FIN 534 – Advanced Corporate Finance
Advanced Corporate Finance
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FIN 534 – Advanced Corporate Finance II: Financing
Meeting:
Section 03: Wednesdays 6:15 - 9:15pm in Simon 106 + Zoom
Section 04: Thursday 6:15 - 9:15pm in Bauer 160 + Zoom
Office Hours:
By Appointment
See Canvas under Syllabus for a Zoom link
Teaching Assistant: TBA
Professor John Dooley
Office: Simon Hall 224
Email: [email protected]
*Please lead Subject Line
with FIN 534B and section.
Olin’s Pillars of Excellence:
Olin students will:
1. Embody a values-based and data-driven ethos in their approach to all business situations
2. Understand the global opportunities and challenges facing businesses
3. Engage with business issues through the application of experiential knowledge, in addition to
the rigorous technical skills acquired in the classroom
4. Pursue world-changing initiatives with an entrepreneurial and innovative mindset and skillset
Course Objectives:
The purpose of this course is to provide an understanding of the financing decisions made by
corporations. While ACF I focused on firms' investment decisions, this course focuses on how
firms fund those investments, how they raise capital, and how they return capital to investors. By
the end of the course, you should be able to articulate how a variety of market frictions,
including taxes, financial distress costs, asymmetric information, and agency conflicts, affect
firms' financing decisions, and how these financing decisions interact with investment decisions.
The course content is designed to balance theories, computations, and applications through a
combination of lectures, case discussions, and practice problems. PMBA Prerequisites: FIN core
and 534. MBA Prerequisites: FIN 5200 and 534.
Course Material
Course packet: The course packet includes copies of the case studies we will discuss in class,
and should be available in the book store.
Textbook: I highly recommend using whichever Corporate Finance text you already own from
Fin 5203 (finance core) or equivalent. In the schedule below, I have included the relevant
chapters for each class session from the following textbook: Corporate Finance, 3rd Edition, by
Jonathan Berk and Peter DeMarzo, Pearson. This book serves as a useful reference not only for
this course but also for a finance profession. One copy of the book is available on reserve in the
Business (Kopolow) Library. The older editions (1st and 2nd) of the book are fine to use, too. An
alternative book is Principles of Corporate Finance by Richard Brealey, Steward Myers, and
Fanklin Allen (BMA). Its 8th-11th editions are all fine. While our lectures present topics in a
self-contained manner, reading assigned chapters from the textbook or relevant chapters from
BMA will reinforce your learning from the lectures.
Lecture notes: At each class session I will hand out copies of lecture slides. Note that, in order to
facilitate engagement in class, these notes will not contain answers to all the questions we will
discuss, or examples we will work out in class. However, if you miss something, “filled-in”
versions of the notes will be posted to Blackboard following each class.
Evaluation
Group Assignments (4)
Individual Assignment
Final Exam
Class Participation
Peer Evaluation
40%
10%
40%
5%
5%
How to prepare for class
We will rely on four primary learning tools:
o Interactive lectures
o Case discussions
o Assignments and practice problems
o Textbook readings
These are designed to complement one another. While some students may wish to emphasize
some tools more than others, depending on your learning style, I would not recommend
neglecting any of them.
It is important that you come to class prepared on case discussion days. The better prepared
you are, the better will be the classroom experience and the more we will all learn.
Lectures:
In our lectures, we will try to address three broad types of questions for each topic.
1. What does financial theory say about a given market friction?
Why is it costly to the firm? How can financial policy mitigate these costs?
2. Do firms actually behave this way?
Is there evidence from case examples, manager surveys or empirical studies that firms follow
the predictions of the theory?
3. How then should I manage my firm?
Which types of firms does the theory apply to most? What are the relationships between firm
characteristics and optimal financial policy?
How to do well on the assignments
The assignments are designed to help reinforce the material, apply concepts we’ve learned to
actual firm data, and prepare for the exams. They will include a combination of analytical
problems and questions pertaining to the cases we will discuss in class.
Assignment groups consisting of 4-5 people will be randomly formed at the end of the first
week and will be stable throughout the semester. If you object to being in a group a peer
please contact the instructor with the reason for your objection to request reassignment.
The assignments are due before the start of the class. You should submit them electronically.
Late assignments will not be accepted without prior permission.
Any re-grade requests must be submitted in writing, with an explanation of the proposed
discrepancy. Requests must be submitted within 2-weeks after the assignment is returned.
How to do well on the exam
The exam will contain both qualitative and quantitative questions.
In order to do well on the qualitative portion, you need to understand the concepts. For some
of the questions, there might be a “common sense” answer. Don’t be fooled. Think through
the issues we have studied and apply them to the questions.
For questions with calculations, it is the justifications, logic and interpretations which are
important and not the actual number. Bring a calculator but it need not be a fancy one. Show
all your work.
The final exam will be closed books and closed notes, but you may bring a one-page “cheat
sheet”.
The final exam covers the entire course.
How to do well on class participation
My evaluation of class participation is based on the quality as well as quantity of your
participation.
Answering questions, asking thoughtful questions and contributing comments that enhance
our class discussion are all valid ways to participate.
Communication
Please make use of the office hours or make an appointment to see me. I am usually on campus
prior to lectures and more than happy to find some time to meet with you. Your feedback on
what is interesting or difficult is important. Finally, the course is short. If you find yourself lost,
come see me as soon as possible. Do not wait for the exam before coming for help.
Tentative Schedule
A tentative schedule appears below. The chapter numbers listed are guidelines. Since this is a 6-
week course, not everything in each chapter will be covered in class.
Week Topic / Assignment / Exam B&D
1 Course Overview
1 Capital Structure
Modigliani-Miller in Perfect Markets
Ch 14
2 Capital Structure Decisions and Taxes Ch15
2 Group Assignment 1 and UST Case
3 Capital Structure Decisions and Bankruptcy Costs Ch 16
3 Tax-Bankruptcy Tradeoff Theory Ch 16
3 Information Asymmetry and Capital Structure Ch 16
3 Group Assignment 2
4 Moral Hazard, Agency Costs & Capital Structure Ch 16
4 IPOs, Raising Capital & Security Design Ch 23
4 Individual Assignment and Google IPO Case
5 LBOs and ABS Financing Ch 24.1, 24.4, 25, 28.6
5 Group Assignment 3 and Hertz Case
6 Payout and Cash Policy Ch 17
6 Group Assignment 4 and FPL Dividend Case
7 Final Exam
Academic Integrity
The Olin Business School is a community of individuals with diverse backgrounds and interests
who share certain fundamental goals. Primary among these goals is the creation and maintenance
of an atmosphere conducive to learning and personal growth for everyone in the community.
Becoming a member of the Olin community is a privilege that brings certain responsibilities and
expectations. The success of Olin in attaining its goals and in maintaining its reputation of
academic excellence depends on the willingness of its members, both collectively and individually,
to meet their responsibilities. All individuals associated with Olin should conduct themselves with
the utmost integrity in all aspects of their life, both on and off campus.
Below, I discuss three aspects of academic integrity. First, I present my commitment to matters of
integrity. Second, I provide an overview of Olin’s Code of Conduct as it relates to Academic
matters, and third, I discuss matters of Olin’s conduct of Conduct as it relate to Professional
behavior.
My commitment to Integrity as the instructor of this course
The purpose of Olin’s Code of Conduct is to clarify expectations about academic and
Professional behavior. The Code is meant to encourage and clarify appropriate academic,
classroom, interpersonal, and extra-curricular etiquette that is expected of each individual by
their peers, the faculty and the institution. It is also intended to help describe the overall
environment of excellence and professionalism that members of the Olin community seek to
establish and to continually enhance. It is the responsibility of each member of the Olin
community to uphold the spirit, as well as the principles, of the Code.
As an instructor, I will consistently and fully support Olin’s Academic Code of Conduct and
Olin’s Code of Professional Conduct. I take the matters of academic integrity and professional
conduct seriously and expect that you do, too. I encourage you to ask if you have any questions
about academic integrity in this course.
Please refer to the publication Integrity Matters: Olin Business School Code of Conduct for
specific responsibilities, guidelines and procedures regarding academic integrity. You may also
consult with MBA Program Dean Joe Fox or BSBA Program Dean Jeff Cannon if you have
questions or concerns.
Olin’s Code of Conduct as it relates to Academic matters
Student Academic Violations. It is dishonest and a violation of student academic integrity if
you:
1. Plagiarize – You commit plagiarism by taking someone else’s ideas, words or other types of
product and presenting them as your own. You can avoid plagiarism by using proper methods of
documentation and acknowledgement.
2. Cheat on an examination – You must not receive or provide any unauthorized assistance on
an examination. During an examination you may use only material authorized by the faculty.
3. Copy or collaborate on assignments without permission – It is dishonest to collaborate with
others when completing graded assignments or tests, performing laboratory experiments, writing
and/or documenting computer programs, writing papers or reports and completing problem sets
(unless expressly discussed in class). If you have any questions regarding the definition of
allowable behavior, it is your responsibility to ask for clarification prior to engaging in the
collaboration.