I confess. I send out a lot of emails and I am sure that you don't read some of them. Since they sometimes contain important information as well as clues to my thinking (deranged though it might be), I will try to put all of the emails into this file. They are in chronological order, starting with the earliest one. So, scroll down to your desired email and read on...
|Date||Email sent out|
I am delighted that you have decided to take the corporate finance class this spring with me and especially so if you are not a finance major and have never worked in finance. I am an evangelist when it comes to the importance of corporate finance and I will try very hard to convert you to my faith. I also know that some of you may be worried about the class and the tool set that you will bring to it. I cannot alleviate all your fears now, but here are a few things that you can do to get an early jump.
Having got these thoughts out of the way, let me get down to business. You can find out all you need to know about the class (for the moment) by going to the web site for the class:
The syllabus has been updated and you will be getting a hard copy of it on the first day of class but the quiz dates are specified online. If you click on the calendar link, you will be taken to a Google calendar of everything related to this class.
I don't use Blackboard but I have been using a site developed by Lore, a young education company, that does everything that Blackboard does with a Facebook interface. You can see the site by going to
I will also be posting the contents of the site (webcasts, lectures, posts) on iTunes U. If you have never used it, here is what you need: an Apple device (iPhone or iPad), the iTunes U app on the device and you need to link to the link below:
Now for the material for the class. The lecture notes for the class are available as a pdf file that you can download and print. I have both a standard version (one slide per page) and an environmentally friendly version (two slides per page) to download. You can also save paper entirely and download the file to your iPad or Kindle. Make your choice.
There is a book for the class, Applied Corporate Finance, but please make sure that you get the third edition. You can buy it at Amazon.com or the NYU bookstore
One final point. I know that the last few years have led you to question the reach of finance (and your own career paths). I must confess that I have gone through my own share of soul searching, trying to make sense of what is going on. I will try to incorporate what I think the lessons learned, unlearned and relearned over this period are for corporate finance. There are assumptions that we have made for decades that need to be challenged and foundations that have to be reinforced. In other words, the time for cookbook finance (which is what too many firms, investment banks and consultants have indulged in) is over.
I hope you got my really long email over the weekend. This one, hopefully, will not be as long and has only three items:
2. Lore: I sent out an invitation for you to join the class on Lore. Many of you have accepted the invitation and I thank you. If you have not, please do accept the invitation. If you have absolutely no idea what I am talking about, please send me an email and I will send you a private invitation.
3. Lore follow up: If you have joined Lore, you will notice that there is a social media component to the site. I have posted the very first topic for discussion, just to get something going. Feel free to post your own thoughts/discussion ideas on Lore.
4. Apple post: Some of you have probably been tracking Apple's precipitous fall from grace in these last few months. I have been posting on Apple on my blog quite a few times. My most recent post can be found here. Feel free to comment on it.
I really look forward to seeing you in class on Monday.
1. Week ahead in class
3. The Super Bowl
Until next time!
First, a quick review of what we did in today's class. I laid out the structure for the class and an agenda of what I hope to accomplish during the next 15 weeks. In addition to describing the logistical details (quizzes, exam, project etc.), I presented my view that corporate finance is the ultimate big picture class because everything falls under its purview. The “big picture” of corporate finance covers the three basic decisions that every business has to make: how to allocate scarce funds across competing uses (the investment decision), how to raise funds to finance these investments (the financing decision) and how much cash to take out of the business (the dividend decision). The singular objective in corporate finance is to maximize the value of the business to its owners. This big picture was then used to emphasize five themes: that corporate finance is common sense, that it is focused, that the focus shifts over the life cycle, that it is universal and that violating first principles will exact a cost, no matter who does it.
On to housekeeping details:
2. Get started on picking companies: Avoid money losing companies, financial service firms and firms with capital arms like GE and GM. Once you have your group nailed down, let me know the names of the people in your group and, if possible, the companies you have picked. In picking a company, pick a theme that is fairly broad and pick companies that match this. Thus, if your theme is entertainment, you can analyze Sony, Time Warner, Netflix and even Apple. I would encourage getting diverse companies in your group - large and small, focused and diversified, and non-US companies. (In other words, you don't want five companies that are carbon copies of each other. There is little that you will find interesting to say about differences across companies, if there are none)
3. Once you pick your company, you can start collecting the data. You should begin by accessing basic data on your company. I would begin with the old standard, the company's annual report, which you should be able to get off the company's website. If you have a non-US company, you should be able to find an English version of the annual report on most company sites. If not, you better be able to read Portuguese or Spanish. You can also get the latest filings (10K and 10Q) for US companies off the SEC website:
4. Board of Directors: If you do pick a company by Wednesday, use the annual report or 10K can get a listing of the board of directors for your company. It will dovetail nicely into our discussion for Wednesday. If you can find a mission statement for the company (on its website, from the annual report), that would be even better.
5. Webcasts for the class: The webcasts should be up a few hours after the clas ends. Please use the webcasts as a back-up, in case you cannot make it to class or have to review something that you did not get during class, rather than as replacement for coming to class. I would really, really like to see you in class. The web cast for the first class is not up yet, but it should be soon. When it is, you should be able to find it at
6. Drop by: I know this is a large class but I would really like to meet you at some point in time personally. So, drop by when you get chance... I don't bite....
7. Lecture note packet 1: Please bring the first lecture note packet to class on Wednesday. You can buy it at the bookstore, if you have money to spare, or download it online.
8. Past emails: If you have registered late for this class and did not get the previous emails, you can see all past emails under email chronicles
9. Lore stragglers: If you have not registered on Lore for the course, you will need a entry code. Please email me and I will send you the code.
I also posted a very quick (and extremely easy) post-class test, with solution on all of the sites. I am attaching them to this email. Until next time!
Just a few added notes relating to the class that I want to bring to your attention. The first is the movie Other People's Money, which I mentioned as a favorite. You can find out more about the movie here:
2. DisneyWar: I mentioned this book in class yesterday, written by James Stewart. It is in paperback, on Amazon:
On the question of picking companies for your group, some (unsolicited) advice:
Once you have picked your company, start by assessing the board of directors (and making judgments on how effective or ineffective it is likely to be). To help in this process, I have posted the original article in 1997 that covered the best and the worst boards as well as a more recent article detailing what Business Week looks at in assessing boards under corporate finance readings:
You can find out more about your company by going to the SEC site (http://www.sec.gov) and looking up the 14-DEF for your company.. As I noted in class today, you may not be able to find a 14-DEF (or its equivalent) for a foreign company, but the difficulty of finding this information may be more revealing than any information that you may have unearthed. On that mysterious note, until next time...
On the lecture note packet, I am making some progress. The NYU bookstore will have some copies tomorrow and some on Monday. I have also talked to Unique Copy Center, just down the road on 252 Greene Street. They will have printed copies ready for you by this afternoon. My suggestion if you want a copy quickly is to go Unique. I am sorry about this screw up on the lecture notes. I could blame a Microsoft/Adobe conspiracy but it is my fault. I will make sure that the second packet gets to you much more smoothly.
On the TA front, I have office hours to report for the TAs. I am not trying to shunt you off to the TAs. So, please drop in and ask me questions or "fair game" me...
Finally, as I was walking in to the building today, I was handed a brochure from NYC District Council of Carpenters about TIAA/CREF (which manages my and pretty much every college teacher's pension fund in the nation). The brochure argues that the investments that TIAA-CREF is making in "construction sweatshops, tobacco companies and Killer Coke" (not my words, but the brochures) is inconsistent with their commitment to social responsibility. Since we will be talking in class about how to balance the private good with the public good (and CSR) next week, the issue of "investing" responsibly will come up and this brochure feeds right into it... (I told you that corporate finance is all around you...) I also posted an article on the lore discussion board about the teaching of ethics in business school. My intent in doing so was not to bring across my point of view on the issue but because the article seems to suggest that stockholder wealth maximization lies at the heart of corporate scandals and unethical behavior (I wonder: Was Bernie Madoff a believer in maximizing stockholder wealth? Would an ethics class in graduate school have helped him? I don't know...) . So, the floor is open (or at least the discussion board) for you to put your points of view on the topic. I will stay out of it. Until next time!
As we clean out the grocery stores and make the snow shovel manufacturers rich, a few notes for today:
Until next time!
The snow storm arrived as advertised and I just got back from shoveling. Having grown up in a part of the world where a 85 degree day qualified as cool, shoveling is not on my top ten list of activities. Last winter, I used an excuse of writing a blog post to put off the heavy lifting and ended up with this one:
Two other quick notes. The first is that the newsletter for the week is ready to read and is attached to this email. Hope you get a chance to browse through it. The second relates to the Dell buyout (the puzzle for the week). Yesterday, one of Dell's largest stockholders, Southeastern Asset Management, challenged the price on the buyout and sent a letter to Dell's board. The letter is worth reading, turning Dell's own claims over the last 5 years (especially on the success of his acquisition strategy) back on him. I have attached it as well. Both are also posted online.
|2/10/13||Before I start on the preview of next week's classes, a couple of quick reminders. I think I have played successful matchmaker with the orphans that have let me know so far. If you are still an orphan and have not let me know, please do. Also, since my attempts to make lecture note packet 1 have fallen short, please do pick up a copy before tomorrow's class at Unique Copy Center (252 Greene Street) or the NYU bookstore.
Looking ahead to next week, we will spend tomorrow's session continuing to explore the dark side of "stock price maximization", beginning with all the ways that lenders can be exploited by companies and moving on the market's many perceived or real shortcomings. We will also look at the delicate balance between private and public interest, or what has now become CSR (Corporate Social Responsibility) and draw out the chasm between words and practice. We will then turn to alternatives to stock price maximization, an alternate corporate governance system or a different objective, and examine the pluses and minuses. By Wednesday's class, we hopefully will be able to come some degree of consensus on what the objective should be. It is possible that we will take the first steps on defining and measuring risk. It will be time for the "meat and potatoes" portion of the corporate finance meal. In the meantime, if you want to start reading chapters 1 and 2 of the book, it should supplement what we are doing in class. See you in class tomorrow!
Until next time!
Today's class extended the discussion of everything that can wrong in the real world. Lenders, left unprotected, will be exploited. Information can be noisy and markets can be irrational. Social costs can be large. Relating back to class, I have a couple of items on the agenda and neither requires extensive reading or research. I would like you to think about market efficiency without any preconceptions. You may believe that markets are short term, volatile and over react, but I would like you to consider the basis of these beliefs. Is it because you have anecdotal evidence or because you have been told it is so or is it based upon something more concrete? i also want to think about how managers in publicly traded companies can position themselves best to consider the public good, without being charitable with other people's money. We have spent a couple of sessions being negative - managers are craven, markets are noisy, bondholders get ripped off and society is unprotected. In the next class, we will take a more prescriptive look at what we should be doing in this very imperfect world. As always, reading ahead in chapter 2 will be helpful.
I hope that your search for a group has ended well and that you are thinking about the companies that you would like to analyze. Better still, perhaps you have a company picked out already. If you do, try to find a Bloomberg terminal (there is one in the MBA lounge and there used to be one in the basement)... If you do find one vacant, jump on it and try the following:
If you cannot find a Bloomberg terminal or don't have access to one, try going on Yahoo! Finance and type in the name or symbol for your company. Once you find your company, scroll down the left hand column until you get to Major Holders and click on it. You should get a listing of the top stockholders in your company. In fact, while you are on that page, take note of the percent of your company's stock held by insiders and by institutions.
A couple of housekeeping notes before I lay out the second week's issue/puzzle/question. First, please do get lecture note packet 1 before tomorrow's class. I am afraid I have to give up on the free printing option, given the trouble that people seem to be having, but I will try to fix it for the second packet. For this one, get your copy either at the bookstore or at Unique Copy on Greene Street. Second, I had sent instructions on how to use Bloomberg to get the listing of the top stockholders in your company. Alejandro Trevino (Thank you...) also offers an alternative, if you can get on Capital IQ. Here is the pathway he suggests after you find your company on Capital IQ (see my webcast from last week on finding your company...)
Last week, I posted the first puzzle of the week on the Dell management buyout. The last week has been a pretty eventful one for that buyout, with at least one large institutional investor stepping up in opposition. As i mentioned when I posted the story, it brings to the surface all of the tensions we talked about in class: between managers & stockholders, between inside stockholders & outside stockholders, between lenders and firms and between firms and financial markets. I hope you had a chance to think about some of these issues. If you are interested, I did post my thoughts on this and similar deals on my website:
On to this week's issue/puzzle/question. A big factor in whether you trust market prices is what you think about market time horizons. If you believe that markets are short term, you are less likely to go along with market prices. There are many who believe that markets are too "short term" to be trusted and that companies that make decisions that are in their long term best interests often get punished by markets for doing so. That may very well be the case but if so, it cannot just be posited as a belief or supported with anecdotal evidence. At the risk of contradicting myself on the use of anecdotal evidence, Amazon is a great case study for a company where the market and managers should be in tension, if markets are short term. Jeff Bezos, the CEO of Amazon, has made it very clear that he is focused on the very long term, notwithstanding what markets may think of his actions.
s we take baby steps towards measuring risk, I want to review where we stand. The objective function matters, and there are no perfect objectives. That is the message of the last two classes. Once you have absorbed that, I am willing to accept the fact that you still don't quite buy into the "maximize value" objective. That is fine and I would like you to keep thinking about a better alternative with three caveats. First, you cannot cop out and give me multiple objectives - I too would like to maximize stockholder wealth, maximize customer satisfaction, maximize social welfare and employee benefits at the same time but it is just not doable. Second, your objective function has to be measurable. In other words, if you define your objective as maximizing the social good, how would you measure social good? Third, take your objective (and the measurement device you have developed) and ask yourself a cynical question: How might managers game this system for maximum benefit, while hurting you as an owner? In the long term, you may almost guarantee that this will happen. On the theme of investor time horizon and stockholder composition, Tim Hagamen sent me this link to a blog post from Matt Levine at Dealbreaker that is fascinating (Thank you, Tim...): http://bit.ly/YrNIMX
Building on the theme of social good and stockholder wealth a little more, there are a number of fascinating moral and ethical issues that arise when you are the manager in a publicly traded firm. Is your first duty to society (to which we all belong) or to the stockholders (who are your ultimate employers)? If you have to pick between the two and you choose the former, do you have an obligation to be honest and let the latter know? What if you believed that the market was overvaluing your stock? Should you sit back and let it happen, since it is good for your stockholders, or should you try to talk the stock price down? On the question of socially responsibility, there are groups out there that rank companies based upon social responsibility. I have listed a few below, but they are a few of many:
If you have picked a company, there are two orders of business you have for this weekend:
While it may seem like we are paying far too much attention to these minor issues, I think that understanding who has the power to make decisions in a company will have significant consequences for how the company approaches every aspect of corporate finance - which projects it takes, how it funds them and how much it pays in dividends. So, give it your best shot... On a different note, we will be continue with our discussion of risk on Wednesday (no class on Monday). As part of that discussion, we will confront the question of who the marginal investor in your company is. If you have already printed off the list of the top stockholders in your company (HDS page in Bloomberg or the Major Holders page from Yahoo! Finance), bring it with you again. If you have not, please do so before the next class. Also, watch for the in-practice webcast day after tomorrow, because I will go through how to break down the HDS page.
Finally, I had mentioned a paper that related stock prices to corporate governance scores in class yesterday. You can find the link to the paper below:
Until next time!
|2/14/13||Time sure does fly, when you are having fun... We are exactly 15.38% (4 sessions out of 26) through the class (in terms of class time) and we will kick into high gear in the next two weeks. I am going to assume for the moment that my nagging has worked and that you have picked a company to analyze. Here is what you can be doing (or better still, have done already):
1. Download the latest financials for the company: You don't have to print them off. In fact, I find it convenient to keep them in a folder in pdf format, since my computer can search the document far more quickly than I can. For all companies, this will include the latest annual report and with US companies, try to find the latest 10K and 10Q on the SEC website. If you are analyzing a private business, you will need to get the most recent financial data from the owner (who hopefully is related to you and still likes you...)
2. Put the board of directors under a microscope: The first step in understanding your company is to start at the top. Take a look at who sits on the board and how long they have been sitting there. In particular, the question that you are trying to answer is how effective this board will be in keeping any eye on the top management of the company. Start with the cosmetic measures, which is what most corporate governance services and laws focus on, but look for something more tangible. Has the board shown any backbone in stopping or slowing down management? For instance, here is my assessment of the Dell's board, without knowing a single person on the board....
3. Assess the "power" structure: As Machiavelli pointed out, power abhors a vacuum (he said no such thing, but you can pretty much attribute anything to him or Confucius and sound literate). Specifically, try to find who the largest stockholders in your company are. You can get this from the Bloomberg terminals (HDS page), Capital IQ (holders) or online for free (Yahoo! Finance or Morningstar). Once you have this list, here are the questions that you should try to answer:
If you are a small stockholder in this company, do you see any likelihood that any of these stockholders will stand up for stockholder rights or are they more likely to sell and run?
Are there any stockholders on the list whose interests may lie in something other than maximizing stockholder wealth? (For instance, we talked about the government as a stockholder and how its interests may be different from that of the rest of the stockholders.. Think of an employee pension fund being on that list... Or another company being the largest stockholder...)
As I mentioned yesterday, I will be putting up a webcast tomorrow on how to analyze the "top shareholder" list, using a range of companies. Hope you to get a chance to watch it. Until next time!
I hope you have fun plans for the long weekend, but perhaps you can slip in some corporate finance in there. A few loose ends:
2. Lecture note packets: After dozens of attempts that got me nowhere, I think I have fixed the printing problem on the lecture notes (and I am sure that if it still does not work, you will let me know). I replaced the pdf files with the original powerpoint files. The files remain monstrously large but the flattening problem seems to have gone away and they print. I am sorry that it happened after many of you had to pay for packet 1, but I hope that you will be able to use this option for packet 2.
3. Holdings webcast: The webcast for this week is up and it is on assessing who the top stockholders in your company are and thinking through the potential conflicts of interest you will face as a result. The webcast went a little longer than I wanted it to (it is about 24 minutes) but if you do have the list of the top stockholders in your company (the HDS page from Bloomberg, Capital IQ, Morningstar or some other source), I think you will find it useful.
I have sent you enough stuff this week already. So, I will keep this short. The newsletter for the week is attached...
Attached: Newsletter #2
|2/17/13||I know that I don't give you much of a chance to catch up, piling on more and more, just as you get close. Since we have no class tomorrow, I thought I would, in fact, allow you to catch up. So, here is where we are in the class:
Class lectures: We are four sessions into the class. I hope that you have been able to come to class for all four, but just in case you have not, you should watch the webcast of the class. I don't think it is too painful, but then again, I am biased. You can get the webcasts of the classes by going to the webcast page for the class ( http://www.stern.nyu.edu/~adamodar/New_Home_Page/webcastcfspr13.htm ), the Lore page for the class or the iTunes U site for the class. We have covered the syllabus packet and the first 71 pages of lecture note packet 1. If you don't have it yet, please get it on the webcast page for the class.
Post class tests/solutions: To test yourself on each class, I have post-class tests (with solutions). These are really 5-10 minute tests of the key concepts covered during the class. I have been remiss in not attaching these to the emails I send out after class (other than for the February 4 class) but they too are at all three sites listed above. In case, you have trouble clicking your way to them, here are direct links to the tests and solutions. I will try to email you the post-class tests for each of the remaining sessions, but even if I do not, you should be able to find them online.
Session 1: Post class test (http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session1test.pdf ) and solution (http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session1soln.pdf)
Session 2: Post class test (http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session2test.pdf ) and solution (http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session2soln.pdf)
Session 3: Post class test (http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session3test.pdf ) and solution (http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session3soln.pdf)
Session 4: Post class test (http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session4test.pdf ) and solution (http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session4soln.pdf)
Group project: At this stage, you should be in a group and have picked a company. If you are still unattached, please let me know. Assuming that you have picked your company, you should be able to apply what we did in the first two weeks to this company: assess the company's board of directors and analyze its stockholder composition. I have put up webcasts in the three sites listed above on the two tasks:
Webcast 1: Assessing a company's board of directors
Webcast 2: Analyzing a company's stockholder base
Corporate Finance Puzzles/ Stories: Each week, we will focus on a story close that week's topic and we have two postings so far:
Week 1: The Dell Management Buyout: Conflicts of Interests, Private versus Public companies (http://www.stern.nyu.edu/~adamodar/New_Home_Page/webcastcfspr13.htm )
Week 2: The Amazon story: Are markets short term? (http://www.stern.nyu.edu/~adamodar/New_Home_Page/webcastcfspr13.htm )
Readings: I know that you are busy and that there is plenty to keep you occupied. If you do have the time, though, I think it would help to read the book. We are on chapter 3 and will be moving into chapter 4 (which is a long and perhaps the most involved chapter in the book..).
As you can see, we have had a pretty busy two weeks. I hope you do get a chance to get abreast of where we are in the class, because I promise you that things will not slow down.... Until next time!
Also, for those of you who have been finding interesting stuff relating to the class and emailing the links, I am grateful and will try to forward as many as I can to the class. It may also help if you use the discussion board on Lore to post interesting links, stories and other stuff.
I hope you are having a good (albeit wet) weekend. This week's newsletter does not contain much news, since we had only one session last week. But the next week is a big one. If you have the time, I would suggest that you start reading chapter 4 in the applied corporate finance book. It is not a difficult chapter but it is dense, since I tried to pack in too much into the chapter, but this is the heart of both the next quiz and what is to come in the rest of the class. Finally, I have a group of two that is now come unattached. If you have a group of three or four and would like to add two more, please let me know. Until next time!
Attachment: Newsletter #3
|2/24/13||I hope that you had a great weekend! In tomorrow's class, we will begin our discussion of equity risk premiums and in Wednesday's class, we will take a closer look at how to estimate betas or relative risk measures. They are crucial building blocks to coming up with hurdle rates but there are lots of estimation issues and questions. If you have not had a chance to watch the webcast on risk free rates, please try to do so. It is only 14 minutes long and I don't think it is too painful. I am attaching the links again, in case you have nothing to do this weekend.
Until next time!
The bulk of today's class was spent talking about equity risk premiums. The key theme to take away is that equity risk premiums don't come from models or history but from our guts. When we (as investors) feel scared or hopeful about everything that is going on around us, the equity risk premium is the receptacle for those fears and hopes. Thus, a good measure of equity risk premium should be dynamic and forward looking. We looked at three different ways of estimating the equity risk premium.
2. Historical Premiums: We also talked about historical risk premiums. To see the raw data on historical premiums on my site (and save yourself the price you would pay for Ibbotson's data...) go to updated data on my website:
3. Implied equity premium: Finally, we computed an implied equity risk premium for the S&P 500, using the level of the index. If you want to try your hand at it, here is my February 2012 update:
Beta reminder: As I mentioned at the end of class today, please do try to find a Bloomberg terminal. Click on Equities, find your stock (pinpoint the local listing; there can be dozens of listings....) and once you are on your stock's page of choices, type in BETA. A beta page should magically appear, with a two-year regression beta for your company. Print if off. If no one is waiting for the terminal, try these variations:
I know that this is awfully close to class, but if you get a chance, please scan this article:
Here is Andrew Ross Sorkin's article:
If you don't know who Marty Lipton is, here is his Wikipedia page:
If you can get your hands on the beta page for your company, you should be able to make these assessments for your company. I had a typo on one of the slides today and I am attaching the corrected version. You can also get a guide to reading the Bloomberg pages for your company by clicking below:
Finally, I have also attached the post-class test and solution for today. Until next time!
Once you have the regression beta page, please try to answer the following:
Attachments: Regression page
It is Friday and time for the weekly in practice webcast. In the webcast, I take a look at Disney's updated 2-year weekly regression (from 2011-2013). I have the Bloomberg page attached. I am also attaching the spreadsheet that I used to analyze this regression, which you are welcome to use on your company. The webcast is available at the link below:
On a different note, it has been an eventful week for corporate governance, with three companies illustrating the disquiet that investors are feeling:
Level 1: Investor are getting restive: DISNEY
Level 2: Investors are getting pissed - APPLE
Level 3: Investors have blown their top - GROUPON
Until next time!
Attachment: Newsletter #4
Finally, I don't know whether you have had a chance to look at the news but it looks like the Swiss are drawing the line on corporate governance:
1. Betas are determined in large part by the nature of your business. While I am not an expert on strategy, marketing or productions, decisions that you make in those disciplines can affect your beta. Thus, your decision to go for a price leader as opposed to a cost leader (I hope I am getting my erminology right) or build up a brand name has implications for your beta. As some of you probably realized today, the discussion about whether your product or service is discretionary is tied to the elasticity of its demand (an Econ 101 concept that turns out to have value)... Products and services with elastic demand should have higher betas than products with inelastic demand. And if you do get a chance, try to make that walk down Fifth Avenue...
2. Your cost structure matters. The more fixed costs you have as a firm, the more sensitive your operating income becomes to changes in your revenues. To see why, consider two firms with very different cost structures
3. Financial leverage: When you borrow money, you create a fixed cost (interest expenses) that makes your equity earnings more volatile. Thus, the equity beta in a safe business can be outlandishly high if has lots of debt. The levered beta equation we went through is a staple for this class and we will revisit it again and again. So, start getting comfortable with it.
I also introduced the notion of betas being weighted averages with the Disney - Cap Cities example. I worked out the beta for Disney under two scenarios: an all-equity funded acquisition of Cap Cities and their $10 billion debt/ $8.5 billion equity acquisition. As an exercise, please try to work out the levered beta for Disney on the assumption that they funded the entire acquisition with debt (all $18.5 billion). The answer will be in tomorrow's email.
One final point. When I was talking about the effect of leverage on betas, I mentioned the going public of Blackrock, when I actually meant to say Blackstone. Blackrock is a portfolio management company, without leverage, and Blackstone is a private equity investor, involved in lots of leveraged deals. My mistake and I hope that I don't get blamed if there is a run on Blackrock.
If you are ready to get started on preparing for the first quiz, here are the links that you need:
Until next time!
I have posted the corporate finance puzzle of the week, though I think you may have enough on your plate, getting ready for the first quiz. But if you do get a chance, check it out. It is on Groupon's firing of its CEO, Andrew Mason.
In the lead up to the quiz, here are some key points:
If you remember, we looked at the beta for Disney after its acquisition of Cap Cities in the last class. The first step was assessing the beta for Disney after the merger. That value is obtained by taking a weighted average of the unlevered betas of the two firms using firm values (not equity) as the weights. The resulting number was 1.026. The second step is looking at how the acquisition is funded. We looked at an all equity and a $10 billion debt option in class and I left you with the question of what would happen if the acquisition were entirely funded with debt. (If you have not tried it yet, you should perhaps hold off on reading the rest of this email right now)
Moving right along, I know that today's class was a grind with numbers building on top of numbers. In specific, we looked at how to estimate the beta for not only a company but its individual businesses by building up to a beta, rather than trusting a single regression. With Disney, we estimated a beta for each of the four businesses it was in, a collective beta for Disney's operating businesses and a beta for Disney as a company (including its cash). If you got lost at some stage in the class, here are some of the ways you can get unlost:
Today is usually the project update day but before I launch into what you could be doing with the project, a reminder that the review session will be tomorrow from 10-11 in Paulson. You can get the review presentation by clicking below:
Now, to the project. I know that you will put it on the back burner for this week and perhaps through spring break, but if you can keep working on your project, think of it as additional preparation for the quiz. In particular, we talked about bottom up betas this week and you can start building up to bottom up betas for your firm, Here are a couple of places that you can go:
After you have gone through both, you may still be unconvinced about the utility of this process. I completely understand. However, do not throw the baby out with the bathwater. In other words, just because you think this bottom up beta process is cumbersome does not mean that you should not be adjusting your hurdle rates within a company for businesses of different risk. So, hold on to that principle and come up with your own (perhaps simpler) ways of computing those hurdle rates. Until next time!
2. Bottom up betas by sector (and across regions): As I mentioned in class today, I do compute bottom up betas by sector and across regions at the start of every year. You can get these betas by going to
3. Capital IQ: Since you have free access to Capital IQ, while you are at Stern, you should take full advantage. You do have to jump through a few procedural hoops to get your login and password, but once you do, you can screen in lots of different ways - by sector, industry, region etc.
I will put together a webcast for tomorrow on the bottom up beta process. Until next time!
Attachment: Top ten questions on bottom up betas
I know that most of you were not able to make it to the quiz, but the webcast is now up online. You can get it by going to the webcast page for the class, Lore or iTunes U. Alternatively, you can try this direct link:
I have also updated the presentation to clarify some of the things we talked about during the review. So, please download this version to use along with the review:
I hope it helps... Until next time!
I know that you are in no mood for in practice webcasts or working on your project, but I have a webcast on the mechanics of estimating bottom up betas. I use United Technologies to illustrate the process and I go through how to pull up companies from Capital IQ. Even if you don't get a chance to watch it today or this weekend, it may perhaps be useful later on. Here are the links:
United Technologies 10K: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/Bottomupbeta/UT10K.pdf
Spreadsheet to help compute bottom up beta: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/Bottomupbeta/bottomupbeta.xls
The last spreadsheet has built into it the industry averages that I have computed for different sectors in the US. You can easily replace it with the global averages that I also have on my site and tweak the spreadsheet. Give it a shot! Until next time!
I won't ask you how the weekend is going, because I may be hitting a sore spot. I did put together a list of the top ten questions that I am getting in my emails. Perhaps, you have one of these questions:
1. Why do we use past T.Bill rates for Jensen's alpha and the current treasury bond rate for the expected return/cost of equity calculation?
2. When do you use the arithmetic average risk premium over T.Bills as your risk premium?
3. Why do you use the US historical risk premium for German or French stocks?
4. How do you estimate a riskfree rate for a currency in an emerging market?
5. How do you adjust for the additional country risk in emerging market stocks?
6. Why do you use the average debt to equity ratio in the past to unlever a regression beta?
7. What is the link between Debt to capital and debt to equity ratios?
8. How do you annualize non-annual numbers?
9. What is the cash effect on beta? Why does it sometimes get taken out and sometimes get put back in?
To get to the bottom up equity beta for a company: You start with the unlevered betas with the businesses and work up to the equity beta in the following steps:
10. Why do you weight unlevered betas by enterprise value (as you did in the Disney/Cap Cities acquisition) and in computing Disney's bottom up beta?
I have also attached the newsletter for this week. That is about it... Hope I have not added to your confusion. Relax.. and I will see you soon. Until next time!
Attachment: Newsletter #5
2. The bane of technology: I must have not been clear about what I was allowing/not allowing during the quiz. Just to clarify. You can use your iPads, Kindles or Nooks, as long as you don't use connectivity. No laptops, though!
3. Levered betas, unlevered beta for company and unlevered beta for the business: There still seem to be some loose ends associated with betas. Just in case you are still confused, I put together a simple example to bring it home. See attachment.
4. The age of Enlightenment or Aquarius or something: Anyway, I hope that the quizzes are getting a little easier as you keep at them and that the skies are starting to open up. In fact, the theme for this song should be emerging:
5. Seating reminder: In case you have forgotten your room assignment for tomorrow:
I am also attaching the solutions to both quizzes (Quiz 1a is the Apple quiz and Quiz 1b is the Google quiz) and the distribution. I have left copies next to your quizzes, if you prefer a physical copy While I have attached grades to the scores, please don't read too much into them for two reasons. It is only 10% of your grade and it is very early in the game. Also, if you take all three quizzes, the worst quiz score will get replaced with the average on all of your other exams.
Until next time!
|3/21/13||I hope you are having a great spring break. I know that it is not quite over for you but just in case you decided to get back ahead of the weekend, I thought I would bring you up to date with what is coming up on both the project and the case.
First, on the case. I know that most of you have not had a chance to read the case, let alone analyze it, but those of you who did read it noticed a couple of glitches in it that I have now fixed. The first was on item 7, on the production facilities: the new facility that Apple will have to invest in, if it runs out of capacity on the existing unit, will have a capacity of 25 million units as well (rather than the 4 million that I had stated it to have in the case). The second was in item 13, on the lease commitments for Apple as a company: the lease commitments start in 2013, not in 2011. I have made the corrections and reattached the case to this email. So, if you have not read the case yet, read this version instead.
Second, on the project. I know it has been put on the back burner and will probably stay there until the case analysis is done. Just in case, you have some extra time on your hands, it would be great if you could get the cost of capital for your company done. This will of course require that you estimate a bottom up beta for your company and compute the market value of debt (and leases). Until next time!
|3/22/13||I know that spring break is not officially over but just in case you were working on your project or the case, I thought that a webcast on estimating the pre-tax cost of debt and the value of debt would come in useful. I have used Home Depot as my example for the analysis and it does providing an interesting test of getting updated information. The most recent 10K for the Home Depot is as of January 29, 2012. While a new 10K will be out by next month, we are constrained with an old 10K for the moment. However, I can and use the October 31, 2012 quarterly report (the three quarter 10Q) to update the numbers. If you are interested, here are the links:
Home Depot 10K: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/Debt&Cost/HomeDepot10K.pdf
Home Depot 10Q: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/Debt&Cost/HomeDepot10Q.pdf
The spreadsheet for computing market value of debt (with leases & synthetic ratings) is attached. While it has the Home Depot's numbers, you can use it for any company. I hope it is useful. Have a good rest of the break and I will see you on Monday! Until next time!
Attachment: Newsletter #6
|3/24/13||I hope that you are back from spring break and I know that some of you are fighting jet lag and sheer exhaustion. In case you are actually reading your emails tonight, here is a preview of what's coming this week. Tomorrow and Wednesday, we will start on a hypothetical project, a new theme park for Disney in Rio, and you will play the role of decision maker. We will start by projecting the expected earnings on the theme park, and convert those earnings into measures of accounting return. After taking a short detour into using accounting returns to judge entire companies, we will return to the theme park investment and talk about getting from earnings to cash flows first, and then from cash flows to incremental cash flows. We will close by working out ways to time weight the cash flows and come up with time weighted, cash flow measures of return. We will then look at how the analysis would be different, if it were done in a different currency, and dealing with uncertainty in project analysis. This week's sessions will also provide a great deal of background on what you will have to do on the Apple iTV case. So, if you can read the case before the classes, I think you will be able to make the connections (if and when they occur). Until next time!|
I know that it is probably tough to get back into school mode, but I hope that you are making the transition. In today's class, we started by stating our ideal measure of return: it should be based upon cash flows, focus on just the incremental and be time weighted. After defining project broadly as including any type of investment, small or large, revenue generating or cost cutting, we started on the Rio Disney theme park analysis. We laid out the initial costs for the theme park and the assumptions about expenses, both direct and allocated. We began the assessment by estimating two sets of accounting numbers: the book value of capital invested in the project and the after-tax operating income each year for the next 10 years. We then used the two to estimate a return on capital, an accounting measure of return on the project. While that assessment did not look favorable for the project, with the return on capital of about 4% being well below the cost of capital of 8.62% (reflecting both the risk of the theme park business and its location in Rio), we noted that extending the project life may change the outcome.
|3/26/13||This week, we looked at one measure of the quality of a company’s investments: the difference between the return on invested capital and its cost of capital. It seems like a logical extension to argue that well managed firms generate high positive excess returns and badly managed firms do not, but that may be too simplistic. After all, a firm can be endowed with competitive advantages (a great brand name, access to low cost raw materials and patents) that current management have done little to earn. That is partly why I think that this listing of the world’s best CEOs is interesting and debatable.
This list is based primarily on shareholder returns and here are some questions that follow:
What are the determinants of shareholder returns? (Note that you can ask the same question about Jensen’s alphas)
How much or what do CEOs contribute to these determinants and through them to shareholder returns?
What is the relationship between excess returns on projects and high shareholder returns? (Do you think that companies that generate high returns on invested capital, relative to cost of capital, will also generate high returns for stockholders?)
How much of the success at the highlighted companies can be attributed to luck, rather than management skill? How can you separate the two?
If you were constructing a list of the top CEOs, what would you use as your criteria?
I know that you are busy with the case, but since these questions will come up when you do your regular project, I thought it would be worth the time
In today's session, we made the transition fully to time weighted, incremental cash flow returns by introducing two measures: the NPV and IRR. With the Disney theme park, we brought in what happens after year 10 with a growing perpetuity to get a terminal value and as a result, both the NPV and IRR signaled a "good" project. We also looked at what would happen if we did everything in nominal reais, concluding that using adjusting both exchange rates (and cash flows) and discount rates for differential inflation would leave the NPV unchanged. Finally, we looked at three tools for dealing with uncertainty: payback, where you try to get your initial investment back as quickly as possible, what if analysis, where the key is to keep it focused on key variables, and simulations, where you input distributions for key variables rather than single inputs. Ultimately, though, you have to be willing to live with making mistakes, if you are faced with uncertainty.
know that you have lots of other stuff on your plate right now and are not really thinking about corporate finance (I find that hard to believe but then again, I am biased..) In case your fascination with corporate finance leads you to work on the case, here are a few suggestions on dealing with the issues.
As I mentioned in class, Crystal Ball is probably not going be very useful to you on this case, but you should be able to play with it on the school computers. If you want to look at the product, you can download a trial version (you can use it for 15 days) at the Oracle site:
|3/29/13||I know that you are working on the case right now and that the project is on the back burner. When you get back to it, though, one of the questions that you will be addressing is whether your company's existing investments pass muster. Are they good investments? Do they generate or destroy value? To answer that question, we looked at estimating accounting returns - return on invested capital for the overall quality of an investment and the return on equity, for just the equity component. By comparing the first to the cost o capital and the second to the cost of equity, we argued that you can get a snapshot (at least for the year in question) of whether existing investments are value adding.
The peril with accounting returns is that you are dependent upon accounting numbers: accounting earnings and accounting book value. In the webcast for this week, I look at estimating accounting returns for Walmart. Along the way, I talk about what to do about goodwill, cash and minority interests when computing return on capital and how leases can alter your perspective on a company. Here are the links:
Walmart: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/ROIC/walmart10K.pdf (This year's 10K) and http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/ROIC/walmart10Klast year.pdf (Last year's 10K)
Spreadsheet for ROIC: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/ROIC/walmartreturncalculator.xls
I hope you get a chance to watch the webcast. It is about 20 minutes long
The newsletter for the week is attached.
Attachment: Newsletter #7
|3/31/13||I promise you that I will not bring up Apple, since you are probably sick and tired of the company by now. This week, we will continue to talk about measuring investment returns. We will start tomorrow by using the Aracruz paper plant to describe how an "equity" based capital budgeting is different from an overall project based capital budgeting and then talk about how acquisitions are really very big capital budgeting projects. We will then return to the roots of investment returns and contrast the time weighted investment return measures (NPV & IRR) and why they (sometimes) can give you different answers.
On Wednesday, we will start with a discussion of the Apple iTV case (hence, the deadline that the case reports be turned in by 10.30 am) and then spend the rest of the session talking about side costs and side benefits that sometimes may lead you to invest in a project that has a negative NPV. We will close with an examination of how there can be options embedded in investments (to expand, delay and abandon) that can also alter decisions.
I am sorry about the technical glitches at the start of the class.... but all's well that ends well.. We started today's class by looking at how things change when you look at a project with an equity investor's perspective: the investment becomes just the portion that is put up by equity investors, income is defined as net income (and thus after interest expenses) and the cash flows are those left over after debt payments. The measures of return also shift to return on equity and NPV/IRR to equity investors, with the cost of equity becoming the hurdle to beat. We also argued that acquisitions are just large projects, governed by the same rules that any other project is governed by.
I know that you are busy right now, but I posted my weekly puzzle for the week on sunk costs. It has three very short articles: one is on the original Concorde Fallacy, the second is from the Financial Times on how killing bad projects is the best innovation and the third is from my blog on the Yankees' A Rod problem. If you are a Yankee fan, read just the last one. If you are a Yankee hater, you will like it even more. If you don't follow baseball, give it a shot any way:
On the case, I hope that you are approaching closure. If you have the numbers already, could you please email me the following?
The bulk of today's class was spent on the Apple iTV case. While the case itself will soon be forgotten (as it should), I hope that some of the issues that we talked about today stay fresh. In particular, here were some of the central themes (most of which are not original):
In a little while, the first graded cases will go out. (If you submitted early, you should get it first. If not, you may have to wait longer). As you look at the case and my grading, I will make a confession that some of the grading is subjective but I have tried my best to keep an even hand. I have put together a grading template with the ten issues that I am looking for in the case. When you get your case, you will find your grade on the cover page. You will see a line item that says issues, with a code next to it. To see what the code stands for look at the attached document. In the last column, you will see an index number of possible errors (1a, 2b etc...) with a measure of how much that particular error/omission should have cost the group. I have tried to embed the comment relevant to your case into your final grade. So, if you made a mistake on sunk cost (2a, costing 1/2 a point) and allocated G&A (5, costing 1/2 a point) in your analysis, you will see something like this in your grade for the class (2a,5: Overall grade; 9/10) I hope that helps clarify matters. It is entirely possible that I may have missed something that you did or misunderstood it. You can always bring your case in and I will reassess it.
Attachment: iTV grading guidelines
|4/5/13||The first note for the day is that there is an in-practice webcast up and running, just in case you feel the urge to do part 5 of the project. It involves identifying a "typical" project for your company, and unlike the other webcasts, it is not grounded in 10Ks or annual reports. It is short and not particularly intense. The links to the webcast and the slides that accompany it are below:
The links are also online on the webcast page for the class.
On a different note, the second quiz is on Wednesday and will follow the same script as the first one. It will cover the material since the first quiz, which is the pretty much the rest of packet 1 (from cost of capital to investment analysis). There will be a review session in KMEC 1-70 from 12-1 on Tuesday, April 9. I know that many of you will not be able to make it to the session but it will be webcast. The quiz itself will be from 10.30-11 on Wednesday across three rooms, with the room assignments as follows:
If your last name starts with Go to
A - L Paulson
M- T KMEC 2-60
U - Z KMEC 2-70
The past quizzes are online, as are the solutions, but the links are below:
Past quiz 2s: http://www.stern.nyu.edu/~adamodar/pdfiles/cfexams/prqz2.pdf
Solution to past quiz 2s: http://www.stern.nyu.edu/~adamodar/pdfiles/cfexams/prqz2sol.xls
Finally, the case, as I mentioned in an earlier email, was a good practice ground for the quiz. I will try get all your cases back to you by Monday. Until next time!
The newsletter for the week is attached. I am working my way through the cases and am down to the last 15 (out of 75). I should have those back to you by tomorrow evening. Finally, the chapters in the book that apply for the quiz are the last part of chapter 4 (on cost of debt & capital), chapter 5 and chapter 6. Of course, you could blow this off and just enjoy the weather... which is what I would do... Oh... one final reminder. We will be starting on packet 2 next week, perhaps as early as Monday. So, please buy it, steal it, print it or download it... (It is on the usual places...)
Attachment: Newsletter #8
I think all the cases are done and you should have got them already. It is entirely possible that a couple slipped through my fingers. If so, please email me with your case attachment again (with no changes of course.. I will go back and find your original submission in mailbox and get it graded. I am attaching that grading code that I had sent you before, so that you can make some sense of your grade. If you feel that i have missed something in your analysis, please come by and make your argument. I am always willing to listen....
After 80+ cases, I am a little sick of Apple iTV... and I am sure you are too, but I thought that it would be a good time to talk about some key aspects of the case:
2. Cost of debt and debt ratio: If there was one number that most groups agreed on, it was that the cost of debt for Apple was 4% (the riskfree rate + default spread).
3. Cash flows in the finite life case: I won't rehash the arguments about why we need to look at the difference between investing in year 3 and year 9 for computing the distribution system cost. Many of you either ignored the savings in year 9 or attempted to allocate a portion of the investment in year 3, a practice that is fine for accounting returns but not for cash flows. But here were some other items that did throw off your operating cash flows:
4. Cash flows in the infinite life case: The key in this scenario is that you need more capital maintenance, starting right now. (Here is a simple test: If your after tax cash flows from years 1-10 are identical for the 10-year life and longer life scenarios, you have a problem...) Though some groups did realize this, they often started the capital maintenance in year 11, by which point in time you are maintaining depleted assets. Those groups that did not include capital maintenance at all argued that they felt uncomfortable making estimates without information. But ignoring something is the equivalent of estimating a value of zero, which is an estimate in itself. Also, you cannot keep depreciation in your cash flows (in perpetuity) and not have capital maintenance that matches the depreciation, since you will run out of assets to depreciate, sooner rather than later. The basis for capital maintenance estimates should always be depreciation and your book capital; tying capital maintenance to revenues or earnings can be dangerous. The other big input is the growth rate in perpetuity. The easiest and safest growth rate is the inflation rate. Using a growth rate much higher than inflation implicitly assumes real growth in perpetuity, which requires capital expansion (with associated costs). And using any growth rate that exceeds the riskfree rate is absolutely deadly if you do not invest in new capacity.
Now that the case is behind us, time to get ready for a busy week coming up. Tomorrow, we will finish our discussion of investment returns by talking about side costs and side benefits of many types and follow up by looking at very generally at options to delay, expand and abandon that can lead firms to take investments that do not pass financial muster. We will probably start on financing choices tomorrow and continue with the trade off between debt and equity after the quiz on Wednesday. So, please do bring packet 2 to class with you.
In today's class, we closed the books on investment analysis (literally, since we finished packet 1). We began by looking at creating an online retail store for Bookscape and rejected the idea, because the NPV was negative. We did use the cost of capital for being in the online business, when making the assessment, since it is a different line of business. We then looked at the cost of excess capacity, arguing that there is usually a cost to using excess capacity for a new project, because you run out of capacity sooner. You can either build/buy capacity earlier rather than later (and the cost is the PV of the difference) or you can cut back sales (and the cost is the PV of lost profits).
If you were unable to make it to the review session, I have the webcasts up and running in all the usual places (on the webcast page for the class, on Lore and on iTunes U). Unfortunately, I ran about 4-5 minutes over and the webcast ends on slide 23. Rather than leave you in the dark, and suspicious about what pearls of wisdom I may have let loose in the last 5 minutes, I recreated those last 5 minutes in the friendly confines of my office. Here are the links to the webcasts and the presentation:
Attachments: Review presentation
|4/9/13||I know that you are absolutely no mood to do something on this tonight, but perhaps later this week... JC Penney announced that their current CEO, Ron Johnson, who was brought into Penney by Bill Ackman, the activist investor, to turn the company around would be stepping down and would be replaced by Mike Ullman, the old CEO he replace.
One reason is that the turnaround has not worked so far, as can be seen in the financials of JC Penney (attached).
The question, though, is whether anything will work to turn this company around. It is human nature to believe that with the right people and policies, any company can be turned around but that is hubris. Sometimes, the forces of the market and competition line up so strongly that a company cannot be turned around. Is JC Penney one of those companies? Would you be willing to step in and be CEO? Assuming that the end game is to wind the company down, how would you run the company? All interesting questions that we will see played out over the next few months or years.
Think about it, when you get a chance. But get through the quiz first. Until next time!
I know that you probably had a tough time keeping focus after the quiz, but enough about the quiz. In today's class, we explored the trade off that animates the financing decision. Looking at the debt versus equity choice, the biggest benefit of borrowing is a tax benefit, increasing with the marginal tax rate. Consequently, you would expect companies that face high marginal tax rates to borrow more than those that face lower or no taxes (REITs, cruise line companies). The second benefit is a more subtle one: debt can make managers at some companies (mature, cash generating and widely held) more disciplined in their project choice.
The good news: the quizzes are done and can be picked up. The bad news: I hope there is none. You can pick the quizzes up just outside the front door to the finance department. They are in neat, alphabetical piles (A-G, H-O, P- Z). Please just take your quiz and don't browse. I have also made copies of the solutions (to both quizzes) and a distribution for the grades. I have attached copies to this email and put the links up on line (One way or the other, you should be able to get to them).
It is also a good point in the class to pause and reflect. We are now two quizzes and a case into the class. If you have done well so far, remember that they collectively account for only 30% of your grade... so, more work to do. If you have done badly so far, remember that they collectively account for only 30% of your grade... please don't abandon hope.. you can salvage the class. The key though is to manage the remaining five weeks of the class well, starting with the big project... To get you restarted on that venture (which I know has been on the back burner for a while, I will send you an email later today).
Finally, I know that the quizzes, at 30 minutes apiece, have seemed like speed derbies to some of you. I know that it is easy to panic over that short a period and that is does not seem fair. However, it is my belief that one of the key skills in finance is to be able to react quickly to numbers and get a sense of what the answer is even before you get started. I call it Shark Tank Finance (Have you seen the show? If you have not, you are missing a great experience in valuation and finance...http://abc.go.com/watch/shark-tank/225872 ) and it is also an acquired skill. I know it is not fair, since those who have been around numbers all their lives have acquired the skill already....but if you can hang in there, you too can be up at the table bantering with Mark Cuban about how much a business is worth...
I know that you just got back your quiz and you are in no mood for corporate finance but this is a great weekend to get caught up with your big project. We are in the capital structure section and the first thing you can do (if you remember what company you are analyzing) is to take it through the qualitative analysis, i.e., the trade off items on capital structure:
Today's in practice webcast takes you through the process of assessing this trade off, with suggestions on variables/proxies you can use to measure each of the above factors. If you are interested, here are the links:
Time for the weekly event or non-event of the newsletter. If you are so inclined, please do take a look. Just as an update, we will continue with the discussion of capital structure in the next week and come up with ways of finding the "optimal" mix for a firm. Until next time!
Attachment: Newsletter #9
In the next week, we will go beyond the trade off on debt and use the cost of capital as a tool for coming up with the optimal. In tomorrow's class, we will begin by looking at one of corporate finance's best known (and most misused) theorems: the Miller Modigliani theorem. After looking at the financing hierarchy that firms seem to follow, we will try the cost of capital approach on Disney to come up with the optimal debt ratio for the company. We will then use the optimal to follow up and examine why it makes sense to move to the optimal and considerations that may hold a firm back. In Wednesday's class, we will continue looking for tools to assess the optimal mix for a company and use them on Disney, Aracruz and Tata Chemicals.
Here is the good news for those of you who are lagging on the project. This spreadsheet will get you caught up with your hard working teammates.. I know this violates the "little red hen" principle but better caught up than not. For those of you who have no idea what the "little red hen principle" is in, here is a link:
Until next time!
Attachment: Optimal capital structure spreadsheet
In today's class, we started with the trade off on debt and used it to derive the Miller Modigliani theorem that debt is irrelevant to value, if you live in a world with no taxes, default risk and agency costs. We then looked the financing hierarchy that firms seem to follow: retained earnings is the most preferred financing source, followed by debt, new stock issues and preferred stock. Observing what type of financing a firm uses will give you a window into its financial health.
Three quick notes. First, I have updated the email chronicles to reflect all emails through yesterday. I am sorry, but I slacked off for a couple of weeks in the middle.
Second, I know that I have been emailing you bits and pieces of the project each week (reminders, spreadsheets, data and webcasts). I thought it might help if I pulled them all on to one resource page.
Third, the weekly puzzle for this week revolves again around Dell. A few weeks ago, I used Dell to talk about corporate governance questions. This week, I want to return and examine whether Dell is a good candidate for all of the additional debt that all three groups that are trying to take over Dell are planning to take on. Carl Icahn is talking about borrowing $9 billion and paying a dividend of that amount. This is a dividend recapitalization and I have attached another article about the surge in dividend recaps in Europe.
Finally, if you do get a chance to estimate the optimal debt ratio for your firm, please do (and bring it to class with you)! Until next time!
In today's class, we extended the discussion of optimal capital structure by looking at three follow up questions after finding the optimal debt ratio: Why should you move to the optimal? What if something goes wrong? What if we don't want to buy back stock or pay dividends? On the first question, we looked at the change in value from moving to the optimal and computed a break even price for the stock buyback; paying the break even price gives every investor the same share of the increase in value. On the second question, we asked both what if questions (about the operating income) and put a bond rating constraint (a minimum acceptable rating) on the firm. On the third, we argued that the optimal would not change much if the new investments that the firm was planning to make were in the businesses it is in already but could change if the investments were in new businesses.
|4/18/13||Since we spent the bulk of the week talking about the optimal capital structure spreadsheet, you already know that you should be working towards that section in your project. I would like to use this email to clarify the end game for the project, not so much to scare you but to provide you with some guide posts along the way:
1. Resource page: I put the link up to the corporate finance resource page, where I will collect the data, spreadsheets and webcasts that go with each section of the project in one place to save you some trouble:
I will be putting a webcast on the optimal capital structure spreadsheet online tomorrow.
2. Main project page: I had mentioned the main page for the project at the very start of the class, but I am sure that it got lost in the mix. So, just to remind you, there is an entry page for the project which describes the project tasks and provides other links for the project:
It also has sample projects from prior years that you can browse through.
3. Project formatting: I guess some of you must be starting on writing the project report or some sections thereof. While there is no specific formatting template that I will push you towards, I do have some general advice on formatting and what I would like to see in the reports:
Note, in particular, my plea for brevity. I have put a page limit of 25 pages on your entire written report (You can add appendices to this, but use discretion).
|4/19/13||I know that I have been nagging you to get the optimal debt ratio for your firm done. To bring the nagging to a crescendo, I have done the webcast on using the cost of capital spreadsheet, using Dell as my example. You can find the webcast and the related information below:
Dell 10K: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/optdebt/dell10K2013.pdf
Dell optimal capital structure spreadsheet: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/optdebt/dell10K2013.pdf
As I was going through the spreadsheet, I did notice a few things that can give rise to confusion (especially the wording about long term debt). I have fixed the confusing parts (for the most part) and added some tweaks that will allow you to do diagnostics more easily on your firm. So, if you have been procrastinating and have not used the spreadsheet yet, I have attached the new, improved, better version. If you have already entered the numbers into the spreadsheet, in spite of my confusing directions, you can always check the new version to see if you get a different answer. Until next time!
Attachment: Optimal capital structure spreadsheet
I hope you are enjoying this great weekend! I will keep this short. The newsletter for the week is attached. If you do get a chance, watch the webcast on using the optimal capital structure spreadsheet that I put up on the webcast page yesterday.
Attachment: Newsletter #10
|4/21/13||As we approach the closing weeks for the class, we will continue with our discussion of optimal capital structure tomorrow by looking at two more approaches to coming up with the optimal: the adjusted present value approach and the "relative" approach. We will then look at the follow-up to the optimal capital structure analysis, i.e., what the next steps are if a firm is under or over levered. We will them move on to the basics of designing the perfect debt for a firm, both in intuitive terms and by using a quantitative approach. So, if you have the optimal debt ratio for your firm worked out, bring it to class with you tomorrow. We have work to do.. Until next time!|
In today's session, we looked at two other ways of deriving the optimal debt ratio for a firm. In the adjusted present value approach, we looked at the impact of debt on value by starting with the unlevered firm value, adding the tax benefits of debt and subtracting out expected bankruptcy costs. The optimal debt level is the one that maximizes the firm value. While the estimation of expected bankruptcy cost is the weak link in this model, you are welcome to try it out on your company, using the spreadsheet linked to this email.
This week's puzzle lays the foundation for what we will talk about tomorrow: the perfect financing vehicle. Specifically, the perfect financing for a firm will combine the best of equity (the flexibility it offers you to pay dividends only when you can afford them) with the best of debt (the tax advantages of borrowing). While this may seem like the impossible dream, companies and their investment bankers constantly try to create securities that can play different roles with different entities: behave like debt with the tax authorities while behaving like equity with you. In this week's puzzle, I look at one example: surplus notes. Surplus notes are issued primarily by insurance companies to raise funds. They have "fixed' interest payments, but these payments are made only if the insurance company has surplus capital (or extra earnings). Otherwise, they can be suspended without the company being pushed into default. The IRS treats it as debt and gives them a tax deduction for the interest payments, but the regulatory authorities treat it as equity and add it to their regulatory capital base. The ratings agencies used to split the difference and treat it as part debt, part equity. The accountants and equity research analysts treat it as debt. In effect, you have a complete mis mash, working to the insurance company's advantage.
In today's class, we looked at the design principles for debt. In particular, we noted the allure of matching up debt cash flows to asset cash flows: it reduces default risk and increases debt capacity. We then looked at the process of designing the perfect debt for your company, starting with the assets you have, checking to see if you still get your tax deduction, keeping different interest groups happy and sugarcoating the bond enough to make it palatable to bond holders.
If you have done the intuitive analysis of what debt is right for your firm, you can try to do a quantitative analysis of your debt. I have attached the spreadsheet that has the macroeconomic data on interest rates, inflation, GDP growth and the weighted dollar from 1986 to the present (I updated it this morning to include 2012 data. The best place to find the macro economic data, if you want to do it yourself, is to go to the Federal Reserve site in St. Louis:
You can enter the data for your firm and the spreadsheet will compute the regression coefficients against each. You can use annual data (if your firm has been around 5 years or more). If it has been listed a shorter period, you may need to use quarterly data on your firm. The data you will need on your firm are:
The easiest way to get this data is to use the FA function in Bloomberg and choose the income statement items for operating income and the enterprise value breakdown. You can print off either annual or quarterly data.
I have to warn you in advance that these regressions are exceedingly noisy and the spreadsheet also includes bottom-up estimates by industry. There is one catch. When I constructed this spreadsheet, I was able to get the data broken down by SIC codes. SIC codes are four digit numbers, which correspond to different industries. The spreadsheet lists the industries that go with the SIC code, but it is a grind finding your business or businesses. I am sorry but I will try to create a bridge that makes it easier, but I have not figured it out yet.
My suggestion on this spreadsheet. I think it should come in low on your priority list. In fact, focus on the intuitive analysis primarily and use this spreadsheet only if you have to the time and the inclination. My webcast for tomorrow will go through how best to use the spreadsheet. Until next time!
Attachments: Debt design spreadsheet
|4/26/13||I know that you are busy but I have put the webcast up on debt design, using Walmart as my example, online (on the webcast page as well as on the project resource page). In the process, I did modify the macrodur.xls spreadsheet I sent you and created a version that is a little simpler to use for the bottom up estimates:
Here are the details on the webcast:
WMT financial summary: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/debtdesign/WMTFAsummary.pdf
WMT macrodur.xls spreadsheet: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/debtdesign/WMTmacrodur.xls
I hope you get a chance to watch the webcast and design the perfect debt for your firm.
I hope that you are enjoying this absolutely stunning spring day (and if I am rubbing salt in wounds, I apologize). The newsletter for the week is attached. Please read it when you get a chance.
Attachment: Newsletter #11
If you have tried to access the in practice webcasts (not the class webcasts), you probably have noticed that the webcasts don't load. Here is why. The links are posted on Dropbox, because server space at Stern in limited. However, Dropbox has a bandwidth constraint, where if your public files downloads exceed 200 GB a day, your account gets suspended for three days. Turns out that the limit was hit yesterday and no more downloads will be allowed for three days. I am looking for an alternate file sharing site but they all have constraints.
In the meantime, though, you can still access the webcasts on Lore or on iTunes U
Remember that this does not affect any of the class webcasts, since they are housed on the Stern server. That server has had some isssues, off and on, but the webcasts should be accessible. I am sorry and I am working on fixing the problem.
In today's class, we started on our discussion of the last corporate finance principle: the dividend principle. Having established the fact that dividend policy is often the end result of investing and financing choices, we laid out four basic facts about dividend policy. First, dividends are sticky, i.e., companies are reluctant to change dividends. Second, dividends are affected by tax laws. Third, dividends lag earnings. Fourth, companies are increasingly turning away from dividends to stock buybacks in the search for flexibility.
No. I am not channelling my inner Hamlet, but this may be a question that is bugging you. II know you are busy but there are three questions that seem to have come up from reviewing the past quizzes that I want to address:
2. What does rational mean?
3. How do you adjust ROC for leases?
I am attaching the review session presentation to this email. Please download it, if you are coming to the class (or if you need it for the webcast). See you in about 50 minutes. Until next time!
The review session presentation and links are posted online. They are also listed below:
Vodcast Playback: http://echo360.stern.nyu.edu:8080/ess/echo/presentation/06f05a29-27e4-4e29-8edf-56f88155233d/media.m4v
Podcast Playback: http://echo360.stern.nyu.edu:8080/ess/echo/presentation/06f05a29-27e4-4e29-8edf-56f88155233d/media.mp3
The presentation is attached. I hope you get a chance to watch it.
I know that you are busy studying for the quiz, but if you can take a few minutes on the puzzle for this week, it may help you on the quiz and will certainly enrich our discussion of capital structure and dividend policy. As you probably know, Apple reported its earnings last week, but the big news was on the financial side: the company announced that it would return about $100 billion in cash to its stockholders in the next two years, with the tilt towards buybacks (feeding nicely into the dividend policy discussion we are having in class right now). The bigger surprise was that Apple opened the door to borrowing conventional debt for the first time in its history. Here is the news story:
Attachments: An assessment of Apple's optimal capital structure, Questions
Nope. Quizzes are not done yet. Working on them. With the third and final quiz behind you, we are in the home stretch. In today's session, we continued with our discussion of dividend policy by looking at three big factors driving dividend policy. The first was that you acquire an investor base that likes your dividend policy (and a policy of nor paying dividends is a dividend policy). This dividend clientele can sometimes create problems, if your characteristics as a firm changes. The second is the signaling story, i.e., that changes in dividends send signals to the market. While an increase in dividends is usually a positive signal, it can sometimes be a negative signal (for high growth company). Finally, the payment of dividends can transfer wealth from bondholders to stockholders. We ended the class by setting up the process for looking at whether a company is paying out too much or too little in dividends, which we titled the cash trust nexus.
The quizzes are done and are ready to be picked up, in the usual spot. The usual rules apply. Please don't browse and leave the quizzes in the same alphabetical order that you found them. If you have a problem with the grading, bring your quiz in (and don't bug the TAs, since they have nothing to do with the grading). I have attached the solutions/grading template for both quizzes and the distribution. Until next time!
As we work through the analysis of dividend policy, we are setting up for an assessment of dividend policy on Monday where we look at how much a company has returned to its stockholders versus how much it could have. The latter, we will term the free cash flow to equity. Rather than wait until that session is over, you can start estimating both numbers for you company over time. The key is to analyze this over 3-5 years or longer, rather than one year. In the spreadsheet that is attached, I do the mechanics, which are really straightforward to compute the numbers for your company. You can get the webcast by going here:
I hope you have had a chance to pick up your quiz. As you look at the calendar, there is some bad news and some good news. The bad news is that you have three class sessions and two weekends left in the class. I know that you may be in a bit of a panic, but here is what needs to get done on the project. (I am going to start off from the end of section 5, since I have nagged you sufficiently about the steps through that one).
1. Optimal capital structure: You need to compute the optimal debt ratio for your company
2. Debt design: As you work your way through or towards the debt design part, here are a few sundry thoughts to take away for the analysis:
2.3: Compare the actual debt to your perfect debt (either from the intuitive approach or from the quantitative approach) and make a judgment on what your company should do.
3. Dividend analysis: We will be developing a framework for analyzing whether your company pays out too much or too little in dividends. You can read ahead to chapter 11, if you want, and use the attached spreadsheet to examine your company. The session on Monday will be a lot easier, if you do one or the other.
The next section has not been covered yet in class, but you can get a jump on it now, if you want.
4. Valuation: This is a corporate finance class, with valuation at the tail end. We will look at the basics of valuation next week and you will be valuing your company. Since we will not have done much on valuation, I will cut you some slack on the valuation. It provides a capstone to your project but I promise not to look to deeply into it. Knowing how nervous some of you are about doing a valuation, I have a process to ease the valuation: Download the fcffsimpleginzu.xls spreadsheet on my website. It is a one-spreadsheet-does-all and does everything but your laundry.
You will notice that I ask you for a cost of capital in the input page. Since you already should have this number (see the output in the optimal capital structure on section 1), you can enter it. If you want to start from scratch, there is a cost of capital worksheet embedded in the valuation spreadsheet. There is a diagnostic section that points to some inputs that may be getting you into trouble. I also ask you for information on options outstanding to employees/managers. That information is usually available for US companies in the 10K. If you cannot find it, your company may not have an option issue. Move on.
5. Project write-up and formatting: If you are thinking of the write-up for the project and formatting choices, you can look at some past group reports on my site (under the website for the class and project). I prefer brevity. As a general rule, steer away from explaining mechanics - how you unlevered or levered betas -and spend more time analyzing your output (why should your company have a high beta? And what do you make of their really high or low return on capital?). I will send an email just on this part of the process soon.
Ah, where is the good news? You will be done with the project exactly 9 days from today. Finally, in case you have not had enough from me, I am attaching the latest newsletter (Good news. It is the last one!). Until next time!
Attachment: Newsletter #12
As your project winds down (or up), I am sure that there are loose ends from earlier sections that may bother you. In the interests of brevity, I have listed a few of the questions that seem to be showing up repeatedly in emails:
1a. I just discovered that my company lists revenues from "other businesses". How should I treat these in bottom-up beta computations?
1b. I just discovered that my US company has revenues from other countries (including emerging markets) and in other currencies. How does this affect my cost of equity/debt/capital?
1c. What should I be doing with the cash balance that my company has when computing the unlevered beta?
2. If I have no or little conventional debt and significant operating lease commitments with no rating, how do I compute a synthetic rating?
3. I have a negative book value of equity. How do I compute ROE and ROC?
4. My ROE > Cost of equity and my ROC < Cost of capital (or vice versa). How is this possible and how do I explain it?
5. My Jensen's alpha is positive (negative) and my EVA is negative (positive). How do I reconcile these findings?
6. How do I come up with the cash flows and characteristics of a typical project?
7. The cost of capital is higher at my optimal debt ratio than at my current debt ratio. Why does that happen and what do I do?
8. If my firm is already at its optimal debt ratio, do I still need to go through the debt design part?
9. I cannot do the macro regression (because my company has been listed only a short period or is non-US company). What do I do about debt design?
10. My macro regression is giving me strange look output. What should I do?
11. My company pays no dividends. Should I bother with dividend analysis section?
12. I have a non-US company. How do I get market returns and riskfree rates for the dividend analysis section?
13. I am getting strange looking FCFE for my company... What's going on?
14. We have a problem group member. Are we allowed to take punitive measures?
15. When will this torture end?
In today's class, we put the closing touched on dividend policy analysis by going through the possess of estimating FCFE, the cash flow left over after capital expenditures, working capital needs and debt payments. My suggestion is that you estimate the aggregate FCFE over 5 years (or as many years as you have data) and compare it to the cash returned. If the cash returned = FCFE, you have a rare company that pays out what it can afford in dividends. If cash returned <FCFE, your company is building up cash and you should follow through and look at how much you trust the management of the company with your cash (use the EVA and Jensen's alpha that you have estimated for your company).
|5/7/13||I know that today is usually the day for the corporate finance puzzle, but this week, I think we have to reset our priorities. Since the project is due in less than a week and you may still have not done the valuation part, I decided to move up the in practice webcast three days and post the links today. The spreadsheet that I used to illustrate the process is the fcffsimpleginzu.xls that I had sent in an email last week and the company I have used is Apple. Here are the links:
Link to the webcast: http://www.stern.nyu.edu/~adamodar/podcasts/Webcasts/valuation.mp4
Valuation of Apple in May 2013: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/valuation/applevaln2013.xls
Apple 10K (September 2012): http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/valuation/apple10K.pdf
Apple 10Q (March 2013): http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/valuation/apple10Q.pdf
Once you have gone through the webcast, please try entering the numbers for your company into the spreadsheet (which I have attached) and bring the output to class tomorrow. While there are other more elaborate and involved valuation spreadsheets, this one has three advantages. First, it requires relatively few inputs to value a company. Second, it is versatile and will value companies across the life cycle, from young, money losing start ups to companies in decline. Third, I have tried to set default options in the spreadsheet that protect you from your own inputs. I know that you are capable of protecting yourself, and if you feel comfortable, please go ahead and turn off the defaults.
I know that some of you are on to the valuation spreadsheet. A couple of things to note about the spreadsheet. If you have no options outstanding, just enter 0 for the number of options and leave the rest of the inputs for the options untouched. If you put blanks in the cells or zeros, you are likely to see errors pop up in the option spreadsheet. If you do enter the options and you are still getting DIV/0 errors, don't freak out. This is one of the unpleasant byproducts of the iterative function: the spreadsheet becomes a little unstable. It is easy to fix. I can do it for you but you can do it yourself as well. Here is what you should do:
I hope you get done with the numbers in the next day or two. Once you have the numbers done, could you please fill out the attached spreadsheet with your numbers and send them to me. In the last class, I hope to summarize all of your findings and present them to you - the ten most under levered companies in the class, the ten most over valued companies in the class... It is fun, but I can do it only I have your numbers. While it make the logistics easier, if you sent me the numbers for everyone in the group in one go, I will take what I can get. Thus, if four out of five members have their numbers ready, but the fifth is lagging, I will take the four companies that you have the data for. Since it will take me a little time to pull these numbers into a summary sheet and analyze them, please do get them to me by Sunday evening at the latest and earlier would be better... Thank you again!
Attachment: Summary sheet
In today's class, we looked at valuation as the place where all of the pieces of corporate finance come together - the end game for your investment, financing and dividend decisions. After drawing a contrast between valuation and pricing, we looked at the four drivers of value: cash flows, growth rates, discount rates and when your company will be a stable growth company. We then looked at how these numbers can be different depending on whether you take an equity or firm perspective to valuation and what causes these numbers to change. In particular, we argued that while no one can lay claim on the "right" value, we still need to be internally consistent with our assumptions. High growth generally will be accompanied by high reinvestment and high risk, and as companies mature, their growth and reinvestment characteristics should change. Ultimately, though, the best way to learn valuation is by playing with the numbers and seeing how value changes. Post class test and solution attached. Until next time!
|5/9/13||As you embark on the valuation phase of the project, here are a couple of things to keep in mind:
1. Stick with the simpler version of the ginzu spreadsheet that I have created just for this class; (There is a more complicated version of this spreadsheet... let's save that for the valuation class.. if you want to continue this torture)
2. Recognize that you always have to make assumptions about the future to value companies. In other words, you will not find these numbers in 10Ks, annual reports or SEC filings. That is the bad news. The good news is that I don't have a crystal ball either. So, as long as your estimates are internally consistent, you are okay.
3. I have built the spreadsheet to protect you by setting in default settings at the safest levels. I do give you the options to release these defaults but do so only if you understand the consequences
4. I made a big deal about your ROE/ROIC in class yesterday which has led to some angst for some of you who are getting outlandishly high or even negative values for ROE and ROIC. First, recognize that when you are completely dependent upon accounting numbers, as you are with both ROE & ROIC, you can get strange numbers because book value and accounting earnings can be skewed. For instance, if we follow the conventional practice of netting out cash and goodwill from the book values of debt and equity to get to invested capital, you can end up with negative invested capital. In my original return spreadsheet, I had locked you into these defaults, but I recognize that some of you may want to change those defaults. So, I have modified the spreadsheet to allow you to leave some or all of the goodwill in the invested capital. In making these judgments, here are some things to think about.
a. On goodwill, in the standard approach where we don't include it in invested capital, we assume that companies behave sensibly when they acquire other companies and that the goodwill paid is for future growth assets. We do know that companies don't always follow this script and that they overpay. My rule of thumb on goodwill is that I cut less slack for companies that have done bad acquisitions in the past and for older acquisitions. Thus, if you are looking at HP, given their history of terrible deals, my suggestion is that you leave 100% of the goodwill in the invested capital.
b. On cash, it is a tougher call. If you feel that the cash is needed for operations and is wasting (i.e., not invested in fair return financial securities), you should leave that portion of the cash in invested capital as well.
Until next time!
I know that this is shaping up as the weekend from hell for some of you and I share some (or all) of the blame. Anyway, it is too late for me to be offering you "substantive" help on the project, at least on a collective basis, but here is a list of "to dos" for you and me over the weekend:
Attachment: CF summary sheet
|5/11/13||I will keep you updated through the weekend on the number of summaries that I have receive and the number yet to come. It is not intended to panic you or evoke guilt but to just keep you in the loop. And if you do have last minute questions or just need some handholding and therapy (It is going to be okay! This too shall pass! You are a good person, just having a bad moment!... Just practicing my lines..), you can email me and I will try to respond as soon as I can. I have four soccer games to get to over the weekend but I should be able to check email. My iPhone typing skills are abysmal. So, please forgive me if my replies seem abrupt or nonsensical (that spell check on the iPhone is deadly)!
Updates received so far: 16
Updates to come: 340
Until next time!
Attachment: Closing presentation
Attachments: Project summaries
I am attaching the presentation for tomorrow's review session to this email. I will try to make copies for everyone who will be at tomorrow's session. However, if you will not be there and will be watching the webcast, please use this presentation.
I hope to see you at the review session tomorrow from 12-1 in KMEC 2-60. Finally, here is the seating arrangement for the final exam. Note that we have 1-70, 2-60 and Paulson:
You can also get the past finals & solutions:
|5/16/13||I know that you are busy working through past finals, but I could not let this story slip past:
Looks like operating leases will become debt sooner or later (and we won't have to capitalize leases and make the adjustment anymore). Think of how much work this would have saved you on the project.
The finals are done and ready to pick up at the usual spot. I know that the final was challenging though not as challenging as some of you made it (When there are three ways of doing a problem, some of you had the knack to pick absolutely the most complicated way). Anyway, the exams are in alphabetical order (for the moment) and face down. I have attached the solution and the grading template, as well as the distribution for the exam. Please do not read too much into the distribution since the final grades will be out early next week.
I am also on my way to the airport to catch a long flight to Singapore. I will not be back until a week from Tuesday. If you have a problem with the grading, it will have to wait until I get back unless you can scan the page in question and email it to me. Don't worry, though! Even if your final grade has been submitted, I can put in for a grade change.
I just turned the grades in and they should be online. I know that each and every one of you spent an incredible amount of time in this class and I really, really appreciate it. I also know that some of you will be disappointed in your grades and I feel as badly as you do about not being able to help you master the mechanics. If you have questions about how you ended up with the grade that you did, I am a believer in transparency and in keeping with that, I have attached a spreadsheet, which you can use to see your grade computation. I hope that a bad grade does not sour you on finance and that you will take tools away from this class that you can use elsewhere.
One of the best things about teaching is that you get closure at the end of every semester and it is time to wrap up and move on. When we started in January, I said that I would try to make this a class that would stay with you for the rest of your life. I may not have succeeded but I really did try! I hope that you find ways to use what we have talked about in this class in whatever you choose to do in your future. Just as an aside.. If you really want to master Corporate Finance, the best way to do it is by getting your hands dirty... I know that this will sound masochistic, but pick another company and do the entire corporate finance analysis on it. You will find two things. First, it will take a lot less time the second time around. Second, you will learn something new with every company you examine.
You will notice that this email does not end with the three words that every other email that I sent this semester ended with: "until next time". For better or worse, this is my last email to you in this class. However, you do have my email address for life. No matter what you decide to do or where you go to work, I am only an email away. If you have questions, doubts or just thoughts you want to share, I will be always glad to be the recipient. While I will not promise an instantaneous turn-around, i will get back to you. If you do choose to take my valuation class, you can look forward to a whole new set of emails and I look forward to seeing you in the Fall or the Spring. As a final thought , have a wonderful summer. God speed!
Attachment: Grade Checker