FNCE 100 Corporate Finance

The Wharton School

University of Pennsylvania

Spring 2003

Instructor: Mark Taranto

Lecture: 004:Tu-Th 9:00-10:20JMHH 265

006:Tu-Th 10:30-11:50JMHH 265

006:Tu-Th 1:30-2:50SHDH 350

Office hours: Wed 2:30-3:00, Fri 1:00-3:00, and by appointment.

Office: 2335 SH-DH, (215) 898-7617

Email:

Teaching Assistants:Names, Email addresses and Office Hours announced later

Text:Principles of Corporate Finance 7th Ed.

Brealey & Myers. Irwin/McGraw-Hill, 2003.

There is no coursepack.

Web Page --

A web page on The Web Café will be used for class announcements. In addition, copies of the Powerpoint slides and assignments will also be made available. These are not to be shared with students not taking the class. Non-Wharton students may need to be added, and should send an email to me. Wharton students enrolled in the class should be able to join the site through the web café web site.

Course Description

Corporate Finance is intended to be the first finance class and is an introduction to the basic concepts of finance. It introduces concepts and securities that arte studied in higher-level classes. Despite the name, the class will include a discussion of topics in Capital Markets as well as an introduction to Corporate Finance.

Financial instruments (e.g., bonds, stock, options, futures contracts) will be studied, concentrating on the following questions: What are they? What are the rewards? What are the risks? How are they priced?

In the latter part of the class, these concepts will be used to show how Finance is used in a corporate setting. In particular, we will discuss how to price risky corporate projects, the determinants of corporate capital structure (how companies raise cash) and dividend policy.

FNCE 100 Corporate Finance

The Wharton School

University of Pennsylvania

Spring 2003

Course Mechanics

There will be one mid-term exams (40%) and a final exam (45%). The midterm exam will cover material. The final exam will be inclusive with about 65-35 new material to old material. Because of the size of the class, no grade will be given for class participation. However, students are encouraged to ask questions, and to participate. Class participation may be used to determine the grade of students whose test scores place them on the margin between grades.

Homework problems will be assigned, and will be collected. Ability to complete the homework translates into ability to do well on the tests. Homework assignments will count for 15% of the grade.

Class Sessions -- Be on time

Exams

All sections will take exams at the same time. The midterm exam will be held in the evening. The final exam will be held during the scheduled exam period. All exams will be closed-book exams. Calculators will be needed during the exams. Some formulas will be provided to help you.

Topics

The following table shows the topics that will be discussed. The topics are subject to change.

Date / Topic / Reading
January 14 (Tuesday)
January 16 (Thursday) / 1. Introduction
2. Time Value of Money / Handout
B&M ch. 1-3
January 21 (Tuesday)
January 23 (Thursday) / 1. Interest Rates
2. Bond Market & Bond Valuation / B&M ch. 3
B&M ch. 24
January 28 (Tuesday)
January 30 (Thursday) / 1. Bond Dynamics
2. Term Structure of Interest Rates / B&M ch. 24
February 4(Tuesday)
February 6 (Thursday) / 1. Stock Market
2. Simple Stock Valuation / B&M 4
February 11 (Tuesday)
February 13 (Thursday) / 1. The Net Present Value Rule
2. Investment Decisions and
Capital Budgeting / B&M ch. 5&6
February 18 (Tuesday)
February 20 (Thursday) / 1. Capital Budgeting II
2. Portfolio Analysis / B&M ch. 5&6
B&M ch. 8-10
February 25 (Tuesday)
February 26 (Thursday) / 1. Diversification
2. Review of Mathematics / B&M ch. 8-10
March 4(Tuesday)
March 6 (Thursday) / 1. The Capital Asset Pricing Model
2. CAPM and Portfolio Theory / B&M ch. 8-10
March 11 (Tuesday)
March 13 (Thursday) / 1. Capital Budgeting of Risky Projects
2. Review / B&M ch. 9-12
March 18 (Tuesday)
March 20 (Thursday) / Spring Break
March 25 (Tuesday)
March 26 (Thursday) / 1. Midterm I (Tuesday)
2. Forward and Futures
Contracts and Markets / B&M ch. 27
April 1 (Tuesday)
April 3 (Thursday) / 1. Options Contracts and Markets
2. Options Dynamics / B&M ch. 20
April 8 (Tuesday)
April 10 (Thursday) / 1. Options Pricing
2. Hedging with Options
3. Real Options / B&M ch. 20-22
April 15 (Tuesday)
April 17 (Thursday) / Corporate Capital Structure / B&M ch. 16-19
April 22 (Tuesday)
April 24 (Thursday) / 1. Dividend Policy
2. The Agency Problem
3. Efficient Markets / B&M ch. 16-19
TBA / Course Review
Exam Period / Final Exam