Lahore University of Management Sciences

FINN 400 Applied Corporate Finance

Spring 2013

Instructor Dr. Fazal Jawad Seyyed, CFA

Room No. 208 SDSB
Office Hours TBA
Email fazal.jawad@lums.edu.pk
Telephone 042-3560-8030
Secretary/TA Saleem A. Khan
TA Office Hours TBA
Course URL (if any) LMS

Course Basics
Credit Hours 4
Lecture(s) Nbr of Lec(s) Per Week 2 Duration 1:50
Recitation/Lab (per week) Nbr of Lec(s) Per Week Duration
Tutorial (per week) Nbr of Lec(s) Per Week Duration

Course Distribution
Core ACF - Core
Elective
Open for Student Category
Close for Student Category

COURSE DESCRIPTION

Applied Corporate Finance is a case-based course in intermediate level finance. It provides insights into the
role of the financial manager, whose primary responsibility consists of acquiring funds needed by the firm and
directing these funds into projects that will maximize the value of the firm for its owners. In reaching this
objective, financial managers perform such varied roles/tasks as financial forecasting and analysis, raising
capital from most economical sources, channelizing firms resources to projects with best pay offs, dealing in
foreign currency and global financial markets to name a few.

As an applied course, the focus is on: (a) application of financial concepts, models, and tools to address typical
problems faced by financial managers, (b) examining financial theories and concepts in light of corporate
practices and empirical evidence for better understanding of the critical success factors and processes related to
financing, investment, and payout decisions of firms, and (c) interaction of financing and investment decisions
and how they interface with capital markets and impact firm value.

The course is divided into following six modules:

Module 1: Financial Analysis, Financial Modeling, and Working Capital Management Policies
Module 2: Risk-Return and Valuation of Financial Assets
 Lahore University of Management Sciences
Module 3: Cost of Capital and Capital Budgeting: Processes and Practices
Module 4: Financing, Capital Structure, and Dividend Policy Decisions
Module 5: Firm Valuation and Evaluation of Mergers and Acquisitions
Module 6: International Finance and Special Topics

COURSE PREREQUISITE(S)
FINN 200 Intermediate Finance

COURSE LEARNING GOALS

The course attempts to:

Enhance students understanding of the theory and practice of corporate finance in making
financial decisions with the key objective of creating value for shareholders.
Reinforce students understanding of financing and investment choices faced by financial
managers through application of financial concepts and models in solving real life problems.
Enhance students understanding by examining empirical evidence and corporate finance
practices highlighting the processes and key considerations involved in making financial
decisions.
Expose students to a variety of perspectives and special topics in finance such as alternative
valuation methodologies, applications of real options, issues in international finance, ethics,
and behavioral finance providing fresh insights on some of the finance puzzles and
anomalies.
Develop student skills and competencies in using spreadsheets, financial models, and other
financial tools in addressing financial problems in a variety of settings based on case method
approach.
Motivate students to develop a keen interest in and knowledge of finance and to prepare them
for the pursuit of further education and careers in finance.

GRADING BREAKUP AND POLICY

The course grade is based on the following criteria:

Source % of Total
Class Participation and Attendance 20
Quizzes and Assignments 25
Mid-Term Exam 25
Final Examination (comprehensive) 30
Total 100
 Lahore University of Management Sciences

Class Participation and Attendance: Students are expected to attend all classes. If you are not present at the
beginning of a class or leave class during the session without instructors prior permission, you will be
considered absent for the day. You must review the assigned materials in advance of the class in order to
contribute meaningfully to class discussions. You should plan to spend 5-7 hours for each class preparation.
Working in groups to prepare for class discussion cases is highly recommended. Groups comprising 4-5
persons will be formed by session 3. A significant portion of the course grade depends on the quality and level
of your involvement and input in class discussions. This is an excellent opportunity for you to enhance your
understanding of financial concepts and hone your application skills in corporate finance.

Quizzes: Several unannounced quizzes will be given on the assigned material (readings, cases, assignments,
etc) during the term. No make-up quizzes will be given. However, the lowest quiz grade including a zero for a
missed quiz will be disregarded.

Assignments: There will be several spreadsheet-based assignments during the term to sharpen your skills in
using spreadsheets to perform financial analysis and build financial models. The format and other requirements
will be specified by the instructor. All assignments must be submitted on the due date. Late submissions will
not be accepted.

Examinations: Both exams (mid-term and final) will comprise a blend of MCQs and open-ended
questions/problems or case-like situations.

Calculator Requirement: You will need a financial calculator capable of performing present value/future
value functions. For example, Texas Instrument BA II meets these criteria. Many other brands are equally
suitable for this course.

Examination Detail

Yes/No: Yes
Combine Separate: Combined
Midterm
Duration: 2 Hours
Exam
POptionalerred Date: Week 8
Exam Specifications:

Yes/No: Yes
Combine Separate: Combined
Final Exam
Duration: 2 Hours
Exam Specifications:
 Lahore University of Management Sciences
COURSE SCHEDULE
Module/
Session Topic and Case Reading Material Learning Goals
Session
Module 1: Financial Analysis, Financial Models, and Working Capital Management
Z-Factor Rescue by the Overview of corporate finance
Topic: Overview of Corporate Finance Numbers and how finance can be a
Session 1 Theory and Practice RWJ Ch 1: Introduction to source of creating competitive
Corporate Finance (Optional) advantage for the firm.
1

Topic: Financial Analysis & RWJ Ch 3: Financial Examine linkages between

Forecasting Statement Analysis and corporate strategy, growth,
Session 2 Financial Models (Optional) profitability and financing
Case: *Clarkson Lumber Company requirements of the firm.

Topic: Free Cash Flows and Building
Financial Models
Session 3
Case: Building a Financial Model: The
Case of PPG Corporation
Calculating Free Cash
Flows
SB Ch 7: Using Financial
Planning Models for
Valuation
Estimation and forecasting of
free cash flows and its
applications in building
financial models for valuation.

Topic: Working Capital Management RWJ Ch 26-28: Short-Term Review working capital
Policies Financing, Cash, policies including short-term
Session 4
Receivable and Inventory financing and its impact on
Case: *Dells Working Capital Management (Optional) firm profitability.
Module 2: Risk-Return and Valuation of Financial Assets
Topic: Portfolio Theory Risk and SB Ch 9: Statistics for Review of portfolio theory,
Return Portfolios diversification, CAPM, and
Session 5 RWJ Ch 11: Return and estimation of risk measures.
Case: *Beta Management Company Risk: The Capital Asset
Pricing Model (Optional)
Topic: Valuation of Bonds Duration SB Ch 15: Bond Valuation Overview of bond markets,
and Convexity Note on Bond Valuation valuation, risk management,
Session 6 Case: Greydanus, Boechk & and Returns and bond portfolio strategies.
Associates: The Yield Curve Kink
Decision
Topic: Stock Valuation SB Ch 16: Valuing Stocks Examine alternative
Session 7 approaches to value stocks.
Case: Valuing Wal-Mart Stock
Topic: Equity Valuation Approaches SB Ch 16: Valuing Stocks Develop understanding of
Session 8 fundamental valuation
Case: *Warren Buffet, 1995 approaches.
Module 3: Cost of Capital and Capital Budgeting: Processes and Practices
Topic: Capital Budgeting and Cost of SB Ch 4: Introduction to Review survey findings on
Capital Evidence from the Field Capital Budgeting capital budgeting and capital
Case/Survey: How Do CFOs Make structure processes and
Session 9 Capital Budgeting and Capital RWJ Ch 6-7: Making practices of leading
Structure Decisions? Graham and Capital Investment corporations.
Harvey, Journal of Applied Corporate Decisions and Risk in
Finance, Spring 2002. Capital Budgeting (Optional)
 Lahore University of Management Sciences
Topic: Estimating Firms Cost of RWJ Ch 13: Risk and Cost Examine various approaches
Capital of Capital (Optional) and issues in estimating cost of
Session 10
capital of a firm.
Case: *Marriot Corporation
Topic: Making Capital Investment SB Ch 5: Issues in Capital Review issues in estimating
Decisions Budgeting cash flows for evaluating
Session 11
capital projects.
Case: *Diamond Chemicals
RWJ Ch 22: Options and Introduce real options,
Topic: Evaluating Capital Projects as Corporate Finance (Optional) valuation, and applications to
Real Options A Real-World Way to capital investment projects and
Session 12 other corporate finance
Manage Real Options,
Case: Real Options Exercises Copeland and Tufano, decisions.
HBR, 2004
Module 4: Financing, Capital Structure, and Dividend Policy Decisions
Topic: Corporate Financing and RWJ Ch 17: Capital Examine and evaluate various
Capital Structure Structure (Optional) financing choices available to
Session 13
modern corporations.
Case: *Debt Policy at UST, Inc., 2001
Topic: Lease Financing RWJ Ch 21: Leasing Evaluate pros and cons of
(Optional) leasing as an alternative to
Session 14
Case: AMG Lease Versus Buy corporate borrowing.
Decision
Topic: Dividends and Alternative RWJ Ch 19: Dividend and Review and evaluate corporate
Payouts other Payouts (Optional) dividend polices in light of
Session 15
finance theory and business
Case: *Dividend Policy at FPL practices.
Topic: Raising Capital Through Public RWJ Ch 20: Issuing Provide overview of the
Offerings Securities to the Public processes, procedures, and
Session 16 (Optional) requirements of going public.
Case: *Netscape IPO
Module 5: Firm Valuation and Evaluation of Mergers and Acquisitions
Topic: Valuation of the Firm Whats it worth? A General Using free cash flows to value
Managers Guide to Valuation a firm.
Session 17 Case: Mercury Athletic: Valuing the SB Ch 7: Using Financial
Opportunity Planning Models for
Valuation
Topic: Adjusted Present Value (APV) Note on Adjusted Present Introduce adjusted present
Approach to Valuation Value value (APV) and its
Session 18 applications as an alternative
Case: Using APV: A Better Tool for to WACC based valuation.
Valuing Operations.
Topic: Merger and Acquisition RWJ Ch 29: Mergers, Discuss issues in valuation of
Evaluation Acquisitions, and merger and acquisition
Session 19
Divestitures (Optional) candidates.
Case: *Radio One, Inc.
Module 6: International Finance and Special Topics
Topic: International Corporate RWJ Ch 31: International Examine various issues and
Session 20
Finance Corporate Finance (Optional) complexities in evaluating
 Lahore University of Management Sciences
cross border investing and
Case: Innocents Abroad: Currencies financing alternatives.
and International Stock Returns
Topic: : International Corporate RWJ Ch 31: International Focus on special issues and
Finance Corporate Finance (Optional) problems relating to financial
decisions in emerging markets.
Session 21 Case/Field Survey: Emerging
Markets Finance, Bekaert and
Harvey, Journal of Empirical Finance,
2003
Topic: Behavioral Finance Insights for RWJ Ch 14: Efficient Review findings of a recent
Corporate Finance Decisions Capital Markets and comprehensive survey of
Behavioral Challenges behavioral finance and its
Session 22
Case/Field Survey: Behavioral (Optional) insights in understanding some
Corporate Finance: A Current of finance puzzles and
Survey, 2012 anomalies.
Topic: Value Creation and Ethical Financial Measures of Discuss various measures of
Behavior Value Creation value creation and review the
Session 23 implications of ethical
Case: Ethics in Finance behavior on financial
decisions.
Session 24 Final Exam Review
Final Examination (Comprehensive)
1
Note: Reading material designated as Optional is not part of the study pack. You may use any standard Corporate
Finance textbook of your choice to review the session topic.

Textbook(s)/Supplementary Readings
Textbook:

No specific textbook is required for this course. You may use any standard corporate finance textbook to
review the assigned topic. A number of corporate finance textbooks are listed below. The course schedule
refers to relevant chapters from Corporate Finance by Ross, Westerfield, and Jaffe (RWJ) for your reference
(indicated as Optional). Material indicated as Optional is not mandatory reading. You can substitute this
material with any textbook of your choice. The study pack does not contain readings designated as Optional.

Reference Books:
Ross, Westerfield and Jaffe, Corporate Finance, 9th Edition, McGraw Hill, 2010. (RWJ)
Benninga, Simon, Principles of Finance with Excel, 2nd Edition, Oxford University Press, 2011. (SB)
Brigham, Eugene and Daves, P., Intermediate Financial Management, 8th (or a later edition), Thomson,
South Western.
Brealey, Myers, and Allen, Principles of Corporate Finance, 8th Edition, McGraw-Hill/Irwin, 2006.

Additional Recommended Readings:

Students are encouraged to read financial publications such as The Wall Street Journal, Financial Times;
Business Recorder to stay abreast of developments related to this course.