Instructor: Professor Jonathan Berk
Office: F634
Phone: 642-3364
Email: berk@haas.berkeley.edu
WWW: http://faculty.haas.berkeley.edu/berk/teaching/ugba137/ugba137.htm
Office Hours: TBA and by appointment
GSI: Nigel Barradale (nigel@haas.berkeley.edu)
The course emphasizes the basic principles of corporate finance and is sufficiently general so as to be of interest to all students. It provides students with the opportunity to understand how the concepts and theories developed in other finance courses are applied in the "real-world." The cases themselves will span all facets of financial decision making (e.g., short- and long-term financing, capital structure and dividend decisions, cost of capital, capital budgeting, firm valuation, financial and operational restructuring, and mergers and acquisitions). The objective is to improve problem-solving skills --- How to approach a real world problem, then distill the relevant information and make an informed decision. As a side benefit of the format of the class, students will have the opportunity to improve their communication skills and their ability to work effectively as part of a team. Part of the final grade depends on peer review which addresses the free rider problem inherent in group work.
Course Packet
The course packet contains all of the required cases and readings for the course. Data files are available on my web site.
Recommended References
Principles of Corporate Finance, by Richard Brealey and Stewart Myers, 7th Edition, McGraw-Hill, 2000.
Corporate Finance, by Ross, Westerfield and Jaffe, 7th Edition, McGraw-Hill, 2000.
Valuation: Measuring and Managing the Value of Companies, by Tom Copeland, Tim Koller, and Jack Murrin, John Wiley, Third Edition.
Office Hours
Please call or send an e-mail to make an appointment at any mutually convenient time.
Groups
All course work is done in groups of 4-6 students. Once formed, groups cannot be changed. Before the second class meeting, each group must email a list of its members to the GSI. Beginning with the second class, students should sit with their groups. This will allow group members to confer with each other during class. Students should also sit in the same seat every class and display their nameplates.
The course emphasizes the basic principles of corporate finance and is sufficiently general so as to be of interest to all students. It provides students with the opportunity to understand how the concepts and theories developed in other finance courses are applied in the "real-world." The objective is to improve problem-solving skills --- How to approach a real world problem, then distill the relevant information and make an informed decision. There is no final exam.
Class Participation:
Thoughtful and active participation is essential to a successful case discussion. Have your analysis available in class. Individual participation will be formally evaluated by the GSI on the basis of both quantity and quality, where the latter is more important. That is, talking for the sake of talking is not encouraged. Further, I will "cold call" on students. This is to further encourage students to be prepared.
Another factor in judging your participation is attendance (on the theory that you can't participate if you aren't there). However, in consideration of the fact that emergencies do arise, I will allow each student up to 3 absences over the course of the semester. After that an absence will be taken as equivalent to having not prepared the case. Please do not approach me for special consideration. I have no ability whatsoever to judge the reasons for your absence. The three absences are meant to handle emergencies that might arise. If you use them for non-emergencies you do so at your own peril --- if a true emergency does arise and you have no excused absences left, you will have to take an unexcused absence.
Case Write-ups:
Case write-ups are required for all cases and are due the the beginning of class on the day the case is discussed. For obvious reasons I cannot accept a late write-up under any circumstances. A case write-up consists of a maximum of 2 pages of text (typed and double-spaced) plus a maximum of 3 pages of exhibits necessary to support the recommendation. Do not present extraneous material.
In analyzing cases, you should take the perspective of an external consultant to the case decision makers, i.e., CEO, CFO, Board of Directors, etc. A recommended format for a write-up includes:
I. Statement of Problem. State the main problems of the case as precisely as possible.
II. Statement of Facts and Assumptions. State the relevant facts of the case. Those facts that are not obvious from the case itself should be supported either by a calculation in the body of the write-up or in an exhibit. Clearly state any assumptions. Provide any necessary justification for your assumptions.
III. Analysis. This contains your analysis of the various courses of available actions.
IV. Recommendation.
For each case, questions are provided to help guide and focus your analysis. These questions are not intended to be a complete list of the relevant issues.
Final Project:
During the semester there will be three guest lectures. Lou Lange, CEO and Chairman of CV Therapeutics (http://www.cvt.com), a biopharmaceutical company focused on the application of molecular cardiology to the discovery, development and commercialization of novel, small molecule drugs for the treatment of cardiovascular diseases, will lecture on Monday, March 29 at 6pm. In lieu of this lecture there will be no regular class on that day. David Russ, Treasurer of the University of California will lecture on Monday, April 5 at 6pm. In lieu of this lecture there will be no regular class on that day. Finally, Craig Conway, President and Chief Executive Officer of PeopleSoft (http://www.peoplesoft.com) has agreed in principle to come, so long as he can find a place in his schedule. I will update you on the date and time of his lecture. Each of these men will present a business problem. Each group will pick one problem and solve it as the final project in this class. Hopefully this will allow you to apply the skills you learn over the course of the semester to a current business problem. The final project is due on the last day of classes.
Peer Review:
To make the grading more equitable and to assist students in reducing the free-rider problem, part of your grade will be based on peer review. Each student will evaluate other group members. A peer review form is provided in electronic format on the class web page. Your peer review of others will be kept confidential. This review will determine your relative grade for your group case write ups and the final project. That is, not all members of the group will be given the same grade for group work, rather, peer reviews will be used to deviate on an individual basis (either positively or negatively). However, the average grade of all members of a group will be equal to the grade assigned to the group work.
Grading
Your grade for the course will be made up as follows:
Case write-ups 30%
Class Participation 40%
Final Project 30%
Total 100%
Write-ups and the final project must be your original work. You may not use materials containing solutions or partial solutions to the assignment (including solutions prepared by current and former students). If your analysis contains information from outside sources, then you must properly cite the sources. You may discuss the cases with classmates, including those in other groups. This promotes learning. The work you hand in, however, must reflect your own thinking and interpretation. There is an important difference between discussing a problem or various assumptions (something to be encouraged) and copying another group's analysis in whole or in part (whether this group is in your class or another class). While all write-ups are submitted by a group, you are expected to have a full understanding of any written material you or somebody else on behalf of you submits with your name on it. You must come to this understanding in collaboration with your group and you must be completely familiar with the material and able to answer questions about the assignment.
You may not consult with me on the basic arguments, analysis, or logic of your work prior to the class discussion or before you turn in your final project since this would give an unfair advantage over your classmates.
The following is a tentative list of cases to be used for the course. The exact cases to be covered are subject to minor changes. Dates for the various cases will be announced in class and on the class web page.
Financial Decisions and the Cost of Capital
Clarkson Lumber 9-297-028
Dell’s Working Capital N9-201-029
(The exihibits are available online on my web page for this case.)
American Home Products 9-283-065
Marriott Corporation: The Cost of Capital 9-289-047
MCI Communications Corporation 9-284-057
Investment Decisions and Valuation
American Chemical Corporation 9-280-102
Gulf Oil Corporation-Takeover 9-285-053
Interco 9-291-033
Mergers, Acquisitions, and Restructurings
John M. Case Company 9-291-008
Richardson-Vicks (A) & (B) 9-288-048 & 9-288-049
PepsiCo’s Bid for Quaker Oats (A) 9-801-458