Spring 2010

Advanced Corporate Finance

Enrollment limited to top 21 students who have successfully completed Corporate Finance (EC 215) or equivalent.
Presentations Rank Order and Group Assignment

Fast Track to Course Calendar



 
 
 

Friday, 1:15-4:05
meets in 202 Skinner
 

Satya J. Gabriel
Professor of Economics
e-mail: gabrielfinance at gmail dot com
FAX: 413-538-2323


Course Description:
 

The course is a continuation of Economics 215, Corporate Finance.  Some of the topics will be familiar from that earlier course, such as modern portfolio theory, efficient market theory, the Modigliani-Miller propositions, and the capital asset pricing model, all of which will be further elaborated in the seminar.  Behavioral finance, which was only mentioned in 215, will be discussed in detail in the advanced course and students will have an opportunity to explore selected topics in behavioral finance in detail (such as noise trader risk, market overreaction, forward discount bias, and the hubris hypothesis of corporate takeovers).  This semester students will also discuss microfinance and the applicability of the techniques learned in class to this burgeoning field. 

The basic course provided students with the skills necessary to performing valuation of firms, securities, and other assets.  The seminar provides an opportunity to enhance those skills by the application of appropriate valuation techniques to specific firms:  students are expected to collect the data and analyze the net present value of several publicly traded firms and present the results of at least one of these findings to the seminar. Students will further develop valuation procedures for private firms (including state owned enterprises that are not publicly traded), subsidiaries and other stand alone corporate assets, mergers and other restructuring arrangements, firms in "emerging" markets, and real options.

In addition to the above valuation analyses, in keeping with departmental requirements for seminars, students are expected to complete a semester paper that demonstrates their understanding of that literature.  In this regard, students who complete the seminar will gain a better understanding of the role of psychology, asymmetric information, and agency costs in the determination of firm value and the short-run movements of equity prices. Expect to hear statements that are blasphemous, from the standpoint of economic orthodoxy: the notion that markets are machine like manifestations of rational (robotic) agents will be challenged (with appropriate evidence from the real world).

The advanced seminar will make extensive use of case studies (most of which will be constructed by student participants during the semester based on the firms they have chosen for valuation analysis).  The case studies will allow students to come as close as possible, within the context of a classroom, to the experience of real world decision makers in corporations and investment banks, to recognize the uncertainty and ambiguity that is present in every such decision, and to strengthen skills at group brainstorming.  As in the case of all seminars,  students should be prepared, from the very first class and every class, to actively engage in discussions.


 

Course Objectives:
 
 


Syllabus

Spring 2010

  • Text and Other Course Materials:
  • Aswath Damodaran, Investment Valuation, Second Edition, 2002, John Wiley & Sons, Inc., ISBN: 0-471-41490-5
  • Hersh Shefrin, Behavioral Corporate Finance, McGraw-Hill
  • Gabriel, Hinckley, and Jawaid, Microfinance, Wingate Books
  • Richard H. Thaler, Advances in Behavioral Finance, Russell Sage Foundation (Supplemental)
  • Westin, Siu and Johnson. Takeovers, Restructuring and Corporate Governance, 3rd edition. Prentice Hall. (Supplemental)
  • Web Case Studies & Essays 
  • Grading policy (please note than an "A" is awarded if and only if each of the components listed below is performed to a high level of excellence. If you are at all confused about what this means, please talk to the professor to get clarification. 
  • Seminar participation -- contribute ideas, ask questions, engage in conversation utilizing the tools learned in corporate finance (1/4th of grade)
  • Valuation analyses, including presentation and documentation (1/4th of grade)
  • Group Projects/Competition (1/4th of grade): Note that each member of a group has 100 points to allocate to team members and this allocation will be a key factor in determination of this portion of the grade
  • Semester research paper on either behavioral finance or microfinance (1/4th of grade)
  • Course calendar

    Feb. 5 Approaches to Valuation
    For the first seminar meeting, read the essay below:
    Aswath Damodaran, "Value Creation and Enhancement: Back to the Future"
    For the second seminar meeting, read chapters 1-3 of Damodaran's Investment Valuation
    Feb. 12 The Basics of Risk
    Read chapter 4 of Damodaran text.
    Solving the Valuation Denominator Problem
    Damodaran, "Estimating Beta"
    Aswath Damodaran, "Estimating Risk Free Rates" Option Pricing Theory and Models
    Read chapter 5 of Damodaran.
    Feb. 19
    First Half: Valuation Presentations (individual student projects) and Apple Computer Case Study

    Second Half: Discussion of Market Efficiency
    Read chapter 6 of Damodaran
    March 4 First Half: Group Valuation Presentations

    Second Half: Market Efficiency and Market Anomalies
    Read chapter 6 of Damodaran
    March 11 First Half: Group Valuation Presentations

    Second Half: Risk Premiums and Estimating Risk
    Read chapters 7 and 8 of Damodaran
    March 25 Relative Valuation
    Read chapters 17-20 of Damodaran
    March 22-29 Special Cases of Valuation:
    Banks and other financial institutions, firms with negative earnings, high tech firms, start-ups, and private firms
    Read chapters 21-24 of Damodaran
    April 10 Student Presentations I
    Hannie Jawaid, Cristin Oliva, Chloe Synac, Denitsa Yaneva, Michael Serviansky, John Armideo, and Ventseslava Encheva
    April 17 Student Presentations II
    Angelica Longe, Timothy Thornton and Matt Himler, Laura Kessell, Liliya Cvetanova, and Jiehua Li
    April 24 Student Presentations III
    Tanya George, Rachel West, Phuong Nguyen, Naa Mettle-Nunoo, Pi-Ying Lai, Divya Mubayi and Pooja Daftary, and Chris Valentine
    May 3 Last Seminar Meeting of 2006-2007 Academic Year: Debriefing Day
    May 6 Semester Research Paper Due Date for Graduating Seniors.
    Absolutely no extensions will be granted beyond this date
    May 16 Semester Research Paper Due Date (for non-seniors).
    Absolutely no extensions will be granted beyond this date

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    Copyright © 1998-2002, Satya Gabriel, Economics Department, Mount Holyoke College.