publisher directly at www.myfinancelab.com for $105. Finally, used copies of the 2nd edition of this book are fine as far as the key concepts go. However, we do not support the 2nd edition so if you buy it, you are solely responsible for locating the readings that correspond to those listed below. If you go this route, or buy a used copy of the 3rd edition, you will need to buy MyFinanceLab access separately at www.myfinancelab.com at a cost of $60.

2. MyFinanceLab access: www.myfinancelab.com. See additional purchase information above. To access

MyFinanceLab, you need our course ID, which is osumbafin42863.

3. All lecture material and any additional class material will be posted on the course web page on Carmen - https://carmen.osu.edu/.

4. Additional resources: In the course calendar below, we recommend some (most) end-of-chapter problems as a purely optional opportunity for extra study and practice. You can do these the old fashioned way or within the “study guide” on MyFinanceLab.

If your exposure to finance has been limited so far you may also find the following optional additional text useful: Downes, John, and Jordan Elliot Goodman, Barron’s Financial Guides: Dictionary of Finance and Investment Terms, 8th edition (Barron’s Educational Series, 2010) Also, Google, Investopedia and Wikipedia are often your friends for basic definitions and terminology.

Seating Arrangements You are welcome to sit in any section you choose, although sitting priority is given to the students registered in the section. All exams must be taken with your registered section. We would like each of you to sit in the same seat each class. This makes it easier for you to interact during class discussions, and easier for us to keep track of who you are. Please bring and display your nameplate during each class session. Evaluation 50% of your grade will come from Professor Sensoy’s half of the course, and 50% from Professor Wellman’s half. Both professors will break down their 50% as follows:

• Five homework assignments each worth 2.5% of your grade. • Two midterm exams. The first is worth 15% of your grade and the second 22.5%. (The second midterm

in Professor Wellman’s half of the course will be the final exam, which will only cover the material from Professor Wellman’s half of the course.)

The following are the primary principles for evaluation:

• Grading in this class is relative to the performance of your peers (the grade is curved).

• The grade distribution is not truncated. It is possible to earn any of the official OSU grades (i.e., A to E) in this course.

• Please note that there will be no make-up exams except as required by university policy. If illness or an emergency should force you to miss an exam, please try your best to contact us before the exam is given.

Homework All homework must be completed in MyFinanceLab. The purpose of the homework is to keep you up to date with the class material. You may talk about the problems with others in the class, and work on them together. The only way you can be sure you understand the class material is to do the problems. Because students have unlimited attempts on MyFinanceLab to get each assignment right (before each assignment is due), we expect almost all students to receive full points on the homework. This means that not doing an assignment puts you at a considerable disadvantage relative to others when the final grades are computed. While the homework assignments are all that is required, you should try to work as many of the recommended end-of-chapter problems as you can. The more problems you do, the more deeply you will understand the material. Exams There will be three midterm exams. The second is cumulative but with an emphasis on the material covered after the first midterm. The third midterm will cover only Professor Wellman’s material. The final exam for the course, taken during the university’s exam period in December, will cover Professor Wellman’s material only. All exams must be taken with your registered section. All exams are closed-book exams. You will need a calculator (phone apps are OK). A formula sheet will be provided for each exam. You are on your honor not to use an electronic device for any extra assistance. You may not communicate with any person except the instructor during the exams.

The problems we do in class and on the homework assignments are designed to prepare you for the exams. In addition, we will solve practice questions together in class. Our goal is for you to know exactly what to expect on the exams. Regrading Policy All regrading requests must be made in writing within two weeks of the day an assignment is returned. Any assignment submitted for regrading of a question is subject to a complete regrade of the entire assignment. As a result, the regraded score may increase, stay the same, or decrease. Academic Integrity You have promised to adhere to the following honor statement: As a member of the Fisher College of Business community, I am personally committed to the highest standards of ethical behavior. Honesty and integrity are the foundation from which I will measure my actions. I will hold myself accountable to adhere to these standards. As a leader in the community and business environment, I will

pledge to live by these principles and celebrate those who share these ideals.

In addition, the University's Code of Academic Integrity is designed to ensure that the principles of academic honesty and integrity are upheld. All students are expected to adhere to this Code. Please visit the following website for more information on the University's Code of Academic Integrity and possible sanctions: http://oaa.osu.edu/procedures. In accordance with University Faculty Rule 3333-5-487, all instances of academic misconduct will be reported to the Committee on Academic Misconduct, which recommends appropriate sanctions to the Office of Academic Affairs. There will be no exception to this rule. Do not distribute solutions to any class materials to future students in this class. Doing so will be considered an honor violation.

Course Calendar Note that the schedule for covering material in lectures may change somewhat. Because of questions we may sometimes run over or under the time allotted. Homework assignments are due at 11:59 PM on the indicated days. Professor Sensoy’s half of the course.

Week Class Date Topics Readings Comments Especially recommended BD practice problems

1 1 FT: Tu 8/25 WP: Tu 8/25 or Th 8/27

Course outline. Review of background material. Time value of money. Net present value (NPV) rule.

BD Ch. 1, 3, 4.1-4.4

BD Ch.2 is accounting review material.

3.1-3.19

1 2 FT: Th 8/27 WP: Tu 8/25 or Th 8/27

Net present value (NPV) rule. The objective function of the corporation. No arbitrage and the law of one price (LOOP).

Same as prior class

Same as prior class

2 3 FT: Tu 9/1 WP: Tu 9/1 or Th 9/3

Calculating present values. BD Ch. 4.1- 4.8 (skip IRR)

HW 1 due (9/4) 4.1-4.45

2 4 FT: Th 9/3 WP: Tu 9/1 or Th 9/3

Applying the NPV rule to the valuation of bonds and stocks.

BD Ch. 6.1, 9.1, 9.2

6.1-6.7 9.1-9.15

3 5 FT: Tu 9/8 WP: Tu 9/8 or Th 9/10

Applying the NPV rule to corporate investment decisions: Determining cash flows.

BD Ch. 8 HW 2 due (9/11) 8.1-8.4, 8.6-8.10, 8.12-8.14, 8.17, 8.18, 8.20

3 6 FT: Th 9/10 WP: Tu 9/8 or Th 9/10

Applying the NPV rule to corporate investment decisions: Exercises. Midterm 1 review

Same as prior class

Same as prior class

4 7 FT: Tu 9/15 WP: Tu 9/15 or Th 9/17

Midterm 1 HW 3 due (9/18)

4 8 FT: Th 9/17 WP: Tu 9/15 or Th 9/17

Comparing the NPV rule to other investment criteria (payback, IRR, etc.)

BD Ch. 4.9 (IRR), Ch. 7

4.46-4.49, 7.1-7.10, 7.19-7.21

5 9 FT: Tu 9/22 WP: Tu 9/22 or Th 9/24

Statistics Review and Portfolio Mathematics

BD Ch. 10.1-10.4, 11.1-11.2

10.1-10.7, 11.1-11.13

5 10 FT: Th 9/24 WP: Tu 9/22 or Th 9/24

Measuring Risk, Mean-Variance Analysis, Diversification and beta

BD Ch. 10.5- 10.8, 11.3-11.4

10.20, 10.22-10.26, 10.29-10.38, 11.14-11.32

6 11 FT: Tu 9/29 WP: Tu 9/29 or Th 10/1

Capital Asset Pricing Model (CAPM). Portfolio and CAPM examples.

BD Ch. 11.5-11.8, 10.7, 10.8, 12.1-12.3

HW 4 due (10/2) 11.33-11.51, 12.1-12.10

6 12 FT: Th 10/1

Beta and the banana birds. Review of diversification and

Same as prior class.

Same as prior class.

WP: Tu 9/29 or Th 10/1

CAPM. More examples.

7 13 FT: Tu 10/6 WP: Tu 10/6 or Th 10/8

Course wrap-up. Practice problems.

HW 5 due (10/9)

7 14 FT: Th 10/8 WP: Tu 10/6 or Th 10/8

Midterm 2

Professor Wellman’s half of the course. Week Class Date Topics Readings Comments Especially

recommended BD practice problems

8 15 FT: Tu 10/20 WP: Tu 10/20 or Th 10/22

Introduction Investor behavior and Capital market efficiency

BD Ch. 13 13.4-13.9, 13.11-13.12

8 16 FT: Th 10/22 WP: Th 10/20 or Tu 10/22

Continue: Investor behavior and Capital market efficiency

BD Ch. 13 Same as prior class

9 17 FT: Tu 10/27 WP: Tu 10/27 or Th 10/29

Capital structure in a perfect capital market

BD Ch. 14 14.1-14.6, 14.8, 14.11-14.19

9 18 FT: Th 10/29 WP: Tu 10/27 or Th 10/29

Debt and taxes

BD Ch. 15 HW 1 due (10/30) 15.1-15.19

10 19 FT: Tu 11/3 WP: Tu 11/3 or Th 11/5

Debt and taxes Financial distress

BD Ch. 15, 16 16.1-16.6, 16.8, 16.12-16.15

10 20 FT: Th 11/5 WP: Tu 11/3 or Th 11/5

Capital budgeting and valuation with leverage

BD Ch. 12, 18 HW 2 due (11/6) 12.1-12.10, 12.18-21, 12.23, 12.25-12.27

11 21 FT: Tu 11/10 WP: Tu 11/10 or Th 11/12

Continue: Capital budgeting and valuation with leverage Midterm 1 review

BD Ch. 12, 18 18.1, 18.7-18.8, 18.18

11 22 FT: Th 11/12 WP: Tu 11/10 or Th 11/12

Midterm 1: Chapters 13-16, 12, 18

HW 3 due (11/13)

12 23 FT: Tu 11/17 WP: Tu 11/17 or Th 11/19

Valuation and financial modeling: A case study

BD Ch. 19 19.1-19.19

12 24 FT: Th 11/19 WP: Tu 11/17 or Th 11/19

Continue: Valuation and financial modeling: A case study

BD Ch. 19 Same as prior class

13 25 FT: Tu 11/24 WP: Tu 11/24 (Recorded for Th WP section)

Corporate ethics (case) - Conflict on a trading floor (HBS case) - Securities misselling pre-financial crisis Delivered together with Professor David Freel

Read “Conflict on the Trading Floor” Case

14 26 FT: Tu 12/1 WP: Tu 12/1 or Th 12/3

Options I

BD Ch. 20 HW 4 due (12/4)

20.1-20.13, 20.15-20.19

14 27 FT: Th 12/3 WP: Tu 12/1 or Th 12/3

Options II

Same as prior class

15 28 FT: Tu 12/8 WP: Tu 12/8 or Th 12/10

Final Review

HW 5 due (12/11)

Final exam (covering only material from Prof. Wellman’s half of the course): FTMBA sections: Wednesday, December 16, 1:15pm, GE 365 and 375 Tuesday WPMBA: Tuesday, December 15, 6pm, GE 365 Thursday WPMBA: Thursday, December 17, 6pm, GE 365