Finance 463- Case Studies in Corporate Finance Spring 2013

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Finance 463- Case Studies in Corporate Finance  Spring 2013

Instructor:           Prof. Josh Pierce

                      Office:             457
                      Office phone:       777-4900
                      Office hours:       TBA

                      Class Hours:        T TH 9:30-10:45am (BA 401)
                                          T TH 11:00-12:15pm (BA 401)
                                          T TH 12:30-1:45pm (BA 401)
Textbook and
Course Materials:   1. Case Studies in Finance 463
                    Author: Pierce
                    Publisher: MCG/PRIMIS

                    2. Packet #31 for FINA 463.
                       Visit the Smarttext Mobile Kiosk located at 211 Main Street
                       (the Lofts at USC, formerly Whaley's Mill), in the rear lot.

Course Objective:   The goal of this course is to provide you with a deep understanding
                    of the financing issues that firms must deal with when raising and
                    spending money. The course will include many cases that
                    illustrate different real-world financing situations faced by
                    corporations. All of the cases we discuss will be Harvard Business
                    School and are used in many of the world's leading business
                    schools. This course will help prepare students for careers in
                    commercial and investment banking, corporate financial
                    management, as well as more general business careers that have a
                    substantial finance component. By the end of this course you must
                    be able to both conceptually and analytically attack the financing
                    and investing decisions firms make using real-life cases.

Course Format:      On days when we are covering textbook material, the course will
                    follow a traditional lecture format. For most of the lecture material
                    I will use overhead slides. I encourage student participation and
                    thus will at times actively call on students. My intention is not to
                    test you, but rather to keep everyone actively engaged in the

Requirements:          There are two important components to this class. The first
                       component is the textbook material. You are required to learn this
                       material. I will be following the textbook fairly closely, but some
                       material not in the textbook will be covered in class.

                       The second important component of the class is the case material. I
                       have chosen 7 cases that illustrate and amplify the issues that we
                       cover in the textbook. You must work on the cases in a group of 4-6
                       people. The group should hand in one assignment and all group
                       members will receive the same grade. These assignments are due at
                       the start of class on the day we cover the case. All assignments must
                       be handed in. No email. Be prepared to discuss your solutions as I
                       will actively call on students to discuss their answers in class.


Cases:                                 25% of your grade
Class participation:                   10% of your grade
Financial Policy Assignment:           15% of your grade
Exam 1: February 28                    25% of your grade
Exam 2: Varies by Section              25% of your grade

Notes on grading:

       Cases- These will be graded on a scale from 1 to 10. You are encouraged and
allowed to work with others on these assignments. Each group will hand in one assignment.

        Class participation- For this class to be a success, I need your active participation .
Your class participation grade will be based on my evaluation of your level of participation in
class discussions.

        Financial Policy Assignment- I will require your group to complete a report on the
financial policy of a current publicly traded firm. This assignment is intended to force you to
explore the concepts from the course in the context of a real-world firm. More details on this
assignment are posted at the end of the syllabus. The assignment must be turned in to me at
the beginning of class on April 25th.

        Exams: The exams are not cumulative. However, some material from earlier in the
course will be necessary to understand material later in the course. I will tell you more about
each exam as we get closer to the exam dates. You are allowed to bring a calculator and a
single-sided 8  x 11 sheet of notes and formulas to each exam.

Make-up Exams, Late Assignments, and Grade Changes:

Late case assignments will not be accepted. If you have an issue with how your case was
graded, you must write down your complaint and give the case back to me. I will re-
grade the entire case and reserve the right to raise or lower your score.

A missed exam without prior notification will be recorded as a zero. If an emergency
arises, be prepared to provide me with written documentation explaining your situation.

Honor Code

You are expected to practice the highest possible standards of academic integrity. Any
deviation from this expectation will result in a minimum of your failing the assignment,
and may result in additional, more severe disciplinary measures. This includes improper
citation of sources, using another student's work, and any other form of academic

The first tenet of the Carolinian Creed is, "I will practice personal and academic

                              Financial Policy Assignment

I would like you to identify a firm that went public sometime between 2000 and 2008, is
still public today, and currently has total assets with a book value of at least $5 billion.
As we proceed through the course you should investigate the firm's financial policy and
how it has evolved over time. Using the materials and concepts in the course, I would
like you to prepare a report analyzing and assessing the firm's financial strategy. This
report should be completed by your group and turned in to me no later than the beginning
of class on April 19th. Your report should incorporate answers to the following questions
if they are relevant for your firm. You are also welcome to address any other issues in
your report that you feel are germane to the topics of the course. You will be graded on
the depth and quality of your analysis. Your report must be limited to 5-typed pages
including any supporting tables/graphs. Please briefly indicate the sources you used at
the end of the report.


[1] When did the firm go public? What fraction of the firm was sold in the IPO? Was
the issue initially underpriced? What has the long-run stock performance been?

[2] Has the firm completed any subsequent equity issues? Were these issue public issues
or private issues? What was the market reaction to the issue decision?

[3] Has the firm ever issued public debt? Has the firm ever had a debt covenant waived
or experienced financial distress? What is the largest debt financing event that the firm
has undertaken?

[4] Does the firm appear to rely primarily on internal or external sources to fund its

[5] Has the firm ever issued dividends, repurchased shares, or deliberately retired a large
debt issue? What was the market reaction to these events?

[6] Do any of the financing events discussed in [1] - [4] appear consistent with the theory
of this course? Do any of the events seem inconsistent with the theory?

[7] Describe the firm's current capital structure and financial policy. How does their
capital structure compare to other firms in the same industry? Do you believe the firm
has adopted an optimal capital structure? Do you believe the firm has adopted an optimal
distribution policy? (Note: question [7] is the most important question in the assignment
and thus your discussion of this one should occupy proportionately more of your report
than the others.)

                      Questions for Cases  Spring 2013 - Finance 463

Marriott Case

   1.   What is the WACC for Marriott Corporation?

        Hint: To answer this question think of these issues:
        1. What risk-free rate and risk premium did you use?
        2. How did you measure Mariott's cost of debt?

   2.   What is the cost of capital for the lodging and restaurant divisions of Marriott?

        Hint: To answer this question, think of these issues:
        a. What risk free rate and risk premium did you use in calculating the cost of equity for each
           division? Why?
        b. How did you measure cost of debt for each division? Should cost of debt differ across divisions?
        c. How did you measure beta of each division?

   3.   What is the cost of capital for Marriot's contract services division? How can you estimate
        its equity costs without publicly traded comparable companies?

   4.   Can't I just apply the overall cost of capital to each division? I thought Beta was Beta?
        Help me out.

UST Case

Should UST borrow the $1 billion and use the proceeds to repurchase stock? How would
this action affect the stock price?

Massey Case

1. Net sales for Massey-Ferguson actually increased between 1979 and 1980. Despite
this, net income and income from continuing operations both dropped sharply in
1980. Which item on the income statement was most responsible for this drop in

2. What was Massey-Ferguson's market value of common stock at the end of fiscal
1980? Was this market value greater than or less than Massey-Ferguson's book value
of equity? Why?

3. Why would the Canadian government have any interest in helping Massey-Ferguson
refinance its debt?

4. Why would it be difficult for Massey-Ferguson to conduct an equity issue to pay
down its debt?

5. How did Massey-Ferguson's financing policy compare to its competitors in the
degree to which it exposed the firm to increases in interest rates?

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