Spring 1999   Monday and Wednesday 8-9:15 am   Meets in Skinner 202   Dr. Satya J. Gabriel   Associate Professor of Economics   E-mail: sgabriel@mtholyoke.edu   FAX: 413-538-2512

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The course in corporate finance describes the corporation and its operating environment, the manner in which corporations create value for shareholders by the transformation of a set of inputs (human labor, raw materials, and technology) into a more highly valued set of outputs, the process by which corporate management assesses investment opportunities and determines the best choices for financing actual productive investment, and the requirements of financial market participants who are sought as financiers (and, therefore, residual claimants to the profits of) such investments. The course is designed to provide students with analytical tools that allow them to determine the "intrinsic value" of a corporation (or any economic institution, including a state-owned enterprise that is to be privatized) and to assess the effectiveness of corporate management in maximizing that value. Because the future cash flows of any set of corporate investments are sensitive to macroeconomic, competitive, and other conditions, students will be taught analytical techniques for taking into consideration alternative macroeconomic and competitive environments. Simulations will be used to project alternative cash flow streams for firms under varying conditions of aggregate demand, inflation, tax rates, interest rates, and exchange rates, among other variables. Recent research by the American Management Association has found a strong correlation between the diversity (different demographic characteristics) of top management at corporations and corporate performance (as measured by profitability, productivity, and shareholder value). The study of 1000 firms provides support for the concept that wider perspectives among top management can improve corporate results. The course will provide students an opportunity to test whether the American Management Association's results hold for firms operating in a multi-national context. The course will make extensive use of case studies and students should be prepared, from the very first class and every class, to engage in discussions, to answer questions, and to participate in simulations. Students who find it "impossible" to participate in this way are encouraged to seek alternative courses. The case studies will be based on actual corporations, such as Applied Materials, Microsoft, Boeing, Amazon.com, Refac Technologies, Dairy Farm International Holdings, Hong Kong Telecommunications, Shanghai Petrochemicals, and Nam Tai Electronics. Students must be prepared to make extensive use of the internet to gather actual and relatively up-to-date data. Many of these data sources can be accessed from the course's own corporate finance hotlinks page.

Spring 1999

Text Hickman, Hunter & Byrd, 1996, Foundations of Corporate Finance Web Case Studies & Essays (stay tuned) Wall Street Journal and Barrons Grading policy Course grades will be based on the total accumulation of points from five sources: oral answers to questions during the normal course time (students should treat such questions as an oral examination) and pop quizzes, the final examination, participation in a course simulation, and two class projects. Students will be able to select two of the seven course project options listed below or one of the course options listed below and a project of her own design (such a project would require pre-approval based upon a highly organized and clearly presented proposal). The following are the maximum points that can be earned from the various components: In-class questions -- 200 points Final examination -- 400 points Course projects -- 400 points (approximately 200 per project) Stock Market Simulation -- See Formula Course Project Options Classroom presentation of an analysis of a publicly traded company, complete with presentation of relevant data and an estimate of the intrinsic value of the company. Write a short paper (5 to 10 pages) critiquing the efficient market hypothesis and providing evidence that could be used to refute the hypothesis. Write a short paper (5 to 10 pages) discussing the "agency" problem that arises from the separation of management and ownership in the "modern" corporation. Write a short paper (5 to 10 pages) testing whether the American Management Association's results indicating the existence of a strong correlation between diversity within corporate management and improved corporate performance holds for multinational firms. NOTE: This project counts as two projects. Write a short paper (5 to 10 pages) discussing the problems that are likely to be encountered in valuing a non-publicly traded state-owned enterprise that is to be privatized. Write a short paper (5 to 10 pages) presenting your own unique theory of what determines stock price movements (or the movements of other publicly traded securities). You are not required to test this theory against the empirical evidence, but it should be possible to do so. Conduct a multiple regression to determine unique factors that may influence stock price movements in general, the movements of a particular group of stocks, or the movements of a single stock. Either present your findings to the class or write a short paper (5 to 10 pages) presenting your findings. Develop a unique corporate finance website that has clearly demonstrable educational value and is not a duplicate of information already available elsewhere on the web.

Jan. 27	A Financial Model of the Corporation: Hickman, Hunter Byrd (HHB), Chapter 1.
Feb. 1	The Effect of Markets and Government on the Firm: HHB, Chapter 2
Feb. 3	Value: The Cornerstone of Finance: HHB, Chapter 3
Feb. 8-10	Estimating Cash Flows: HHB, Chapter 4 Read Read the Case Study: Hong Kong Telecommunications
Feb. 15-17	Time Value: HHB, Chapters 5 and 6
Feb. 22	Risk and Return in Capital Markets: HHB, Chapter 7
Feb. 24	Required Rates of Return in the Capital Market: HHB, Chapter 8
March 1-3	Corporate Investments: HHB, Chapter 9 A Few Questions Relating to Corporate Investments
March 8-10	Estimating the Discount Rate: HHB, Chapter 10
March 11	First Course Project is Due.
March 22-24	Sensitivity Analysis: HHB, Chapter 11
March 29-31	Capital Structure: HHB, Chapter 12
April 5-7	Dividend Policy: HHB, Chapter 13
April 12-14	Managing Corporate Liquidity: HHB, Chapter 14
April 19-21	Evaluation of Corporate Performance: HHB, Chapter 15
April 26-28	Corporate Restructuring: HHB, Chapter 16

Case Studies Explore the Securities Industry Corporate Finance Hot Links Stock Market Simulation Log In Page click symbol to search the SEC database Home Page | Courses | Papers | Research Online Copyright © 1998-1999. Satya Gabriel, Economics Department, Mount Holyoke College.