MGMT 408: Foundations in Finance Professor Bruce Carlin Anderson Graduate School of Management University of California, Los Angeles Fall 2016 Objectives This is an introductory course in finance. We will cover the following topics: Time Value of Money Interest Rates and Fixed Income Securities Capital Budgeting Risk and Return Portfolio Theory Capital Asset Pricing Model Weighted Average Cost of Capital Equity Valuation Financial Derivatives Valuing Strategic Alternatives Household Finance • • • • •
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Course Materials Lecture notes: The lecture notes for each session are available on the website for the course. rd
Book: Berk and DeMarzo (2014), Corporate Finance, 3 Edition (hereafter referred to as BD3) is required for the course. Course pack: The course pack is required. In it, you will find cases and exercises that that we will analyze in class to promote understanding and application of the course material. The cases are meant to help you bring all of the concepts in the course together.
How to reach me Email:
[email protected]
Office Hours Mondays
11:30 am - 12:30 pm
B311
Teaching Assistants Stephen Andron Peter Chang
stephen.andron.2017@anderso stephen.andr
[email protected] n.ucla.edu
[email protected] peter.chang.20
[email protected] .edu
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Grading and Assignments There will be an in-class final exam (40%), an in-class mid-term exam (20%), and several group case write-ups (40%). The exams will be in-class and are open-book and open-notes, so no need to memorize anything. This is a thinking class, not a regurgitating class. The mid-term will function as a mid-way check. For those of you who score higher on the final exam than on the midterm, I will treat your final as counting for 50% of your grade and the midterm as 10%. Therefore, there is some optionality in the grading process. Cases: You should work in groups when analyzing the cases and answering the posted questions. Additionally, each group should prepare a few PowerPoint slides for presentation in class that describe their findings and analysis. You do not need to turn in the PowerPoint slides. In class, I will r andomly pick a group (from a hat) to present their ideas to the class. BEWARE: Being picked for the first case does not prevent a group from being picked for subsequent cases!!!!!! •
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Suggested Practice Problems I have posted weekly problem sets on our course website. Our TA’s will be leading help sessions on a weekly basis to go over these problems. I also have included some practice problems from Berk and DeMarzo at the end of the syllabus.
TA Review Sessions Steve and Peter will have TA sessions in as listed below. Upon request, they will have a review session before exams and the midterm. The schedule will be: Day Time Room Tuesday 11:30 am - 12:30 pm B311 Wednesday 11:30 am – 12:30 pm B311 Sunday 3:15-4:15 pm C303 (9/25, 10/9, 11/6, 11/20, 12/4) Saturday 10-11am C303 (10/1, 10/15, 11/12) B312 (12/3) • • • •
Honor Code The University of California, Los Angeles and Anderson Business School Honor Codes apply to this class. Plagiarism is unacceptable. Please contact me, if you are uncertain how the Honor Code applies for any particular assignment or class evaluation. One note about the Cases: I do not want you to search for related articles, institutional or academic, about the industries that we study. This is a course in finance, not journalism. I want you to only use the materials in the case to analyze the business situation at hand. I will consider a violation of this policy most seriously.
Laptop and Cell Phone Policy I will post all notes on the course website. Laptops should be used in class only for accessing lecture slides during class. Please do not use them to surf the web or email others. Cell phones are also prohibited in class. I too am an email junkie, but I would like to use class time for fruitful discussion and as a break from technology.
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Detailed Course Outline CLASS 1: September 22, 2016 1) Course Overview 2) First Principles Suggested Readings: BD, Chapters 1 and 2 CLASSES 2-3: September 23, 2016 1) Time value of Money 2) Compounding and Discounting 3) Perpetuities 4) Annuities 5) Adjusting for Inflation Suggested Readings: BD, Chapters 3 and 4
Problem Set #1 CLASS 4: September 27, 2016 1) Net Present Value Rule 2) Capital Budgeting Readings: BD, Chapter 6-7. CLASS 5: September 29, 2016 1) Sales Case 2) Other Investment Decision Rules Readings: BD, Chapter6-7. ***Write-Ups due at the beginning of class (prepare in groups). CLASS 6: October 4, 2016 1) New Heritage Doll Company*** 2) Term Structure of Interest Rates 3) Forward Rates ***Write-Ups due at the beginning of class (prepare in groups). Suggested Readings: BD, Chapters 5 and 6
Problem Set #2 CLASS 7: October 6, 2016 1) Bond Valuation 2) Bond Price Volatility 3) Corporate Bonds Suggested Readings: BD, Chapters 5 and 6
Problem Set #3 CLASS 8: October 11, 2016 1) Risk and Return 2) Portfolio Theory Suggested Readings: BD, Chapter 10
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CLASS 9: October 13, 2016 1) Portfolio Theory 2) Capital Asset Pricing Model Suggested Readings: BD, Chapters 11-12 CLASS 10: October 18, 2016 1) Alex Sharpe’s Portfolio*** 2) The State of South Carolina*** ***Case write-ups due at the beginning of class (prepare in groups).
Problem Set #4 CLASS 11: October 20, 2016 ***IN-CLASS MID-TERM EXAM*** CLASS 12: October 25, 2016 1) Capital Budgeting Under Uncertainty 2) Weighted Average Cost of Capital (WACC) Suggested Readings: BD, Chapters 10-12
Problem Set #5 CLASS 13: October 27, 2016 1) Options 2) Futures 3) Swaps Suggested Readings: BD, Chapters 20-21
Problem Set #6 NO CLASSES OCTOBER 31 – NOVEMBER 5: DAYS ON JOB CLASS 14: November 8, 2016 1) Marriott Case ***Marriott Case write-up due at the beginning of class (prepare in groups).
CLASS 15: November 10, 2016 1) Valuing Strategic Alternatives
Problem Set #7 CLASS 16: November 15, 2016 1) Arundel Partners ***Case write-up due at the beginning of class (prepare in groups). CLASS 17: November 17, 2016 1) Household Finance CLASS 18: November 22, 2016 IN-CLASS OR HYBRID 1) Valuing Stocks: May Watch Video Suggested Readings: BD, Chapters 9 and 13
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CLASS 19: November 29, 2016 1) Valuing Intel Stock ***Case write-up due at the beginning of class (prepare in groups).
Problem Set #8 CLASS 20: December 1, 2016 1) Review for Exam/ Course Wrap-Up
Final Exam: In-Class, Open Books, Open Notes: TBA
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Extra Practice Problem Sets 1) Time Value of Money, Valuation Basics Chapter 3: 9,10,11,18,19 Chapter 4: 3,4,8,11,12,14,18,19,23 Chapter 5: 4,5,6,12,13 2) Fixed Income and Capital Budgeting Chapter 6: 1,2,4,8,21,28,29,A.1,A.2,A.3 Chapter 7: 1,7,9,13,20 Chapter 8: 6,7,9,10,14,18 3) Portfolio Theory and CAPM Chapter 10: 1,4,7,20,21,22,26,37 Chapter 11: 1,2,3,5,7,9,10,11,12,20,22,23,24,25,36,48,49,50 4) Cost of Capital Chapter 12:
1,2,4,18,20,21,23,24
5) Equity Valuation Chapter 9:
1,6,12,19,24
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