School of Management

The University of Texas at Dallas

COURSE SYLLABUS

Course: Finance 6301

Instructor: Professor Day
Semester: Fall 2004

| Course Description | Course Requirements | Required Reading | Instructor Contact | Day Bio |
| Case Analysis | Online Discussions | Midterm Exam | Final Exam | Scholastic Dishonesty |
| Technical Requirements | Communications | Course Evaluation | Course Outline |

Course Description

This course examines corporate financial decision-making and the valuation of the firm. The
course begins with the study of the time value of money, the valuation of corporate securities,
and the selection of capital investment projects. Additional topics include real options, exchange
rates and foreign investment decisions, portfolio theory, the trade-off between risk and financial
returns, and corporate financing decisions. The prerequisites for Finance 6301 are MECO 6201,
AIM 6305, Statistics 5311 and working knowledge of a spreadsheet package such as EXCEL.

The learning objectives for the course include the development of a conceptual framework
for understanding corporate investment and financing decisions, as well as the development of
the technical skills necessary to perform quantitative analyses of financial planning and valuation
problems such as (a) the valuation of stocks and bonds, (b) the valuation of corporations and
capital investment projects, (c) the analysis of financial planning problems involving retirement
savings and mortgage financing, (d) the formation of diversified investment portfolios, and (e)
the conversion of foreign-currency denominated cash flow projections to dollar-denominated
forecasts.

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Course Requirements

The requirements for Finance 6301 include a take-home midterm and a cumulative final
examination that will be proctored. In addition, two written case analyses will be required, and
each student will be required to participate in the class discussions of assigned homework and
current topics to be announced during the semester. Your grade will be based on the total points
accumulated during the semester. Students can monitor the grading of assignments using the
“My Grade” icon on Student Tools page. Points will be allocated as follows:
Case Assignment I (Penelope’s Pocket Phones) (10%) 20 points
Case Assignment II (Arundel Partners) (10%) 20 points
Online Discussions (15%) 30 points
Midterm Examination (15%) 30 points
Final Examination (50%) 100 points
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Required Reading

Stephen A. Ross, Randolph W. Westerfield and Jeffrey F. Jaffe. Corporate Finance,

Irwin, Seventh Edition, 2005.

Harvard Cases:
Giant Cinema 9-204-052
Penelope’s Personal Pocket Phones 9-299-004
Arundel Partners 9-292-140

The required textbook and cases can be ordered online through MBS Direct Virtual Bookstore.
These materials are also available in UTD Bookstore and at Off-Campus Books.

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Instructor Contact Information

My office is located in Room 3.815 of the School of Management. I can be reached by

phone at 972-883-2743 or by e-mail at tday@utdallas.edu. During my office hours from 5 P.M.
to 6:30 P.M. on Tuesdays, I will be available to communicate with you by phone or in person to
discuss lecture material and other issues that do not belong on any of the course discussion
forums. In addition, I am pleased to schedule late afternoon and early evening appointments in
my office on relatively short notice (often that day).

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Instructor Bio

Theodore E. Day is Professor of Finance in the School of Management at the University of

Texas at Dallas, where he teaches courses in corporate finance and portfolio management. Prior
to joining the UTD faculty in 1990, Professor Day held faculty positions at Vanderbilt University
and at the University of North Carolina. A Certified Public Accountant born in Collinsville,
Oklahoma, Professor Day earned his M.B.A. from the University of Oklahoma and a Ph.D. in
Finance from Stanford University's Graduate School of Business. Professor Day's research on
the impact of inflation on stock market returns, the term structure of interest rates, analysts’
earnings forecasts, and the volatility of derivative asset markets has been published in academic
journals such as the Journal of Financial Economics, the Review of Financial Studies, the
Journal of Finance, the Journal of Business, and the Journal of Political Economy. . In addition,
Professor Day is the co-author of Taxes, Financial Policy, and Small Business, a monograph
funded by a grant from the Small Business Administration. Professor Day’s research on the
quality of analysts earnings forecasts, “Following the Leader: An Analysis of Analyst's Earnings
Forecasts”, with Rick Cooper and Craig M. Lewis, received the 2002 Fama/DFA prize as the
best paper on Capital Markets and Asset Pricing published in the Journal of Financial
Economics.

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Case Analysis
We will analyze three cases this semester: Giant Cinema, Penelope’s Personal Pocket
Phones, and Arundel Partners. The Giant Cinema case will be discussed on the current topics
discussion board. Each student is required to prepare a written analysis of both the Penelope’s
Pocket Phones and Arundel Partners cases. You may work on case assignments in groups of no
more than three students, with each group submitting a single written analysis. Each student is
responsible for their decision to work on case assignments in a group, and the associated
responsibility to be a responsive team member. If you elect to work in a group, you must work
with the same group on both written case assignments—even if you come to dislike one another.
Case assignments must be submitted in Word or PDF format with a simple file name and a
file extension (no spaces or special characters) using the Assignment Dropbox tool on the course
site. Click on the Assignment Dropbox Icon to access the list of case assignments. By clicking
the assignment link (e.g., Arundel Partners), you can access the Submit Assignment link which
provides on-screen instructions to upload and submit the file(s) containing your case write-up
and exhibits. Once your case write-up is graded, the assignment’s “Graded” link permits you to
check your grade and to obtain feedback. Written case assignments are due by 11 PM Central
Standard Time on the day designated on the course outline. Late papers will not be accepted.
Case analyses must be formatted to print (1) on 8-1/2 x 11 paper, (2) fully double-spaced
with 1.25 inch margins, and (3) in a font not less than 12 pt. Papers are limited to no more than
four pages of text. An unlimited number of exhibits presenting financial analysis, charts,
projections, etc. may be included. Exhibits should present information that supports your
conclusions, but is too detailed to be included in your write-up. Since cases do not have a single
“definitive” solution, I will evaluate your analysis based on (1) logic and reasoning, (2)
practicality and comprehensiveness, (3) “value-added” of exhibits, and especially the (4) use of a
clear and concise writing style. The key issues in each of the assigned cases include but are not
limited to the following:

Case Discussion: Giant Cinema (to be discussed online beginning February 15)
1. Compare the annual equivalent cost of owning a digital projection system with the annual
equivalent cost of operating a traditional projection system.
2. Discuss the advantages and disadvantages of Colorvision's proposal compared to the
annual equivalent annual cost of owning the digital projection system.
3. Determine the potential value of an option to return the digital projectors to Colorvision
in five years at no additional cost to Giant Cinema.
4. Fully discuss the strategic issues related to the decision by Giant Cinema to either
purchase a digital projection system or to continue using the conventional projection
system.
5. What is the value of the incremental revenues generated by the proposed digital
projection system. Based on the value of these incremental revenues, explain whether or
not Giant Cinema should employ the new digital technology in its theaters.

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Written Case Assignment 1: Penelope’s Pocket Phones (Due by 11 P.M. March 29)
1. Estimate the free cash flow for Penelope’s first generation phone through the end of
2006. [Hint: Recall that free cash flow includes after-tax profits, plus the cash flow from
depreciation, all net of any required investment in the project. Assume that the taxes
reported in Exhibit 1 reflect the actual tax consequences of operating loss carry back and
carry forward, as well the tax deductions for depreciation expense.]

2. Estimate the net present value of Penelope’s first generation phone, ignoring the potential
to invest in the 2nd generation project. You may assume that the appropriate discount
rate to be used in discounting the projected free cash flow from the project is 19 percent.
[Hint: Ignore the information about the unlevered betas for comparable firms as this
information is redundant given the appropriate discount rate.]

3. How large would the current expected present value of the after-tax cash flows from the
second stage project have to be in order to justify a $10 million investment in the first
generation phone project. [Hint: The exercise price for option to invest in the 2nd
generation technology is the required investment of $100 million. The value of the
option to invest in the 2nd generation technology also depends on the expected present
value of the free cash flow that would potentially be generated by the ‘real investment
option’.]

4. Use options theory to explain what happens to the value of the option to invest in the 2nd
generation project if the volatility of the value of the after-tax cash flows from the 2nd
generation project increases.

5. Assume the option to invest in the 2nd generation phone should be ignored. Determine
the value of the option to sell the equipment at the end of year 2? Explain whether or not
Penelope should invest under this scenario. [Hint: The option to ‘abandon’ the project
and sell the equipment can be valued as a put option using the put-call parity relation.]

Written Case Assignment 2: Arundel Partners (Due by 11 P.M. April 12)

1. What evidence do the principals of Arundel Partners have suggests that there is money to
be made by purchasing the rights to sequels for hit movies?

2. Why do the partners want to buy a portfolio of rights in advance rather than negotiating
film-by film for these rights”?

3. Estimate the per-film value of a portfolio of sequel rights such as Arundel proposes to
buy.

4. Discuss the primary advantages and disadvantages of the approach you took to value the
rights to these sequels. Is there additional data that would be useful in valuing the rights?

5. What problems or disagreements would you expect Arundel to encounter with a major
movie studio in the course of a relationship like that described in the case? What
contractual terms and provisions should Arundel insist on?

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Online Discussions

Each student is required to participate on Homework and Current Topics discussion boards
for the course. Each student will be assigned alphabetically to one of three Homework
discussion boards. The Homework discussion board provides a forum for questions and
observations concerning solutions to assigned homework. Students will have two weeks to solve
and discuss homework assignments. Following a thorough discussion of the each homework
assignment, a detailed solution will be made available on the course web site. Participation on
this discussion board is intended to provide interaction with your classmates and instructor, as
well as to develop your ability to structure and solve practical Finance problems. The online
discussion board is the sole measure of your effort on assigned homework. You will not be
required to submit written solutions to assigned homework. Although each student is expected
to participate in almost every discussion, the points that will be assigned for participation on the
discussion boards will be based primarily on the quality of your contributions rather than the raw
number of your contributions. Students are encouraged to refrain from posting contributions
such as “I agree”, “that’s what I got”, or “let’s wait and see what the professor has to say”.
Although I am pleased to communicate directly with students by either phone or using the
Private E-mail feature of WebCT, comments or questions concerning homework problems
should generally be shared with fellow students using the Homework discussion board.

The Current Topics discussion board provides a forum for discussions concerning the
application of the tools and techniques covered in Finance 6301 to practical problems in
corporate financial management. At times during the semester, I will post a discussion topic
such as the Giant Cinema Case on the Main discussion board. Students will then have the
opportunity to discuss the issues and conceptual solutions to these problems. Although I will
participate in discussions on a regular basis, the primary purpose of the discussion boards is for
students to share and discuss their ideas concerning the application of the course content to
practical problems. While students are welcome to suggest topics for current discussion, the
discussion board monitor has been instructed to limit the range of topics to those having a
relatively direct relation to the concepts and techniques covered by the course lectures.

Midterm Examination

Each student must complete a “take-home” midterm examination consisting of five to six
problems similar to those included in the assigned homework. Since there is no time limit for the
exam, problems included on the midterm exam may be somewhat more comprehensive than
many of those included in the assigned homework. During the midterm examination period,
students may refer to their textbook, lecture notes, and the homework solutions that have been
distributed during the semester. However, students are expressly prohibited from discussing the
midterm examination, either with one another or with anyone else prior to Monday March 7 at 5
P.M. The midterm exam will be made available on the course Web location by 4:00 P.M. on
Friday March 4. Students must either fax a copy of their examination solutions to me at 972-
883-2799 or else submit their solutions as an Excel or a Word file in the Assignment Dropbox by
5:00 P.M. on Monday March 7.

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Final Examination

Each student in Finance 6301 is required to take a comprehensive final examination. The
final will include five to seven problems similar to those included in the assigned homework.
However, the questions included on the final examination may require that you use the principles
from two or more homework problems. The final examination will be closed book and closed
notes.

The final examination will be given at UTD on Saturday April 30 at 9:30 A.M. The room
assignment for the exam will be announced at a later date. Students who are not able to attend
the on-campus exam may arrange to take an individually proctored exam with a testing service
of their choice on any date during the final exam period from April 26 through April 29.
Testing service is available to students in the DFW area through the UTD Learning Resources
Center. Alternatively, students may arrange to take the final exam at a testing center located on a
corporate or university campus. Students are responsible for all proctoring fees. All individually
proctored exams must be returned to UTD by May 2.

Students who plan to have their exams proctored at either the UTD Learning Resources
Center or an outside testing service must inform both their instructor and the Global MBA
Online office at gmbasupport@utdallas.edu. Students must also complete and return the
proctored exam form prior to March 25. The proctored exam form and other detailed
information on arranging to take an individually proctored exam can be downloaded from the
Proctored Exam Information page at:
http://som.utdallas.edu/globalmba/gmba_proc_exam_info.htm. All completed exams must be
received by May 2 to permit timely reporting of grades to the UTD Registrar. The GMBA
Office requests that all students who wish to use testing services follow the proctored exam
scheduling deadlines. Students who fail to submit the proctored exam form on time must take
the on-campus final examination proctored by Professor Day at 9:30 A.M. on April 30.

Guidelines for Administration of the Final Examination:

Students will have three hours and 30 minutes to complete the final examination. The
exam will be closed-book and closed notes. The terms closed-book and closed notes are defined
to mean that there are absolutely no circumstances under which students will be allowed to refer
to their textbook, class notes, or any other class materials during the final exam. Students will
not be permitted to use cell phones or other wireless devices and methods of communication
during the exam. Students will be allowed to use a calculator during the final exam, but not a
computer. Each student may use (only) one 8.5"x 11" sheet of paper to transcribe formulas (but
not worked examples) that may be referenced during the examination. The content of your crib
sheet is limited to formulas and may not include either worked examples or detailed notes. The
crib sheet must be hand written (you may not cut and paste formula’s from the notes that I
distribute into another document) and fully contained on one sheet of paper no larger than 8 1/2
inches x 11 inches
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Scholastic Dishonesty
In accordance with the Rules and Regulations of the Regents of the University of Texas
System, students in Finance 6301 must be above reproach in all scholastic activities, including
but not limited to homework assignments and in-class examinations. Many homework problems,
spreadsheet exercises, and cases that will be assigned this semester have been used previously at
UTD by either myself or by my colleagues. The term “above reproach in all scholastic
activities” specifically prohibits the use of homework solution’s, spreadsheet templates, or case
analyses from previous semesters, as well as any other materials that have previously been
developed at UTD or at other institutions of learning. The use of any prohibited materials or any
violations of the rules for taking the in-class and take-home examinations will be treated as a
serious violation of the honor code. The minimum penalty for any violation of the honor code is
a failing grade for the course. Additionally, I will recommend to the Dean of Students that any
student violating the honor code be placed on permanent academic suspension from the
University. Detailed information on the University Policy on Scholastic Dishonesty is available
on the University web page.

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Technical Requirements
In addition to computer and Internet literacy, certain minimum technical requirements must
be met to facilitate a successful learning experience. These requirements include but are not
limited to:
Hardware
• A Pentium processor or equivalent Mac system; Windows 98/Me/2000/XP or Mac OS
9.x or OS X 10.1.
• Internet access with modem (56.6 minimum) or preferably with other faster connections.
• 32 MB system Ram; 200 MB free disk space or sufficient storage
• Sound card
• CD-ROM capabilities
Software
• Netscape Navigator 6.2.x (see notes) and 7.0 (4.78, 4.79 and 6.0-6.1 not supported), or
Internet Explorer 5.0 to 6.0 (but 5.5 SP1 not supported), or AOL 7.0 and 8.0. See browser
configuration info below.
• MS Office 97/98 is the minimum standard. (Microsoft software is available at a nominal
cost from UTD Microsoft Program. For more information, visit Global MBA Online
Student Service web page at:
http://som.utdallas.edu/globalmba/gmba_online_services.htm).
• Virus detection/protection software such as McAfee
• “Plug-ins” tools such as current version of RealPlayer/RealOne Player (available at:
http://www.real.com/realone/index.html) and Adobe Acrobat Reader (available at:
http://www.adobe.com/products/acrobat/readstep2.html)
• A zip file expansion tool such as WinZip or Stuffit Expander (available at:
http://www.download.com).

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Web Browser Configuration

For the WebCT courses to work properly, you need one of the WebCT supported
browsers listed above with JavaScript enabled and cookie enabled. It is also important
that you set the cache settings of your browser to verify web documents “Every
Time”. The methods for configuring these settings vary among browsers. Please follow
this web link provided by WebCT to tune-up your
browser:http://www.webct.com/tuneup/.

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Course Access and Navigation

This course is developed using a web course tool called WebCT. It is to be delivered entirely
online. You will be notified by email about the course access information at the start of the
course. You’ll need to have a UTD NetID and password (your UTD Unix/Email ID and
password) to access the course. If you have not used a UTD NetID account yet, you can go to
http://netid.utdallas.edu to initiate your account shortly before or at the start of the semester.
Your UTD NetID is your WebCT ID to be used to log on to the UTD WebCT courses. For more
information, please check out this NetID FAQs page. The URL for the course login page is:
http://webct.utdallas.edu. You can login to the course whenever you want. You are required to
meet any deadlines for the assignments and exams and also any schedules for class activities or
tasks the course requires. You should login to the course site regularly to check course updates,
discussion board messages and so on.

You’ll access “My WebCT” page after you login. The page listed all the courses you’ve
registered. You can click the course title to access the course Home page which displays several
icon links. Clicking each icon link will take you to different subsidiary pages containing the
course content elements or built-in course tools. Some navigation components such as the
Navigation Bar with Course Menu on the left side, the Menu Bar and the path link on the top and
the Action Menu on the content page can help you navigate within the course site.

To get started with a WebCT course, please see Getting started: Student WebCT Orientation.
For more information about WebCT tool usage, please see the WebCT’s Student Help Index.
Within the course site, you can always click HELP on the WebCT Menu Bar to find information
and answers. You can also check out the Orientation Center to Online Learning and WebCT
provided on WebCT’s web site. For more WebCT information and its learning resources, visit
http://www.webct.com.

If you have any problem with your UTD account or connection to the UTD WebCT server,
you may email to: assist@utdallas.edu or call UTD computer help call center at: 972-883-2911.
If you encounter any technical difficulties with the course, you can send an email to
gmbasupport@utdallas.edu.

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Communications
WebCT built-in communication tools: There are four built-in communication tools to
facilitate learning, communication and collaboration. A course conferencing system, the
Discussion, allows the communications among all course participants. Discussion topics or
groups can be set up for topic discussions and homework assignments. You can use course Mail
tool to communicate privately with instructor and classmates. The Chat tool can be used for real
time communication among course participates. Please see specific information for accessing
Chat tool. Finally there is a Whiteboard tool also allows real-time interaction among course
participants using a graphical interface. Instructor may schedule times to use the Chat and/or
Whiteboard tools for office hours and/or class discussion sessions. Small groups may also use
Chat for group discussions.
Interaction with Instructor: The instructor will communicate with students using both the
course Discussion board and the course Email tool. Students should send personal concerns or
questions to the instructor using the course Email tool. However, comments or questions
concerning homework problems should generally be shared with fellow students using the course
Discussion board. Instructor will reply to student emails or Discussion board messages within 3
working days under normal circumstances.
MeetingPlace TeleConference System: UTD maintains a telephone conferencing system from
Latitude Communications. Online instructors can use the system for class teleconference
sessions during the semester. Participants can access a meeting by dialing a “972” area code
number using any touch tone phone and entering a meeting code. If any teleconference is
scheduled for the course, students will be posted for times and access instructions. A class
teleconference is usually recorded and can be reviewed over the phone after the conference.
Please see TeleConference Guide for general conference participation and review instructions.
While different online programs in the School of Management make regular use of the system
for class discussions, conferencing is also available for smaller groups of students for group
discussions or group assignment preparations. If a group wants to reserve a time slot during the
workweek of Monday through Friday, please send an email one week in advance to
gmbasupport@utdallas.edu with course name, student names and email addresses, choice of
date, and start and end times. Once a reservation has been made, students will receive a
confirmation and participation instructions.

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Course Evaluation

As required by UTD academic regulations, every student is requested to provide an

evaluation for each course in which they are enrolled at the end of each semester. An online
instructional assessment form will be made available for your confidential use through the course
evaluation link appearing on the course Homepage during the last two weeks of the semester.
All course evaluations must be submitted prior to April 25. Your feedback and comments are
greatly appreciated.

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Course Outline/Schedule
WEEK DATES TOPIC/LECTURE READING ASSIGNMENT /
ACTIVITY
0 January 11 Introduction Chapters 1, 2, pages
60-71 and 696-703.
1 January 18 Stock Valuation Pages 75-79, 112- Homework Set 1
127 and Chapter 3
2 January 25 Annuity Problems in Pages 72-87 and Homework Set 2
Financial Planning 189-193
3 February 1 Valuation of Fixed Pages 106-112, 134- Homework Set 3
Income Securities 142, 433-435 and
Chapter 20
4 February 8 Investment Decision Chapter 6 Homework Set 4
Rules
5 February 15 Capital Budgeting Chapter 7 Homework Set 5
Giant Cinema Case
6 February 22 Real Options, and Capital Chapters 8 and 22 Homework Set 6
Budgeting and pages 655-662
7 March 1 Review for Midterm
8 March 4-7 Take-Home Midterm Midterm Exam
9 March 15 Global Investment Chapter 31 Homework Set 7
Decisions Penelope’s Pocket
Phones
10 March 22 The Capital Asset Pricing Chapters 9, 10, 11, Homework Set 8
March 29 Model and the Cost of 12, and 18 Due 3/29: Penelope’s
Equity Capital Pocket Phones
Begin: Arundel Case
11 April 5 Financial Structure Chapters 14, 15 and Arundel Partners
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12 April 12 Valuation Chapter 17 Homework Set 9
April 19 Due 4/12: Arundel
Partners
13 April 30 Final Exam Final Exam
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