FIN 501 – CORPORATE FINANCE

SCHOOL OF BUSINESS, UNIVERSITY OF ALBERTA

WINTER, 2012 (Day Session)

PROFESSOR: Mengxin Zhao, Ph.D. C.F.A.

OFFICE: 2-32C Business Building

OFFICE HRS: Tuesdays 5:30-6:30pm, and by appointments

TELEPHONE: 780-248-1318

E-MAIL: mengxin.zhao@ualberta.ca

Course Description:

This course provides a framework for analyzing the major types of investment and

financing decisions made by firms. We start with investment decisions and then move to

an understanding of how firms decide between alternative sources of financing their

investments. We also examine the concept of risk and return and learn how to estimate

the cost of debt, the cost of equity and the weighted average cost of capital. A thorough

understanding of the topics covered in this course is important for the success of careers

in investment banking, consulting, and corporate management.

Required Texts:

Corporate Finance, Second Canadian Edition by Berk, DeMarzo and Stangeland, 2010,

Pearson Canada. (Older edition is also fine)

Digital resources:

http://www.coursesmart.com/IR/1984815/9780321708717

Grading:

• Homework 20%

• Exam I 40%

• Exam II (cumulative) 40%

Your course grade is determined by your rank in the class. The University provides a

suggested grade distribution for a 500 level courses, and this course’s grade distribution

will be similar. You can visit this website for reference:

http://www.uofaweb.ualberta.ca/gfcpolicymanual/policymanualsection61-6.cfm

Rules of the Class

Make-up Exams: If you miss the mid-term exam, the marks are automatically carried over to

the final exam. If you miss the final exam, I will need a medical certificate to arrange a make-

up exam.

Exam Aids: You are allowed to carry a one-page (8½x11) sheet of paper with as many

formulas as you can cram onto it. You may write on both sides. Personal computers

(notebooks, laptops etc) are not allowed in exams. Financial calculators/calculators are

allowed.

Email Policy: The instructor will respond to emails within two business days under normal

circumstances.

Assignments: A total of four (4) assignments will be handed out. Of these, the best three

scores will count towards the 20 points allocated to assignments. So if you miss an

assignment, don’t fret too much. You still have three to hand in. If you miss more than one,

you are starting to run out of luck.

Assignment Submissions: All assignments must be submitted with hard copy. Electronic

submissions (email attachments) are not acceptable. Assignments are due at the beginning of

the class on due date. Late submissions will not be marked and awarded zero.

I will not answer questions directly related to graded assignments, except for clarification

purpose. But I will be happy to address your questions after you turn in your assignment

and I post the solutions. This ensures fairness among the class. But please do make an

appointment with me if you have any course related questions.

Grading: If you feel that your grade is incorrect, you must notify me in writing during the

one-week period following the receipt of your marked exam. (Grades will be available

within one week of exams.) After that, the problem will not be researched. Please note

that a request to have a question on your exam re-graded entails a request to have the

entire exam re-graded.

Calculator: A financial calculator, while useful in this class and allowed during exams, is

not required, but recommended. A calculator should at least have yx, ex and lnx functions.

It is your responsibility to learn how to operate the calculator. No class time will be given

to how to use financial calculator.

Attendance:

Attendance is crucial to the understanding of the materials. If you miss a class, then you

are responsible for getting whatever information you need from a classmate (not from

me). This applies to questions about upcoming exams, homework assignments, lectures

and class announcements.

Academic Honesty:

From the General Faculties Council: “The University of Alberta is committed to the

highest standards of academic integrity and honesty. Students are expected to be familiar

with these standards regarding academic honesty and to uphold the policies of the

University in this respect. Students are particularly urged to familiarize themselves with

the provisions of the Code of Student Behaviour and avoid any behavior which could

potentially result in suspicions of cheating, plagiarism, misrepresentation of facts and/or

participation in an offence. Academic dishonesty is a serious offence and can result in

suspension or expulsion from the University.”

The Code of Student Behavior can be found here:

http://www.uofaweb.ualberta.ca/gfcpolicymanual/content.cfm?ID_page=37633

Study Methods for FIN501

The materials for this course are not the sort that most can absorb easily, especially to

start with. You'll find it helpful at the beginning of the course to read the chapters from

the book before we go through it in class. That way, hopefully, you'll get more from the

lectures. After we've been through the material in class you should again read the lecture

notes and relevant chapters. You should make sure you understand them, and this may

require reading the material slowly a number of times--it may be necessary to reread

certain passages over and over. You should not get depressed if you can't understand it

the first time through. The thing to do is to try to understand each individual step in an

argument one at a time, and then once you've done that, you'll find you have a better

grasp of the idea as a whole. One thing you may find helpful is to form study groups and

discuss the material together. There is also a glossary of common finance terms towards

the end of our textbook.

Readings and Class schedule: The schedule may be modified as the semester

progresses, if some topics take more or less time than budgeted. Assignment dates may

deviate as necessary. You need to follow the class announcements and U-learn

announcement frequently. Please try to read the relevant materials before and after each

session as described in the study method section.

Topic Chapter Date

Introduction/The Time Value of Money 1, 4 January 10, 12

2, 3 background reading

Time Value of Money Continued 4, 5 January 17, 19

Investment Decision Rules,

Capital Budgeting

6

7 January 24, 26

Capital Budgeting (Continued)

(Assignment 1 Due)

7 Jan 31, Feb 2

Valuing Bonds(Assignment 2 Due) 8 February 7, 9

Valuing Stocks 9 February 14, 16

Reading Week No Class February 21, 23

Exam I March 1

Risk, Return and Capital Markets

Portfolio Choice

10, 11 March 6, 8

Risk, Return and Capital Markets

Portfolio Choice, The Capital Asset Pricing

Model (CAPM) (Assignment 3 Due)

11, 12

March 13, 15

Capital Structure I (including cost of capital) 14, 15 March 20, 22

Capital Structure II (Assignment 4 Due) 15, 16 March 27, 29

Capital Structure II (continued)

Dividend Policy

16

17 April 3, 5

Option Pricing

Review

20 April 10, 12

Exam II Date decided by

School