New York University Leonard N Stern School of Business Corporate Finance B40 2302 Professor Edward I Altman Winter Spring 2003 W 6 00 8 50 pm Room KMC 1 70 Description This course combines what is traditionally covered in the introductory corporate finance offering plus advanced material in financial management particularly in the financing of the firm s operations and its integration with the investment banking and commercial banking communities The major policy areas of the firm covering cash flows liquidity management investment analysis capital structure theory and practice and dividend policy are combined with the overall concepts of business and financial risk valuation of assets and corporate objectives to form the basis of discussion An important objective of this course is to evaluate and utilize financial theories and models in a decision making and applied context The reading materials for the course text and articles will be supplemented by cases Cases include short exercise type analysis and more complex longer integrated cases Cases should be worked on in groups of 2 3 or 4 6 persons as indicated In addition each student is responsible for one industrial firm that will be followed and analyzed throughout the term Your firm should have had publicly traded and rated debt and or rated loans outstanding Cases Each case should be worked and handed in neatly on the date that we will be discussing that case In a few instances cases will involve group presentations and no written materials will be required although exhibits for the presentations are encouraged There should be one case report per group Required and Recommended Materials There is one textbook for the course There will also be a packet of materials which includes Readings and Powerpoint Presentations that you are responsible for Check the materials keyed to each session There will be several cases in the packet and a few 3 additional cases should be purchased separately In addition students may wish to purchase a Solutions Manual and or Student Problem Manual The latter has self correcting problems and exercises There will be a few guest lectures to complement the course materials and a few 2 cases will involve class debates and role playing In addition each student is responsible for one industrial firm which will be analyzed throughout the course with respect to a number of the topics covered Short hand ins are required Required Materials 1 S Ross R Westerfield J Jaffe Corporate Finance 6th Edition Irwin McGrawHill 2001 2 Packet of Readings Exhibits Ex Powerpoint Presentations 3 The following cases should be purchased separately a Hampton Machine Tool do it immediately b Communications Satellite Corporation c Interco Corporation Some cases will be in the course packet Suggested Manuals 1 R Hanson Student Problem Manual for use with RWJ 2 S P Ku Solutions Manual for RWJ Grading Grading for the course will be based on Classroom contribution Cases and projects Midterm quiz Final exam Total 10 20 40 30 100 An approximate grade distribution of 15 20 A and A 65 70 B s and 10 15 below B will be targeted This is the standard grade distribution for all corporate finance sections Office Hours and T A Office location 44 West 4th Street KMC bldg Room 9 61 Monday 4 30 6 00 pm Wednesday 4 30 6 00 pm Tel 212 998 0709 Fax 212 995 4220 Email ealtman stern nyu edu Website http www stern nyu edu ealtman Class T A Deepak dir202 or Amit aa693 2 Session Subject for discussion and assignment Jan 29 Financial concepts and objectives Firm objectives and the finance function The role of senior finance officers Concept of present value and valuation Feb 5 Chapter or Source RWJ Ch 1 3 4 Exhibit 1 We will revisit this material Cash management and financial forecasting Flows budgeting and analysis Cash flows multi measures Cash Management RWJ Ch 2 App 2B RWJ Ch 27 RWJ Ch 28 Browse Case 1 Hampton Machine Tool 2 3 students Cash budget pro forma balance sheet and income statement see Instructions Forecasting financial requirements Days sales percent of sales methods Regression models Feb 12 Financial statement analysis and credit risk Analyzing a firm s strengths and weaknesses Financial ratio analysis Credit management Assessing credit worthiness and distress prediction The Z Score models KMV Application to Enron WorldCom RWJ Ch 26 27 RWJ Ch 2 App 2A 2B 2C RWJ Ch 29 Power point 1 RWJ App 31A Altman reading A Case 2 Forest Resources Case 2 3 Feb 19 Bond valuation and the analysis of operating and financial risk Sources of financing and financial structure planningRWJ Ch 13 14 19 firm life cycle Impact of financial leverage and target capital structure Determinants of risk premiums Firm Exercise No 1 Calculate Your Firm s Z Score for manufacturers or Z Score for non manufacturers and determine its bond rating equivalent Feb 26 Mar 5 Corporate bonds and financial risk The high yield junk bond and Leveraged loan markets RWJ Ch 20 Bankruptcy reorganization Power point 2 RWJ Ch 31 Does debt policy matter Modigliani and Miller M M theories M M Reading B Vs traditional analysis RWJ Ch 15 16 Debt policy puzzle Financial distress costs and agency costs Revisiting firm valuation 3 Mar 12 Cost of capital Comparing valuation technologies Firm valuation and shareholder wealth Cost of equity capital Review CAPM from foundation course Weighted average approach RWJ Ch 5 Ch 9 10 RWJ Ch 12 Firm Exercise No 2 Describe you firm s capital structure and calculate its cost of capital two pages maximum Mini case case 3 due on March 12 2 3 Cost of capital case March 26 Mid term exam 90 minutes March 26 Case 4 Communications Satellite case 4 6 See instructions discussion only role playing Apr 2 Financial restructuring More on the cost of equity capital Valuation and restructuring MBOs LBOs and Leveraged restructurings RWJ Ch 30 esp pp 816 818 823 830 838 845 Exhibits Power Point April 9 Case 5 Interco case Leveraged Recapitalization See instructions role playing Apr 9 Has your firm had a major restructuring in the last five 5 years Please write a one page summary of that those events e g Bankruptcy Reorganization Spinoff Merger Acquisitions LBO etc April 9 Guest lecturer TMA Turnaround Management Assn Representative Managing a Successful Turnaround Deborah Midanek Glass Associates Apr 16 Capital investment analysis The Basics Basics of capital budgeting investments rules Survey of capital budgeting practices BWJ Ch 7 8 Case 6 Mayakovska Department Store due on