NEW YORK UNIVERSITY
STERN SCHOOL OF BUSINESS
INVESTMENT PRINCIPLES
Fall 2003 (C15.0041.002)
Professor Yoram Landskroner
Classroom: T LC 12
Time: TuTh 2-3:15 pm;
Final exam (tentative): Tu. 12/16/03 12:00-1:50 am
Thanksgiving recess: no class on Th. 11/27/03
Last day of classes: Tu. 12/09/03
Office: KMC 8-51
Office Hours: TuTh 1:00- 2:00 pm
Tel: (212) 998 0913
E mail:
Web:
TA: Jacob M. Esayag
TA Office Hours: TuTh 3:00-4:00 in T 320 S
TA email:
Syllabus (REVISED 8/28/03)
Course Description
This course covers investment principles that should be used in security analysis and valuation. The course focuses on valuation of equity securities but other investments will be analyzed. Different approaches to valuation will be considered in a comprehensive way (DCF, Relative valuation, Option based valuation). The models will be presented with real-world applications to capture the problems in applying the models and choosing the correct model.
Textbooks
Required
A. Damodaran, Investment Valuation, 2nd edition, John Wiley, 2002.
Recommended
T. Copeland, T. Koller, and J. Murrin, Valuation: Measuring and Managing the Value ofCompanies, 3rd edition, John Wiley, 2000.
J. Siegel, Stocks for the Long Run, 3rd edition, McGraw Hill, 2002.
Prerequisites:
Principles of Financial Accounting, Foundations of Financial Markets,
Financial Management (Recommended)
Grades, Exams, and Project
Grades will be based on a mid-term exam (30%), a final exam (40%), a valuation project (20%) and problem sets (10%). The final grades will follow the grading standards of the Department of Finance, for details see click on courses.
Exams The mid term and final exams are not cumulative. You must take them both. There will be no make-ups during the semester. The exams are in-class, multiple-choice with short explanations. They are closed book, but you can bring in one 8.5”x11” page of notes and should bring in your calculator (but not your laptop). You may not enter any formulae or data in your calculator.
Valuation Project A semester long project designed to give students an opportunity to apply valuation methods discussed in class on real world companies. The project will consist of four parts handed in and graded over the course of the semester. Students will work in groups (3-4 students) that will and hand in a company report (in four parts). For more details on the project see the course web site.
Problem Sets over the course of the semester end of chapter problems will be assigned. They will be graded. Each student has to hand the answers individually. To receive credit the problem sets answers must be handed in on time and must be legible handwritten originals (please no faxes, no word processors nor photocopies).
Computer and Calculator
The tools of trade. It is strongly recommended that you own a computer (laptop or desktop). You should also have a financial calculator that has NPV and IRR functions, HP10BII (or HP12C) is suitable.
Class Attendance and Classroom Civility
You are expected to attend all classes; you are responsible for knowing what goes on in class, which may include material not covered in readings, modifications and announcements concerning the syllabus, assignments and exams. Class participation is important and is encouraged.
Each lecture begins on time. Please try not to come late, also try not to leave class before it is over. In general respect your classmates’ desire to learn.
Honor code
You are responsible for maintaining Stern’s honor code, which mandates zero tolerance for cheating.
Course Outline
Week*Topic
11.Introduction to Valuation
Overview of Valuation Approaches to Valuation
Review of Accounting Statements and
Basics of Risk (Read only)
AD: Chaps. 1-2, 3 & 4 (review)
2-42.Discounted Cash Flow Valuation
Estimating Cost of Financing:
Cost of Equity
Risk Parameters
Cost of Debt
WACC
AD: Chaps. 7, 8
5-6Measuring Earnings
Estimating Cash flows
Estimating Growth
AD: Chaps. 9-11
7-8Dividend Model
Free Cash Flow Models: FCFE
FCFF
AD: Chaps. 13-15 (382-400)
9-103.Relative Valuation
Fundamentals of Relative Valuation
Earnings Multiples
Value Multiples
Revenue Multiples
AD: Chaps. 17-20
11-124. Option Valuation
Options Pricing
Equity as an Option
AD: Chaps. 5, 30
13-145. Market Efficiency and Investment Strategies
Definitions, Tests, and Evidence
Investment Strategies and Management
Technical Analysis
AD: Chap. 6,
Handout (Damodaran “Investment Philosophies” Wiley 2003, Ch. 7: Technical Analysis)
* Tentative subject to change during the course
Time Schedule(tentative subject to change)
Due DateAssignmentComments
Sept. 9Problem set # 1Ch. 3 (1,2,4-7)
VprojectDeadline for choosing company
Sept. 23Problem set # 2Ch.7(3,4,5,8,9); Ch.8(1,2,13)
Sept. 30Vproject Part IGeneral; COSC
Oct. 14Problem Set # 3Ch.9(1,4);10(2,3,4); 11(1,3,4)
Oct. 16MIDTERM
Oct. 21Vproject Part IIEarnings to CF; growth
Nov. 4Problem set # 4Ch. 13 (); 14 (); 15 ()
Nov. 11Vproject Part IIIDCF valuation
Nov. 25Problem set # 5Ch. 5(); 30 ()
Dec. 2Vproject Part IV Rel. valuation; recommend
Dec 9Problem set # 6Ch. 6 ()
LAST CLASS
Dec. 16FINAL EXAM
1