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Web Casts: Corporate Finance - Spring 2014

The 26-session corporate finance class will be webcast starting February 4, 2013, and the lectures will be available as webcasts that can either be watched online or downloaded. You can get the supporting lecture notes by clicking on the pdf files below - the pages covered by each lecture are provided next to each lecture. The quality of the video is not great but the audio should be good. You can download the lecture notes that I will be using for the classes below. For the syllabus and other details, visit the home page for this class .
Lecture note packet 1: Management Objectives and Investment Analysis (Sessions 1-15): The link is to a pdf file which is good for tablets or iPads. If you want to print the file download the powerpoint file. You can then choose to print the slides, one to a page, two or a page, in note format or whatever your heart desires. Updated for Spring 2014 class
Lecture note packet 2: Capital Structure, Dividend Policy and Valuation (Sessions 16-26): The link is to a pdf file which is good for tablets or iPads. If you want to print the file download the powerpoint file. You can then choose to print the slides, one to a page, two or a page, in note format or whatever your heart desires. Updated for Spring 2014 class

This page will include the webcasts from the current class. This page will include the webcasts from the current class. The webcasts can be accessed in one of three ways:
Streaming video (The file will be streamed to your computer. This will work only if you have a good internet connection, but should be of the best quality)
Video podcast (The .m4v file will be downloaded to your computer and you can watch the video using Quicktime or video software or on your iPod)
Audio podcast (The .mp3 file will be downloaded as an audio file and can be played on any audio player)


If you want to join the Lore page for this class (or just lurk), here is the link.
If you would like to watch the sessions on Appe iTunes U on your Apple device, try this link.

Finally, you can read the emails that I send to the class by this link,as well as the newsletters for the class.

Session (Click here) Topics covered Lecture notes

1 (2/3/14)
Sorry. No webcast for this session. Catastrophic tech failure.

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

This is corporate finance!
Overview of class

Syllabus for class

Post-class test and solution
Corporate Finance Puzzle #1

Microsoft gets a new CEO
- The back story
- Steve Ballmer departs (and tells you why)
- Setting up the new CEO search
- The Board of Directors at Microsoft (2013)
- Top management compensation (2013)
- A new CEO is chosen

The set up & questions

2 (2/5/14) (Skip the first few minutes of dark video, since class started 30 minutes late due to the snow storm. The streaming webcast is the best option)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

The objective in running a business
- Value maximization versus Stock price maximization
- The "utopian" world of price maximization
- The real world intrudes

Project Description
Lecture note packet 1: Pages 1-14

Post-class test and solution
In Practice Webcast #1
Assessing corporate governance Webcast
Presentation
HP Annual Report
HP DEF14A

3 (2/10/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

More on the objective function
-More on corporate governance
- Lenders versus Stockholders
- Incomplete information & irrational markets

Packet 1: 15-40
Post-class test and solution
Corporate Finance Puzzle #2

Corporate Social Responsibility
a. The best corporate citizens
b. CSR and Stock Price Performance

  1. Attention to CSR reduces risk (cost of equity/capital) and thus increases value.
  2. CSR can reduce profitability and stockholder wealth in some businesses, but stock prices do go up when companies spend more than expected on CSR.
  3. The payoff to CSR is bigger in some sectors (businesses) than in others


Discussion & Questions

4 (2/12/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Alternatives to stock price maximization
The strongest argument for price maximization
Defining risk and first steps in risk & return
Packet 1: 41-70
Post-class test and solution
In Practice Webcast #2
Analyzing the stockholder base

Webcast
Presentation
Top 50 activist investors (2010)

Corporate Finance Puzzle #3

Risk = Danger + Opportunity

  1. Ponzi Scheme: The Original
  2. The Bernie Madoff Story
  3. Robert Citron, RIP.
Discussion & Questions

5 (2/19/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Risk and Return: Next steps
- The CAPM
- Alternatives to the CAPM
- Inputs to the CAPM: The riskfree rate
Packet 1: 71-96
Post-class test and solution
In Practice Webcast #3
Estimating a Risk free rate
  1. Webcast
  2. Presentation
  3. Moody's ratings (3/13)
  4. CDS spreads (3/13)

6 (2/24/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Equity Risk Premiums
- The basis
- Estimation procedures
- Historical versus Implied Premiums
- Country risk premiums
- Company ERP
Packet 1: 97-119
Post-class test and solution
Corporate Finance Puzzle #4
Country Risk, Default Risk & Equity Risk Premiums
- Sovereign CDS spreads for Latin America (2004-2014)
- Country equity risk premiums at the start of each year from 2005 to 2014 (based on sovereign ratings)
- My blog post on risk in emerging markets (July 2013)
- My blog post on the effect of risk on equity prices in emerging markets (July 2013)


Discussion & Questions

7 (2/26/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Betas
- Return Regression
- Performance and risk assessment
Determinants of Betas
Packet 1: 120 - 139
Bloomberg Data Guide
Post-class test and solution
In Practice Webcast #4
Deconstructing a regression beta page
  1. Webcast
  2. Bloomberg beta page
  3. Spreadsheet for analysis
  4. Disney Annual Report (2012)
  5. Excel regression beta page
  6. Disney (Raw Data)
  7. S&P (Raw Data)

8 (3/3/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Closing thoughts on regression betas
Determinants of beta
- Nature of products/services
- Operating leverage
- Financial leverage
Betas as weighte averages
- Acquisiton effects on beta
- Introduction to bottom up betas
Packet 1: Pages 140-158
Post-class test and solution
Corporate Finance Puzzle #5

Breaking up is hard to do
Activist investors pushing for more break ups
Loeb's play for Sony (Story and YouTube video)
Sony's response
An Update
Sony Annual Report (2013)

Discussion & Questions

9 (3/5/14)
(Slides don't show up, but will be fixed shortly)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Bottom Up Betas
- Getting pure play betas
- Estimating divisional values
- Betas and costs of equity by business
- Converting costs of equity from one currency to another
- Cost of equity for a privately owned business
Packet 1: Pages 159-171
Post-class test and solution

Quiz 1: Review Session (3/7/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)

Audio Podcast (downloadable)

Review session for quiz 1 Presentation
Past Quiz 1s
Solutions to past Quiz 1s
In Practice Webcast #5 Estimating a bottom up beta
  1. Webcast
  2. United Technologies 10K
  3. Spreadsheet for bottom up beta

10 (3/10/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Take the first quiz (a or b) and check out the solution (a or b)as well as the distribution of grades for the class. Packet 1: 172-183

Private Business Costs of equity
- Beta estimation
- From market to total betas
Debt
- What is debt?
- Cost of debt

Post-class test and solution
Corporate Finance Case (due April 2@10.30 am)
Whole Foods goes eat in
- The WF Dining Case
- Peer group (as excel spreadsheet)
 

11 (3/12/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Cost of Capital (continued)
- Market values for debt and equity
- Lease committments to Debt
- Weights for debt and equity
Introduction to Investment returns
- Earnings vs Cash flows

Yankee infield
Packet 1: 183-208
Post-class test and solution
In Practice Webcast #6
Debt and the cost of debt

Webcast
Home Depot 10K
Home Depot 10Q
S&P rating for HD
Spreadsheet

12 (3/24/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Measuring investment returns
- Accounting earnings & returns
- Earnings to cash flows
- Incremental cash flows
Packet 1: 209-231
Post-class test and solution
Corporate Finance Puzzle #6

Sunk Costs: Theory and Reality

  1. The sunk cost fallacy
  2. My blog post on the Yankees' A Rod Problem & sunk costs
Discussion & Questions

13 (3/26/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Time Weighted returns
- NPV and IRR
- Terminal versus Salvage value
- Currency Choices
Dealing with uncertainty
Packet 1: 232-262
Post-class test and solution
In Practice Webcast #7
Estimating ROIC and ROE Webcast
Walmart 10K (2013)
Walmart 10K (2012)
Spreadsheet

14 (3/31/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Equity Analysis of a project: Aracruz paper plant
An acquisition valuation
NPV versus IRR
- Multiple IRR
- Different scale
- Reinvestment rate assumptions
Packet 1: 263-302
Post-class test and solution
Weekly Puzzle #7
Valuing the Star Wars Franchise
- The franchise's economic history (through 2012)
- My valuation of Star Wars (in November 2012)
- Plans for future Star Wars movies (news story)
Discussion & Questions

15 (4/2/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Whole Foods Dining
- Case Discussion
The value of synergy
Options in projects
Assessing existing projects
Whole Food Dining
- Presentation
- Excel spreadsheet
Packet 1: 303- End
Post-class test and solution
In Practice Webcast #8
A "typical project": what and why? Presentation
Webcast

16 (4/7/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Capital Structure
- The choices
- A life cycle view of capital structure
- Costs and benefits of debt


Packet 2: 1- 21
Post-class test and solution

Quiz 2: Review Session (4/8/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Review session for quiz 2 Presentation
Past Quiz 2s
Solutions to past Quiz 2s
Weekly Puzzle #8
Bondholders versus Stockholders: The Sears story
- The Sears Garage Sale (and consequences for bondholders)
- Eddie Lampert as CEO: The Employee Perspective
Discussion & Questions

17 (4/9/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Take the second quiz (a or b) and check out the solution (a or b)as well as the distribution of grades for the class. Packet 2: 23-41
The trade off on debt versus equity
- The trade off and Miller-Modigliani
- The Financing Heirarchy
- Introduction to the Cost of Capital Approach
Post-class test and solution
In Practice Webcast #9
The trade off on debt versus equity
  1. Presentation
  2. Webcast
  3. Spreadsheet
  4. Marginal tax rates by country
  5. Effective tax rates by sector (US)

18 (4/14/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

The Miller-Modigliani Theorem
The financing hierarchy
The Cost of capital approach to the optimal
- The rationale
- Mechanics
Packet 2: 42-74
Post-class test and solution
Weekly Puzzle #9
Leveraged Recapitalization: Motives and Consequences
- Recapitalizations: Big Picture
- The Dell Fight: Michael Dell's plans, Icahn's counter and the grand finale
Discussion & Questions

19 (4/16/14

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Optimal capital structure for banks
Reasons why the optimal varies across firms
Relative capital structure: What and Why
Apple & Google: FA
Apple: Capital Structure
Google: Capital Structure Packet 2: 75-95
Post-class test and solution
In Practice Webcast #10
The optimal debt ratio
  1. Webcast
  2. Dell 10K
  3. Dell optimal capital structure

20 (4/21/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Moving to the optimal
- Urgency
- Recapitalization versus Projects
Designing the perfect debt
- The basic idea
- Steps in customizing financing
Packet 2: 96-117
Post-class test and solution
Corporate Finance Puzzle/Story #10

Surplus notes: The best of all worlds?
- Surplus notes: What are they?
- The IRS view of surplus notes
- The legal view of surplus notes
- The ratings agency view of surplus notes
- The insurance regulatory view of surplus notes
- The accounting (GAAP) view of surplus notes

Questions

21 (4/23/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Designing the perfect financing
- Ways of finding your perfect financing
- Fixing mismatches
Dividend Policy
- Descriptive facts
- Dividend Yield & Payout
Packet 2: 118-153
Post-class test and solution
In Practice Webcast #11
The perfect debt
- Intuitive analysis
- Macro regression
  1. Webcast
  2. Presentation
  3. Spreadsheet
  4. WMT financial summary

22 (4/28/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Dividend Policy
- Three schools of thought on dividend policy
* Dividends don't matter (and evidence)
* Dividends are bad (and evidence)
* Dividends are good (and evidence)
- The trade off on dividends

Packet 2: 154-180
Post-class test and solution

Quiz 3: Review Session (4/29/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Review session for quiz 3 Presentation
Past Quiz 3s
Solutions to past Quiz 3s
Corporate Finance Puzzle/Story #11

Apple's dividend/buyback
- My initial post on Apple's cash balance
- My latest blog post on Apple
- Apple's latest earnings report/announcement

Questions

23 (4/30/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Take the third quiz (a or b) and check out the solution (a or b)as well as the distribution of scores for the class. Packet 2: 181-193
Good reasons for paying dividends
- The Dividend Clientele story
- The Dividend Signaling story
- The Bondholder expropriation story
The cash/trust approach to assessing dividend policy
Post-class test and solution
In Practice Webcast #12: Assessing dividend policy
Dividend policy
- How much could the company have paid out (FCFE)?
- How much did it pay out?
- Do I trust management?
  1. Webcast
  2. Spreadsheet
  3. Disney Annual Report (2012)

24 (5/5/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Dividend policy (continued)
- FCFE: Measurement & Intuition
- FCFE vs Cash Returned
- Trust & Cash balances
Relative analysis
Apple: FCFE & Cash Returned
Packet 2: 194-223
Post-class test and solution
In Practice Webcast #13
Valuation
- Getting updated numbers
- Valuing a business
- The key drivers of value

Webcast
Spreadsheet
Apple 10K (Sept 2012)
Apple 10Q (Mar 2013)

25 (5/7/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Valuation
- Approaches
- Drivers of intrinsic value
- Changing value
Packet 2: 224-255
Post-class test and solution

26 (5/12/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Closing presentation
- A big picture review
- Project findings
Closing presentation
Project summaries
The Final Exam (5/17/13)

Take the final exam (a or b) & check the solution (a or b).

You can also check your grade on the class