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FIN 819: Financial

Administrative Issues
Course Overview

FIN 819: Lecture 1

Todays plan

Administrative issues

Course overview
Team formation

add, drop and withdraw
case writing and discussion
final exam
final grade

FIN 819: Lecture 1

The instructor

My name is George Li
Office: DTC 582 and BUS 315
Office hours:
Monday: 1:30 p.m. to 3:30 p.m. at BUS 315
Thursday: 3:30 a.m. to 5:30 p.m. at DTC 582
Research interest:
Corporate finance: real options
Asset pricing: information and stock prices
FIN 819: Lecture 1

My website

All the lecture slides, solution to

homework problems, sample final exam
will be posted on my website:
I only use ilearn to send you emails.

FIN 819: Lecture 1


The textbook for background reading

Principles of Corporate Finance, 9th Edition, by

Richard A. Brealy and Stewart C. Myers, published
by Irwin McGraw-Hill, 2008.

FIN 819: Lecture 1


You are required to take BUS 785 with a

grade of at least B-, or have a waiver of
this course.
It is the schools policy that all the
students in this course must satisfy this
requirement and there is no exception,
unless you get the waiver of this
FIN 819: Lecture 1

Add, drop and withdrawal policy

The business school has the policy for

add, drop and withdrawal

Students can withdraw once

If you like to withdraw, you have to do it in the

first two weeks

Please read the Spring 2012 bulletin for detail

FIN 819: Lecture 1

Homework problems

In the first several lectures, I will review

most important concepts in corporate
In order to help you to understand these
concepts, homework problems are
I will not grade homework but its solution
will be posted on my website.
FIN 819: Lecture 1

The two projects

There is one project for each team. A project is the

presentation of a case. For each of the two cases to
be discussed, every team must write a report, which
is 2-10 pages long in single space and typed.
Each team has about 4 students so that we have 4
Form your own teams after the break.
For each case, two teams are assigned to present.

FIN 819: Lecture 1

The two projects (continue)

If your team is to present a project, your

team has to use PowerPoint to present your
analysis, and bring in a computer and a USB,
with the PowerPoint file copied on it.
Each member in the team will get the same
score unless there is a free-rider problem.

FIN 819: Lecture 1

The cases

One case will be reserved electronically

in the library. It is supposed to be
available in the third week of this
I will tell you the password to access this
The second case is from the end of
chapter 22 (Bruce Honiballs invention)
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Two cases:

Nike Corporation
The min-case in chapter 22

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Valuing a writing-report
The instructor will use the following criteria
to value a writing-report

understanding the case

clear writing
apply concepts correctly
convincing arguments

FIN 819: Lecture 1

Valuing the oral presentation

The instructor will use the following

criteria to value the oral presentation

Clear presentation ( 5pts)

Answer questions precisely and concisely (6

Understand the concepts and theories (2 pts)
Have convincing arguments (2 pts)

FIN 819: Lecture 1

Solution to the free-rider


In theory, all members in each team

should get the same score.
If more than two members in a team
complain about the free-rider problem,
the team member valuation for that team
will be used to decide on the project
score for each student in that team.

FIN 819: Lecture 1

The mid-term and final exams

There will be a mid-term and a final exams, which

are closed-book.
The mid-term exam has only multiple choice
questions, but the final has only essay questions.
The mid-term exam is closely related to lectures and
homework problems.
The final is closely related to the lectures, homework
problems, and 2 cases to be discussed in the class.
There is no makeup or in-advance final.

FIN 819: Lecture 1

Class attendance and


It is the instructors strong preference

that you attend each class and be
actively involved, unless you are very
familiar with the basic concepts
discussed in the first several review

FIN 819: Lecture 1

Total points

Your overall course grade will be based on

your performance in the class, four cases,
final project, and the final exam.

Class attendance and performance: 10 pts

Case write-ups: (each 5)
10 pts
Case presentation:
15 pts
Mid-term exam:
60 pts
120 pts
FIN 819: Lecture 1

Curve grading

Grading policy:
Your ranking

Top 15%
15% - 75%
75% - 95%
Bottom 5%

Letter grades
A range (A-, A, A+)
B range (B-, B, B+)
C range (C-, C, C+)
D range (D+, D, D-)

FIN 819: Lecture 1

FIN 819: course organization

FIN 819

Module 2

Module 3

Module 4

Fundamentals of valuation

Valuing risky investments

Risk and return

Corporate financial decisions

Market efficiency and options

Fundamentals of PV
Financial decision
Interest rates

Portfolio theory
Diversification and covariance

Types of securities
Stocks, bonds and other

Weak, semi-strong and

strong form efficiency
Information and stock prices

Perpetuities and
annuities calculation

Tangency portfolio, CAPM

risk and return

Modigliani-Miller theorem 1
Pizza size is independent of
how sliced

Options and Black-Scholes

Valuing stocks
and bonds
NPV and other criteria

Effect of leverage
WACC and discount rate

Modigliani-Miller theorem 2

Binomial model, replication

Risk-neutral probabilities

Module 1

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Corporate finance: what is it?

A set of concepts, theories and

approaches that help the firm make
financial decisions.

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Financial decisions

Capital budgeting (use of the capital)

Real capital investments

Mergers; acquisitions

Financing (capital structure decision)


Risk management

Hedging to reduce the risk

Portfolio diversification

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Course organization

This course is broken-down into 4


Assets pricing theory
Option pricing theory and its applications
Capital structure theory

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This module covers the fundamentals of

valuation. The topics include

Present value concept and its application

Unlevered assets and betas
Levered assets and betas
Two approaches for valuing a real project

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Asset pricing theory

This module is the fundamental of

corporate finance

Corporate finance is simply the application of

asset pricing theories

It covers the most fundamental theories

in finance

Portfolio diversification, mean-variance

analysis, risk and return

CAPM, WACC and its calculation
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Option pricing theory and its


This module, together with the first module,

provides a complete picture about asset

asset pricing based on equilibrium concept

relative asset pricing, using no arbitrage argument

It covers

Black-Sholes valuation and its use in industries

Binomial tree valuation in single and multiple stages
Applications of option theory in valuing managerial
flexibility: waiting, expansion, and shutting down

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Financing decision (capital

structure theory)

If you are the CEO of an industrial company

you can make your company more valuable by

choosing better projects (capital budgeting)
we want to know if you (and the CFO) can make your
company more valuable by changing the mixture of
your financing (i.e. the ratio of debt to equity)

It covers

Modigliani-Miller theorems 1 and 2

FIN 819: Lecture 1