Syllabus MBA 203 Core Finance, Oski and Axe Fall 2011

instructor: office: email: web: office hours: class time: GSI: office hours: email: sections:

Professor Terrance Odean F495 odean@haas.berkeley.edu

http://faculty.haas.berkeley.edu/odean
Thursdays, 12:45 1:45 in F495 (other times as needed) Oski: Tuesday and Thursday, 9:00am 11:00am, Cheit Hall 135 Axe: Tuesday and Thursday, 2:00pm 4:00pm, Cheit Hall 135 Tomas Reyes Fridays, 10:00 AM 11:30 AM in S242. tomas_reyes@haas.berkeley.edu Sections are a good time for students to get help with problem sets, review course concepts, and ask questions in a relaxed environment. Please attend the appropriate section. Oski: Fridays, 1:00 PM 2:30 PM, Cheit Hall 125 Axe: Fridays, 2:30 PM 4:00 PM, Cheit Hall 125

overview:

This is an introductory MBA course in finance. Students learn how to value firms and projects assets given forecasts of future cash flows, and how to take into account the risk characteristics of different asset classes. The first part of the course focuses on the basics of valuation. The second deals with measuring and pricing risk. The third part of the course is concerned with the effect of taxes and leverage on risk, return and valuation, and the final part of the course introduces students to derivative instruments. This course combines the theoretical underpinnings of finance with cases and real-world examples. A concurrent goal of this course is to get students interested in finance and encourage them to take elective courses in finance (there is a large offering of finance electives at Haas). Students do not need a background in finance to succeed in this course, but are responsible for knowing all material covered in the Summer workshop before class begins. We will not spend significant time reviewing this material in class. The Summer workshop material can be found on bspace.

prerequisites:

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required text:

Corporate Finance plus MyFinanceLab, 2nd edition, by Jonathan Berk and Peter DeMarzo, published by Prentice Hall, 2010. You will need the access kit for MyFinanceLab. This kit is already included in the version of the book that you can buy on campus. If you buy a used book or an international version of the book, you need to buy a separate license. Either way, all the information you need in order to access MyFinanceLab is below. Here are the steps you need to follow in order to register for MyFinanceLab (on a PC or a Mac). 1. Go to http://www.myfinancelab.com, and click the Student button, in the Register section. 2. Enter the course ID, XL0S-71H7-101Y-0UB2 and click Next. 3. Choose to register an access code (if it came with your new book) or purchase access if you dont have an access kit/code. 4. Click the button to proceed to registration. 5. Follow the instructions to create your account. When requested, please enter your name exactly as it is on file with the U.C. Berkeley Registrar to facilitate (and accelerate) grade reporting. 6. Click the link to login. You will be directed to http://www.myfinancelab.com, where you can enter the user name and password you just created. Click the login button. 7. The first time you enter the site, you will be asked to enter your course ID. Enter your course ID, XL0S-71H7-101Y-0UB2. 8. Be sure to click on the Browser Check link on the Announcements page or in the upper right of the screen the first time you login and anytime you use a new computer. This wizard will walk you through the installation of the software you will need to use the MyFinanceLab resources (such as Flash). After this, you can log into MyFinanceLab by going to http://www.myfinancelab.com. Enter the user name and password you just created, and then click Log In (or hit the enter key). If you need any additional help, visit http://www.myfinancelab.com/support. HBS cases, available from Study.Net. A financial calculator bring it to class every day. You will also need the calculator for homework problem sets and exams. If you are purchasing a new financial calculator, the instructor and GSI plan to use the HP 12C. Access to a computer with Microsoft Excel (or comparable spreadsheet program) to complete some homework assignments. We assume students know the material covered in the Summer workshop. MBA203 will not review this material in any detail. Rather, we will start from where the summer workshop left off.

MyFinanceLab:

also required:

optional texts:

For students who like bedtime reading: A Random Walk Down Wall Street Seventh Edition, by Burton Gordon Malkiel, W.W. Norton & Company; Paperback - June 2000; and Capital Ideas, The Improbable Origins of Modern Wall Street, by Peter L. Bernstein, The Free Press, 1992; and The Myth of the Rational Market, by Justin Fox, Harper Business, 2009. And, on the topic of managerial decisionmaking: Judgment in Managerial Decision Making, by Max Bazerman and Don Moore, Wiley, 2008; Moneyball, by Michael Lewis, W. W. Norton & Company, 2004; and Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking, 1993, Daniel Kahneman and Dan Lovallo, Management Science, 39, 1, 17-31 (available on course study.net site). We shall be using the bSpace system in conjunction with Study.Net. We shall also be using MyFinanceLab, Pearsons website for the textbook by Berk and DeMarzo, for problem sets during the semester. You are expected to do the assigned readings before each class. Some topics that are very important (e.g. CAPM) will be covered in great detail. In these cases, the readings serve to reinforce what is covered in class. However, time does not allow all topics to be covered in such detail. Therefore, the readings are necessary. You are responsible for all material covered in assigned readings, whether

homepage:

readings:

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or not we have time to cover it in class. Reading ahead is expected as it will aid your understanding of material presented in class. Rereading after class is encouraged as it will help solidify the concepts just presented. attendance: Attending class will help you learn the material, aid class discussions, and benefit your fellow students. Please attend all classes and be in your seats, ready to work, by 9:05 (Oski) or 2:05 (Axe). Of course, a few students might miss class on rare occasions due to illness or family emergencies. In such cases, please send a short email to the professor stating that you will not be in class. Sorry, but attending part of a class (arriving late or leaving early) is not an option. We expect the median student to spend at least 2 hours per day studying finance outside of class every day (based on a six day week.) Time should be spent doing practice problems, preparing case studies, reading the textbook, and reviewing class notes. Your overall course grade will be based on: your performance in class, a midterm exam, problem sets, team projects, and a final exam. Questions about the grading of any exam or assignment, including (but not limited to) requests for regrading, much be made to the GSI within one week of the time that the exam or assignment is returned to you. All questions and requests must be in writing. problem sets: team project: class participation: mid-term exam: final exam: total final exam: 10.0 % 10.0 5.0 30.0 45.0 100.0 %

time:

grades:

There is a final exam in this course. The exam is scheduled by the university for Monday, Dec. 12, 2011, from 9:00 a.m. 12:00 p.m. The final exam for section 3B (Oski) will be held in Cheit Hall C125; the final exam for section 4B (Axe) will be held in Cheit Hall C135. All students will take the exam at this time no exceptions. There is an in-class midterm exam on Tuesday, Nov. 8, 2011. All students take the exam at this time no exceptions (even if you plan to drop the midterm). Students have the option of dropping the midterm grade and having the final count for 75% of the course grade. In other words, students who are unhappy with their performance on the midterm are able to substitute the final grade in place of the midterm grade. This option is automatically invoked at the end of the year if and only if it will benefit the student. There will be a team project involving a case preparation. All team members receive the same grade on the project, and this grade constitutes 10% of your final course grade. More details about this project will be provided in class. The best (and perhaps only) way to learn finance and become comfortable with its many concepts is to solve problems. This is also an excellent way to stay up to date in this course. To facilitate this learning process, five problem sets will be assigned and graded via MyFinanceLab. The questions for these problem sets will be taken from the textbook by Berk and DeMarzo. The course schedule (on the last two pages of this syllabus) shows when each problem set is due. Note: Only your four best scores (out of five) will count towards your final grade. To attain a higher level of comfort with the course materials, it is recommended that students also work on ungraded textbook problems that relate to each of the sections that we will cover in the course. Note that the answers to textbook problems are provided on MyFinanceLab, once the problems have been worked on.

midterm exam: option:

team project:

problem sets:

cases:

In addition to problems sets, students will be required to prepare HBS case studies and mini-cases. Be prepared to present, discuss and defend your work on these cases in class. In this course (as in the

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business world), you are expected to explain how you reached your conclusions, not just provide plausible answers. sections: GSI-run sections are provided to help students review the course material on a weekly basis. This is an excellent time to ask questions outside the classroom.

ethics and etiquette: Students who take this class are bound by the Haas code of ethics. For reference, please see: http://www.haas.berkeley.edu/MBA/academics/academic/code-of-conduct.html. Nothing less than strict adherence will be accepted. In the case of graded problem sets, this means that each student is fully responsible for submitting, understanding, and being able to complete each problem set on his or her own. That is, no communication about these problem sets with other students is allowed. Likewise, accessing solutions from the internet or from any third party will also constitute a breach of the ethics code. For the team project, you must work in teams of three to five people, and submit a joint report. Talking about the project with people from any other team and accessing any existing solution will constitute a breach of the code of ethics. You are permitted to consult other students in the course (but only students in the course) to prepare for the ungraded cases that are to be discussed in class. Regardless, every student will be expected to be prepared to participate in the class discussion about these cases. Finally, I ask students to refrain from behavior that interferes with a positive classroom experience. This especially includes holding any type of side conversation (voice, electronic, telepathy, etc.) and using laptops during class.Topics and Assignments. All sections and chapters refer to the textbook by Berk and DeMarzo. For simplicity, topics and readings are presented as full lectures. Some topics may run over to the next lecture. Consequently, we may fall behind the listed schedule a bit at some points and then catch up soon thereafter. In addition, assignments may change during the semester. Any changes will be announced in class and listed on bSpace. Note: readings should be done before class. Thursday 20-Oct-2011 topic: due: Investment decisions and the NPV rule; other decision rules Review goals of the course and admin issues (class #1)

Download and read syllabus. Problem set 1 (on MyFinanceLab) is due at 11:59 PM, Sunday, October 23rd. This problem set is based on the material from the Summer workshop. Chapter 6. You need to be familiar with the material from the Summer workshop before the beginning of this class. This corresponds to Chapters 2-5 and 8 of the textbook. Dividend discount model, free cash flows, & investment decisions Prepare HBS case 9-298-092: valuing capital investment projects Sections 7.1-7.3; 9.1 9.2. Valuation in detail; free cash flows, ratios and terminal value Read and familiarize yourself with HBS case 9-281-054, Harris Seafoods, Inc (part I). A hint sheet will be provided. Sections 7.4-7.5 Measures of risk and return; diversification (class #4) (class #3) (class #2)

readings: Note: Tuesday 25-Oct-2011 topic: due: readings: Thursday 27-Oct-2011 topic: due: readings: Tuesday 1-Nov-2011 topic:

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due: readings: Thursday 3-Nov-2011 topic: readings: Tuesday 8-Nov-2011 Thursday 10-Nov-2011

Problem set 2 Sections 10.1-10.6 Risk and return; CAPM Sections 11.1-11.6 (class #6) (class #7) (class #5)

In-class midterm exam topic: readings: Risk and return; CAPM (contd) Sections 11.7-11.8; sections 12.1-12.3 Risk and return; CAPM (contd); leverage Problem set 3 Prepare HBS case 9-201-046, Cost of Capital at Ameritrade. A hint sheet will be provided. Sections 12.4-12.7; sections 14.1-14.3 Capital structure and WACC Sections 15.1-15.2; sections 18.1-18.3 WACC, APV and valuation (part I) Read and familiarize yourself with HBS case 9-281-054, Harris Seafoods, Inc (part II). A hint sheet will be provided. Chapter 19 [optional] Derivatives (part I) Problem set 4 Sections 20.1-20.4 Derivatives (part II) Sections 21.1-21.4 Investor Behavior and Capital Market Efficiency Problem set 5 Chapter 13 Valuation (part II) Prepare HBS case 9-291-051, Pinkerton (A). A hint sheet will be provided.

Tuesday 15-Nov-2011

topic: due:

(class #8)

readings: Thursday 17-Nov-2011 topic: readings: Tuesday 22-Nov-2011 topic: due: readings: Tuesday 29-Nov-2011 topic: due: readings: Thursday 1-Dec-2011 topic: readings: Tuesday 6-Dec-2011 topic: due: readings: Thursday 8-Dec-2011 topic: due:

(class #9)

(class #10)

(class #11)

(class #12)

(class #13)

(class #14)

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Monday 12-Dec-2011

final

9:00am 12:00 pm The final exam will cover the entire course (with slightly more emphasis on the second half of the course). This said, you need to be able to do problems from the first half of the course in order to do problems from the second half of the course.

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