Corporate Finance

Fall 2006
Office: GSP 216
Keun-Soo Kim
e-mail: keunskim@khu.ac.kr
Phone: 031-201-2360

Lectures:
Office Hours:

Course Description
This course is an introductory course in corporate finance that deals with important issues
from the perspective of financial managers to make significant investment and financing
decision. The course is organized into two parts. The first part investment policy- asks how
to evaluate projects and select value-added projects, including valuation of future cash flows,
net present value, capital investment decision, and project analysis. The second part
financial policy- asks how to finance investment projects, including the cost of capital, capital
structure policy, and dividend policy.
Reading Materials
Required Text:
1. Ross, Westerfield and Jordan (RWJ), Fundamentals of Corporate Finance, 7th
edition, McGraw-Hill Irwin, 2005
2. DeMello, Jim (DJ), Cases in Finance, 2003, McGraw-Hill Irwin
Evaluation
The course grade will be based on one midterm exam, one final exam, a number of homework
assignments including case study, and class participation. All homework assignments will
have a specific due date and must be handed in at the beginning of the class. I will not accept
late assignments without giving minus points. There are 6 homework assignments for case
studies. "Cases in Finance" will be required for group work which consists of 3 or 4 persons.
Each group informs me who works with whom.

Class Participation: 10%

Homework: 50%
Mid-term Exam: 20%
Final Exam: 20

Calculators
It is strongly recommended that you bring a calculator in my class. You will definitely need a
calculator for homework as well as two exams. Any calculator that compute X y button will do.
When constructing the exams, I will make sure that the people who do not have a fancy
calculator are not at a disadvantage. Laptop computers and PDA's will not be allowed for the
two exams

Class Schedule
The following schedule shows the topics that will be covered in each of the term's classes.
Also listed is the material that the students should read through before each class. This
schedule should be considered tentative, as it is likely to change during the course, depending
on various factors. Should changes be made, they will be announced in class at least in ahead
of one or two weeks.
Week 1
Introduction: Overview of Corporate Finance
Goals of Financial Management & Agency Problem
Value of Money: Future and Present Value
RWJ: Chapter 1 and 5
Week 2
Discounted Cash Flow
Valuing Cash Flows of Annuity and Perpetuities
RWJ: Chapter 6
Week 3
Case 1: Lottery Winnings-Looks Can Be Deceptive (DJ: Time Value of Money)
Interest Rates, Bond Yields, and Bond Valuation
RWJ Chapter 7
Week 4
Common Stock Valuation
RWJ: Chapter 8
Week 5
Case 2: How Low Can It Go? (DJ: Application of Stock Valuation Methods)
Week 6
Basic Concept of Options
Net Present Value, Payback Rule, Average Accounting Return, and Internal Rate of Return
RWJ Chapter 14 and Chapter 9

Week 7
Financial Statements
Capital Investment Decisions
RWJ Chapter 2 and Chapter 10
Week 8
Mid-term Exam
Week 9
Case 3: The Lazy Mower: Is It Really Worth It? (DJ: Estimating Cash Flow New Project
Analysis)
Working with Financial Statement
RWJ Chapter 3
Week 10
Case 4: Bigger Isn't Always Better! (DJ: Financial Ratio Analysis)
Capital Market History, and Market Efficiency
Chapter 12
Week 11
Expected Return, Unexpected Return, and Portfolio Variance
Systematic and Unsystematic Risk
Diversification and Portfolio Risk
Security Market Line
RWJ Chapter 13
Week 12
Cost of Capital, Equity, and Debt
Weighted Average Cost of Capital
Raising Capital
RWJ Chapter 15-16

Week 13
Effect of Financial Leverage
M&M Propositions I and II
Bankruptcy Costs, Optimal Capital Structure
RWJ Chapter 17
Case5: Look Before You Leverage (DJ: Debt Versus Equity Financing)
Week 14
Effect of Dividend on Firm Value
Stock Repurchase
Chapter 18
Week 15
Final Exam