MBA 515 Course Description:

The prerequisites for this course are MBA500, MBA503, MBA506 and MBA507. It is not realistic to do this course without these pre-requisites. A good understanding of the topics discussed in these classes including financial statements, the time value of money, bond and stock valuation, and the basics of capital budgeting is assumed.  The course builds on these concepts.

This course presents basic principles of corporate finance and develops tools for financial decisions and valuation in presence of uncertainty, imperfect information and conflicting incentives.

Additional Course Features: The course uses textbook as well as current readings. A series of spreadsheet based valuation exercises are used to develop firm values using basic financial data for local companies. Teamwork and class participation is emphasized.

Course Objectives:

·        To develop an understanding of value drivers for a corporation in presence of uncertainty,     imperfect information and conflicting incentives.

·        To develop techniques for using basic financial statement data for valuation.

·        To examine arguments that support or reject the impact of financing choices on firm value in the context of taxes, information and agency issues.

Course Outline:

·        Review of 507 material                                     (1 week)

·        Overview, Efficiency, Long Term Financing                   (1 week)

o       Popular myths of Corporate Finance

o       What does market efficiency imply to a manager

o       Basics of preferred stock, stock, bond and control issues

·        Cash Flows, IPO, Long Term Debt                              (1 week)

o       Using financial statements to construct free cashflows.

o       Initial Public Offerings.

o       Basic types of bonds, covenants, agency.

·        Risk and Cost of Capital, Free Cash flow                      (1 week)

o       SML, beta estimation

o       Free cashflow to firm, free cashflow to equity.

·        Capital Structure and Firm Value                                  (1 week)

o       Irrelevance of capital structures

o       Irrelevance of dividends, buybacks, debt choice.

·        Relevance of Capital Structure                                      (1 week)

o       Debt as a disciplining device for managerial behavior

o       Debt-equity conflict and investment distortions

o       Costs of financial distress

·        Valuation of levered firm                                               (1 week)

o       Equivalence of APV, WACC and FTE techniques

o       Non-market rate financing

·        Leverage Buyout  case study                                         (1 week)

·        Valuation of local firms using real data               (1 week)

o       Valuation of Boeing, Costco and Microsoft

o       Develop a spreadsheet to study the impact of firm’s actions on the value of the firm

§         Growth rate

§         Dividend payout

§         Stock Buyback

§         Cost structure improvements

§         Receivable/payable cycle

§         Debt-equity swap

·        Review and Current Topics                                           (1 week)

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