STEPHEN

M. ROSS SCHOOL OF BUSINESS

UNIVERSITY OF MICHIGAN
ANN ARBOR, MI 48109-1234


CORPORATE FINANCIAL ANALYSIS: FINANCIAL MARKETS & INSTITUTIONS


COURSE GOALS

This course introduces students to financial markets and their key institutional
features. The course is especially focused on financial instruments used by
corporations to finance their operations, and the roles of financial institutions and
markets in facilitating these transactions. It will enable the learners to understand
and analyze various trade-offs present in raising funds through different means, and
the importance of various frictions, such as asymmetric information and agency
problems, in these decisions. The course will also talk about some key drivers of
market failures, using the example of mortgage-backed-securitization.

BACKGROUND

This course is part of an XSeries titled Corporate Financial Analysis which is based
on the faculty teams numerous years of teaching in courses and programs ranging
from undergraduate to the PhD level. The faculty team has also had deep experience
in creating courses in the digital domain, including offering one of the most
successful MOOCs in business.

COURSE DESCRIPTION

This course will develop the foundational framework of corporate financial
decisions, and the role of financial institutions (such as banks, credit rating
agencies) and markets (such as stock markets and bond markets) in facilitating a
firms financing needs. It will introduce students to financial instruments that are
commonly used in the real world, and the risk-return trade-off presented by these
instruments. The emphasis of the course will be to critically evaluate the key
features of various financial instruments and the role of frictions in markets. This
will be integrated within the overall context of a financial system with specific roles
played by banks, bond markets, credit rating agencies, stock markets and activist
investors.

This course is the third part in a sequence of four courses that comprise an XSeries
titled Corporate Financial Analysis that is aimed at managers working in
corporations or institutions and individuals planning to pursue graduate education
in business (MBA). This course can be taken by itself or as part of the XSeries.

COURSE PEDAGOGY: THE IMPORTANCE OF PROBLEM SOLVING

This is a demanding course that will require a lot of hard work, from both you and
the faculty team. This XSeries has been deliberately pitched at a relatively high level
with an emphasis on deep understanding of what finance is all about and with a
focus on practical applications. This course is therefore focused on conceptual
learning and problem solving, and we make a conscious attempt to introduce each
topic with real-life examples. We strongly encourage you to attempt every problem
in the videos before we do it together. You will also be required to submit
assignments that involve multiple problem-solving and conceptual analysis
exercises. Some of these problems by design are more complex than the examples
we will do in class (the videos) because class time needs to be devoted to
understanding the issues and concepts.

We will move at a fairly brisk pace and introduce you to several tools, which you will
learn to apply within carefully constructed (but realistic) situations presented to
you in number-crunching or conceptual thinking oriented assignments.

COURSE STRUCTURE

This course is six weeks long and self-contained. It comprises six modules of
content (videos, readings, and assignments) with several quizzes. The structure of
this course is based on our estimate of the time needed (50-60 hours) by a typical
learner. Since this is a self-paced learning opportunity, you may finish the course
faster than others enrolled in it.

PREREQUISITES

For this course, a comfort level with algebra and numbers is important and some
exposure to Accounting will really help. We will, however, try and cover everything
starting with fundamentals and will highlight when there is a need for you to do
some further work in specific areas.

COURSE MATERIALS

VIDEOS

One of the main resources provided for this XSeries are the videos, organized into
six modules. The length of each module depends on the topic, but can vary between
100 and 160 minutes, and is broken up into bite size pieces. We have worked with
professionals to edit the videos, but we encourage you to pace yourself according to
your style and background. Most importantly, there are numerous
examples/problems in all the videos, and try and take every opportunity to attempt
an exercise before you see me analyze it. We have tried to create breaks wherever
possible to facilitate this process, but we do not want the videos to become like TV
advertisements.

It is important for you to know that we will provide minimal notes to accompany the
videos because we want you to create your own notes as you watch and listen to the
presentations. The best part about digital education is that you can pause, rewind or
fast forward the videos at will. You can play any video at faster speeds whenever
needed. We want you to be active listeners and encourage you to make your own
notes as you go along. Supplement the notes with material from other books and
resources from the web.

TEXTBOOKS

In addition, we provide below references of several alternative textbooks that are all
high-quality. To help you with your reading, we have also provided you chapters
from two books as examples of references. Please note that the videos do not follow
any specific book, and the book chapters are only references; they do not perfectly
match the material we cover and may sometimes contain material that we will not
cover. Our goal is to expose you to the fundamentals of finance, not to every detail in
every textbook.

You are not required to purchase any of these books, but recognize that one of them
is available to read for free on the web. You must follow the guidelines provided by
the author for use of the online material. If you do choose to buy a book, a relatively
recent edition will do, and look for used and/or paperback versions.

(1) Corporate Finance, 3rd Edition, by Ivo Welch.
This book can be found at http://book.ivo-welch.info/home/
Although reading the text and these chapters is free on this website,
and you can also download a PDF version for your personal academic
use, the material is copyrighted and is not permitted to be distributed
further or posted elsewhere.

I have referenced chapters of this book as suggested readings in the detailed
class schedule. This book is referenced as IV. Ivo also provides a guide
(http://book.ivo-welch.info/bookcomparison.html) that maps his chapters
to other widely used books listed below.

(2) Corporate Finance, 9th Edition, by Ross, Westerfield & Jaffee.

I have also referenced chapters of this book as suggested readings in the
detailed class schedule. The book is referenced as RWJ.


Finally, since many of you may have had limited exposure to finance, it is important
to read institutional material at your own convenience. Please read business and
financial news regularly. Cruise the web as often as possible not only to uncover the
wealth of information at your disposal, but to also learn how things work. A good
web site to begin your search is http://finance.yahoo.com. It is important to read
the Economist or a similar publication, which provides some analysis of events
rather than just news, as often as you can; it has some thoughtful pieces. You need to
develop the habit of reading material critically.


ASSIGNMENTS AND EXAMINATIONS

The assignments for this course are quite intense. We will have five assignments
each crafted to help reinforce the learning of concepts and problems covered in
class. By design, a few problems are more difficult than those presented in class. I
believe you will better understand the concepts by thinking through the issues
involved in solving the assignment problems. There is a final exam to evaluate your
understanding of the content. The best preparation for the final is to understand all
the problems done in class and in the assignments.

Please use the edX course portal to access and submit assignments and the final
examination. For each assignment as well as the final exam, you will have three
attempts at the numerical input questions and one attempt for all other types of
questions.

Since all grading will be conducted using technology, all questions will take a
True/False, fill in the blank, or multiple-choice form. The questions will almost
always be word problems, like the ones covered in class, but there will be one
specific answer to each question. We have set up the grading process so that you get
feedback that is supposed to make you think in the right way about the issues. We
are constantly working on enriching the grading process to provide you feedback,
eventually directed at each learner.

Due to the nature of the class and the high enrollments, all assignments and the final
exam will be graded electronically. The technology used is ideally suited for grading
and assessing performance and you will get instant feedback.

Please read instructions for the questions/problems very carefully before you
attempt to answer them. Given that we use to technology to assess all your
submissions it is important to follow all conventions.

COURSE GRADING AND CERTIFICATE

Your performance will be evaluated using a pass/fail grade. The philosophy behind
our grading is to make sure you demonstrate adequate competency to be granted a
certificate. You will therefore get three attempts on the numerical input
questions and one attempt for all other types of questions on each of the
assignments and the final exam, but, again due to technical constraints, your
latest attempt will be used to determine your grade.

To get a grade of pass, you will need to obtain a score of at least 70% in the
course, where:

Each of the five assignments has a weight of 15% and the final has a weight of
25%. All questions in an assignment or a final have equal weights.

You may of course attend the whole course and choose to submit assignments
and/or the final. But a passing grade is necessary to receive a certificate. The
assignments and the final can be finished at any time and you can take as long as
you want to complete them.

TEACHING ASSISTANCE

Students from University of Michigan and past students from our digital offerings
have graciously agreed to help us with this XSeries. Lauren Atkins Budde helps us
manage the delivery of all the courses. All the individuals managing the XSeries are
very dedicated and knowledgeable people and we are grateful for their help. Their
task is challenging because they are expected to navigate the forums but intervene
or help only when it is really needed. This Syllabus contains a lot of information
about the class; when in doubt, refer to it. And, again, use each other as resources to
clarify issues ranging from how to use a browser to what is life really all about.

IMPORTANT ISSUES TO CONSIDER

Assignments

The assignments are meant to be challenging, though we have tried hard to increase
the difficulty level gradually in each of them. No one can really make you learn; you
have to be willing to work hard and struggle. The teachers role is to expose us to the
fundamental concepts, and we need to learn by applying them to problems.

Solutions to Assignments

Providing solutions to the assignments is a seemingly reasonable request but very
difficult to accommodate. Creating questions for the videos and the assignments
continues to be the most challenging part of high quality digital education. It has
taken us several years, with the help of advanced graduate students, to create
assessments, test them, and then modify them to fit the grading structure imposed
by technology. We believe our assignments are well thought out and reflect a good
balance of conceptual and applied stuff. Due to copyright issues, we cannot simply
give you questions from existing books, and we would not want to do that anyway. It
will be very difficult for us to offer digital courses multiple times if we have to keep
preparing new sets of questions with multiple versions to allow you to attempt each
one more than once. Handing out answers will force us to do that. We have instead
chosen to provide hints about the main issue in each question and you can always
revisit the videos and the forums to learn the content. Over time, we have attempted
to provide feedback depending on the type of errors you may make.

Honor Code

While learning from each other is very important, we all recognize the difference
between collaboration and simply copying and pasting work done by others. We
encourage you to work collaboratively but using good judgment. Similarly, please
respect all copyright rules of all materials, including books, articles, etc. While we
ultimately cannot control everything, edX and our team will monitor the forums for
any activity that violates such codes of conduct and basic civility to each other.

Contact with TA and Instructors

Given the large number of students in this course, the teaching assistants or
instructors should not be contacted directly with any questions. While we love all of
you, responding to questions is virtually impossible. Teaching assistants will
monitor the forums and keep the faculty team informed on a regular basis.




CLASS SCHEDULE: TOPICS AND READINGS


MODULE TOPIC VIDEO BOOK NOTES
CHAPTERS CHAPTERS
1
Module 1 Corporate Balance Quiz 1
Sheet and P&L
Statements: A
Stakeholder View
2 IV(15)
Module 2 Financial Quiz 2
Instruments: Building RWJ(15)
Blocks
IV(10) Quiz 3
Module 3 Frictions in Corporate 3 RWJ(17)
Finance
4 RWJ(20)
Module 4 Stock Markets: Quiz 4
Raising Equity,
Activist Investors

5 RWJ(15) Quiz 5
Module 5 Credit Markets:
Banks, Bond Markets,
and Credit Rating
Agencies
6 Final Exam
Module 6 When Markets and
Institutions Fail