THE UNIVERSITY OF TEXAS AT DALLAS

FIN 6305-501
Corporate Finance and Policy
Fall 2005

INSTRUCTOR: David Springate

SM 1.708
(972) 883-2647
spring8@utdallas.edu
Fax (972) 883-6381
www.utdallas.edu/~spring8
SUPPORT: Cindi Godwin
SM 1.701
(972) 883-5941
Cynthiagodwin@utdallas.edu
TIME/PLACE: Wednesday, 7-9:45p.m.
SM 2.116

AIMS:
My aims in this course are to:

1. Give you increased understanding and appreciation of many of the models, analytical
tools and financial concepts introduced in FIN 6301. I want you to better understand their
power and their limitations. We will do this, in part, by examining corporate and financial
policies in non-financial corporations and using the models and concepts.

2. Make you more comfortable with the necessity to use judgments and live with uncertainty
in applying financial models, analytical tools and financial concepts. Finance is a
discipline with developed theory. Often, however, we must estimate a parameter or work
around the fact that we do not know its exact value. Furthermore, the results of any
analysis must be interpreted for usefulness to the corporation and the individual. In most
cases, judgments are called for. Said another way, we will address real world ambiguity
in this course.

3. Have you better comprehend the role of a corporate chief financial officer as he/she
works to measure results, enhance value and finance operations/opportunities in non-
financial corporations. We will continually work with some major aspects of the role.

4. Have you appreciate the power of financial markets to guide corporate actions in a
market-based, capitalistic economy. We have all entrusted our well-being to a system
that, in large, measure, rewards those actions expected to result in greater wealth
creation. We should better understand how the system works, especially in that we are
students of finance.

5. Have you internalize that financial and corporate policies come together in an important
way. Increasingly, financial officers are involved in improving corporate operations. They
have always been involved in making strategic decisions. This is, in part, because
financial officers think in terms of value. It is also because financial officers are regarded
as the executives responsible for either reducing proposed actions to the level of
numbers or verifying numbers produced by others. To regard corporate finance and
corporate policy as being mutually supportive is logical. I aim to increase your capacity to
make the necessary links.

In short, I hope to increase your professional capability and have you become a better
manager or executive.

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METHODOLOGY

To pursue the above objectives we must, I believe, often put ourselves in the shoes of a financial
officer. This will frequently involve revisiting decisions to be taken in a corporate context using a
published case. In addition to case analysis we will use instructor lectures, individual papers and
two group presentations in the course. Also, we will be visited, I hope, by two active financial
officers.

Class preparation is important for our sessions. I encourage you to form small groups to hold
preliminary group discussions. On two occasions formal roles will be assigned to your groups.
Each will conduct a presentation making up part of a week’s class.

COURSE MATERIALS:

Your finance textbook will serve well as a reference text. A list of nineteen required cases and
two notes is attached. They can be obtained from the Off Campus Bookstore or the on-campus
bookstore. In several instances readings may be distributed to you.

COURSE OUTLINE:

1. Class 1 – August 24
We will start with discussion of class objectives. I will introduce the course more
generally and encourage group formation. Later, we will use the Radio One, Inc, case to
start our case discussions and to learn to better work together. We will concentrate on
examining the basic corporate valuation model: identifying the free cash flows, discount
rates, growth rates and appropriate terminal values. We will also consider comparisons
with trading and transactions multiplier values.

Start of Section of Improving Value of Corporate Investments/Operations

2. Class 2 – August 31
We will move to a consideration of measuring improved value of a proposed project for a
multi-divisional company. In the Empirical Chemicals (A) case we will consider some
tricky issues such as sales erosion and allocation of corporate overhead costs as well as
the choice of criteria by which to judge projects. These represent important policy issues.

3. Class 3 – September 7
We will move to Customer Profitability and Customer Relationship Management at RBC
Financial Group and explore the fit between business strategy, value, enhancement,
measurement systems and organizational structure on the way to improving value.

4. Class 4 – September 14
The case is The Continuing Transformation of Asahi Glass: Implementing EVA. It will
allow us to investigate the use of a new management system for resource allocation and
performance measurement and how this system relates to improved corporate value.

5. First Written Assignment – September 14

It is my intention to assign We’ve Got Rhythm! Medtronic Corporation’s Cardiac
Pacemaker Business. This allows the exploration of interactions between strategy,
capacity, culture, customer processes and measurement systems in producing value.
More details on the assignment, due on October 1, will follow.

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6. Class 5 – September 21
We will continue to work together on the value of real option and how to measure this
value. The case considered will be Arundel Partners: The Sequel Project. Two readings
will also be discussed. They include A Real World Way to Manage Real Options and
Investment Opportunities as Real Options: Getting Started on the Numbers.

Start of Section on Improving Value Through Financial Structure

7. Class 6 – September 28
The case assigned will be Nelson Paper Products. This case raises the question of
strategic fit of a potential acquisition and the question of how much to pay for the
acquisition in a bidding situation. The third question that arises is the best source of
financing for the acquisition if the decision to made to pursue it.

8. Class 7 – October 5
The Sealed-Air Corporation’s Leveraged Recapitalization (A) case will be considered.
The case calls for an examination of managerial and investor behavior in considering
increased leverage.

9. Class 8 – October 12
On this date we will consider the Diageo plc case. It continues our consideration of
leverage and gearing. Financial distress and tax benefits will be part of the discussion.
Group presentations will be utilized.

Start of Section on Improving Value Through Equity Management

10. Class 9 – October 19

We will move to the USX Corporation case. It deals with the market’s assessment of
business segments, targeted stock and spin-off transactions.

11. Class 10 – October 26

We will take up the case Dividend Policy at Linear Technology. The session will give us
the chance to review our understanding of how best to make choices within dividend
policy.

12. Class 11 – November 2

We will discuss United Parcel Services IPO. In judging the worth of the company,
consideration of its performance and strength relative to other firms will be explored.
Group presentations will be used.

Start of Section on Improving Value Through Debt Management

13. Class 12 – November 9

The cases assigned will be Liability Management at General Motors and The B.F.
Goodrich-Robobank Interest Rate Swap. It is important that we consider arbitrage and
derivatives in this course. We will do this as we consider a firm’s active management of
its debt portfolio.

Start of the Section on Improving Value Through Corporate Governance

14. Class 13 – November 16

We will examine Parmalat SpA: An Impressive Milking System. We will consider both the
firm’s collapse and its re-structuring as we draw lessons from this case.

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 15. Second Written Assignment – November 16
I intend to assign the case Executive Compensation at General Electric (A) for written
analysis. This involves many issues including governance, ethics, communications and
value augmentations. As an alternative, you can analyze the case Computer Associates
International, Inc: Governance and Investor Communications. This case is one of a
general nature involving a business model, accounting and governance changes.

16. Class 14 – November 23

Class will not be held. Group discussions relating to the above cases are recommended.
Your choice of paper must be made by this date.

17. Class 15 – November 30

The paper assigned on November 16 will be due in lieu of an examination.

PREREQUISITES

Finance 6301and MECO 6201, or their equivalents, are required first courses. This, in turn,
requires ACCT 6305 and OPRE 6301 pre-requisites. You must have the basics.

EVALUATION

Class participation: depth of analysis, effort, frequency 34%

Group presentations: content and effectiveness of two cases 33%
Individual written work: two cases expected 33%
100%

STUDENT CONDUCT

Cheating and/or plagiarism are not tolerated in accordance with university policy. All work that is
represented to be your own must be so.

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 FIN 6305-501 Corporate Finance and Policy
David Springate
Fall 2005

List of Cases

Harvard Business School:

Radio One, Inc. 9-201-025

Customer Profitability and Customer Relationship Management
at RBC Financial Group 9-102-072
The Continuing Transformation of Asahi Glass: Implementing EVA 9-205-030
We’ve Got Rhythm! Medtronic Corporation’s
Cardiac Pacemaker Business 9-698-004
Arundel Partners: The Sequel Project 9-292-140
A Real World Way to Manage Real Options R-04403G
Investment Opportunities as Real Options:
Getting Started on the Numbers 98404
USX Corporation 9-296-050
The Sealed Air Corporation’s Leveraged Recapitalization (A) 9-294-122
Dividend Policy at Linear Technology 9-204-066
Nelson Paper Products 9-294-129
United Parcel Services IPO 9-103-015
Diageo plc 9-201-033
Liability Management at General Motors 9-293-123
The B.F. Goodrich-Robobank Interest Rate Swap 9-284-080
Parmalat SpA: An Impressive Milking System IMD183
Executive Compensation at General Electric (A) 9-105-072
Computer Associates International, Inc:
Governance and Investor Communications 9-103-007

University of Virginia- Darden

Empirical Chemicals (A): The Merseyside Project UVA-F-1020