University of Chicago Booth School of Business Business 35200 - Corporation Finance Spring 2009 Professor Rauh Contact Information

Professor Joshua Rauh jrauh@ChicagoBooth.edu (773) 834-1710 Office hours by appointment Teaching Assistants Rakesh Mittal (rmittal@ChicagoBooth.edu) Ryan Schleicher (jschleic@ChicagoBooth.edu) Office hours by appointment Course Prerequisites Business 30000, 33001, 41000 (or 41100) and 35000 are required. Business 35000 is a strict requirement and cannot be taken concurrently. Course Requirements Nine case write-ups to be handed in, and a final exam. In addition, practice problems will be posted on Chalk at the beginning of each week. These are not to be handed in, but you must do them if you expect to do well on the final exam. Solutions to the practice problems will be posted at the end of each week. Required Readings The readings for this class come from both the Required Course Pack and the textbook Berk and DeMarzo, Corporate Finance, 1st Edition, which will be referred to as BD. The Required Course Pack contains a short preview note for each class meeting. These notes provide definitions, explain basic concepts, review some material from prerequisites, and preview material that will be covered in class. It is essential that before each class meeting you read the preview note for that class. For class meetings where the format is a case, the note for the class meeting consists of the case questions that you are to answer in the writeup. The Required Course Pack also contains the cases themselves and additional assigned readings. There is also an Optional Course Pack which consists solely of my lecture slides. These slides are also posted on Chalk in PowerPoint format. So you can choose whether you want to purchase the Optional Course Pack with everything all printed out for you and bound together, or whether you want to print out the slides on your own from Chalk. Honor Code Students in this course, as with all Booth courses, are required to adhere to the standards of conduct in the Booth Honor Code and the Booth Standards of Scholarship. The Booth Honor

Code requires students to sign the following Booth Honor Code pledge, I pledge my honor that I have not violated the Honor Code during this examination on the final exam. Students must also sign an Honor Code on the case write-ups (more info below). Grading Class Participation Case Write-Ups Final Exam 15% 25% 60%

Final Exam The final exam will only be offered during the allotted times for Professor Rauhs three sections of 35200. The exam must be taken during one of these three times, either in person or at a remote site arranged by the Deans office. Unless I hear otherwise from you by May 30, 2009, you must sit for the exam in person with your registered section. If you wish to take the final exam in person but with a section other than the one for which you are registered, you must e-mail me by May 30, 2009 with an explanation and a request for permission, so that I can ensure there is enough space. Similarly, if you wish to take the exam at a remote site arranged by the Deans office, you must email me by May 30, 2009 with this request, so that proctoring arrangements can be made. There will be no opportunities to take the exam early. You may bring 1 sheet of paper with anything written on both sides to the final. You should also bring a calculator to the final. The use of any other materials or technology during the final exam is in violation of the Honor Code. To complete the final exam you will have 3 hours. Coming to Class If you occasionally wish to attend a class meeting of a section other than the one for which you are registered, please e-mail me in advance of that class meeting with a request for permission. Please be aware that if you wish to attend a class meeting of a section that meets at an earlier day or time than the one for which you are registered, you will have to hand in any assignments due that week at the earlier meeting. You will also have to state under the Honor Code that you will not communicate about the assignment with others in your section who have yet to hand in the assignment. If permission is granted to attend a class meeting of another section, you should wait until one minute after our scheduled starting time before taking a seat. This gives everyone an incentive to get to the class that they signed up for on time. Auditors of the course are only permitted to attend with the instructors permission and receive last priority for seating. All students must display name cards in every class meeting if they expect to be credited for class participation. Case Write-Ups Case write-ups must be handed in at the beginning of the class for which they are due. You are encouraged to do the case assignments in groups. Up to four people can work together on a case assignment. If the case assignment was completed by a group, the group only has to

hand in one copy of the assignment. The assignment must be submitted in hard copy, and the names of all group members must be on the front of the assignment. Unless you obtain the instructors permission, groups may not consist of students who are registered in different sections from each other. In preparing cases, it is prohibited to get information, assistance, or materials from people who have prepared this case previously for this course or any other course at any university. Doing so would be considered a violation of the honor code. That includes discussing the case with people in other sections that meet before yours. A case write-up should be a concise and neatly composed document that uses both text and tables (or numerical exhibits) to answer the case questions contained in the course packet. There is a strict maximum of four pages of text plus three pages of accompanying tables or numerical exhibits. Tables and exhibits must be well-organized and well-labeled, and you should always indicate how you arrived at your conclusions. It is very important that you read through the entire case and the entire page of case questions before beginning to work on the case assignment. Of the nine case write-ups, five will be graded on a credit/no-credit basis, and four will be graded on a point scale from zero to five. It will not be disclosed in advance which write-ups will be graded credit/no-credit and which will be graded on the point scale. Write-ups that are not turned in on time will get a mark of no-credit or zero, without exception. Cases graded on the point scale will contribute more to the case grade. As shown above, the case grade contributes 25 percent to the course grade. The case grade can be thought of as consisting of 25 maximum points: one point for each of the five credit/no-credit cases that receives credit, and up to five points for each of the four scale-graded cases. On the scalegraded cases, the modal grade will be a 4. To get a 5 requires truly excellent work. A score of 3 indicates mediocre work. Scores of 1 and 2 will be reserved for write-ups that are poor or incomplete. For case write-ups, each group member is required to sign the Booth Honor Code pledge: I pledge my honor that I have not violated the Honor Code in preparation of this case assignment. Groups may type the honor code on a page and have group members sign individually below. Signing your name to an assignment that was completed by your group members but not by you constitutes representing others work as your own and as such would be a violation of the Honor Code. Answers to the cases will not be posted or distributed. Cases are learning tools for which there are many valid answers, and the posting or distribution of solutions creates negative externalities for future classes. If you object to this policy, then do not take this class. If you have specific questions when you are working on the cases, please start by directing them to the teaching assistants, who are an excellent resource. Their role is to answer clarifying questions, prevent you from going down the wrong track, and generally aid in the learning process. Of course, you should not expect them to feed you answers. The process of working through cases is a critical aspect of learning about corporate finance.

Grading Policy If you wish to appeal a grade you have received on an assignment or exam, you may request that the assignment or exam be re-graded. This request should be directed to one of the TAs, and you must put into writing why you believe that you deserve a higher grade, resubmitting the original graded assignment with the written explanation in hard copy. The TAs will then re-grade the entire assignment, applying the same standards that they applied in the initial grading. Your score may go up or it may go down as a result of the re-grade. In cases where the TAs determine that the score should be changed, Professor Rauh will examine the assignment and the re-grade request to verify that fair standards have been applied. A request for a re-grade will only be considered if it is received within 14 days after the grade for the assignment was first posted on Chalk. Email and Chalk Communications Announcements, grades, and supplementary materials will be posted online on the Chalk system at http://chalk.uchicago.edu. Please check Chalk regularly for postings. If there is urgent information to be conveyed, the teaching staff may send an email message to the class through the Chalk system. The Chalk email goes to university accounts (@uchicago.edu), but most Booth people use a Booth account (@ChicagoBooth.edu). Therefore, if the email account that you check regularly is a Booth account, you need to have your university email forwarded to the Booth account. If you want communications from this course to arrive in your Booth account you need to go to http://cnet.uchicago.edu/, click on the Forward your @uchicago.edu email and follow the steps there.

University of Chicago Graduate School of Business Business 35200 Corporation Finance Spring 2009 Professor Joshua Rauh Course Outline Class Thursday Saturday Format Topic Readings or Work Due* 1A 4/2/2009 4/4/2009 Lecture Understanding Cash Flows BD 3.1-3.3, 4.6, 7.1-7.2 1B Lecture Discount Rates BD 5.2, 10.4-10.8 2A 4/9/2009 4/11/2009 Case Ameritrade Case Write-Up 2B Lecture Financial Policy and Taxes BD 14, 15.1-15.4 3A 4/16/2009 4/18/2009 Case UST Case Write-Up 3B Lecture Costs of Debt BD 16.1-16.6 4A 4/23/2009 4/25/2009 Case Marriott Case Write-Up 4B Lecture Asymmetric Information BD 16.8-16.9 5A 4/30/2009 5/2/2009 Case Linear Technologies Case Write-Up 5B Lecture Security Design: Beyond Debt and Equity BD 24.4, Brennan-Schwartz Article 6A 5/7/2009 5/9/2009 Case MCI Communications Case Write-Up 6B Lecture Valuation: APV and WACC BD 18.1-18.3, 18.5, Kaplans Note (marked sections) 7A 5/14/2009 5/16/2009 Case Sampa Video Case Write-Up 7B Lecture Mergers and Acquisitions BD 28.1-28.5, WSJ M&A Reviews (2007-8) 8A 5/21/2009 5/23/2009 Case RJR Nabisco Case Write-Up 8B Lecture Manager Incentives and LBOs BD 28.6, 29.1-29.4, 6.2 (pp. 156-160 only) 9A 5/28/2009 5/30/2009 Case Adecco Case Write-Up 9B Lecture Real Options BD 21.1, 22.1-22.5, Dixit-Pindyck Article 10A 6/4/2009 6/6/2009 Case The MCI Takeover Battle Case Write-Up 10B Case/Lecture Wrap-Up Final Exam Dates 35200-03 Thursday 6/11/2009, begin 3pm, end 6pm 35200-81 Thursday 6/11/2009, begin 6:30pm, end 9:30pm 35200-85 Saturday 6/13/2009, begin 9am, end 12pm * The first thing you should always do in preparation for each class is to read the preview note in the course packet. It is expected that you will carefully complete all assigned reading before coming to class.

Pre-Assignment for First Class Meeting There are two CoursePacks: a Required CoursePack and an Optional CoursePack. Please obtain the Required CoursePack, as well as the textbook Corporate Finance by Berk and DeMarzo (1st Edition, NOT the book by the same authors called The Core). Then, please read: The syllabus in the Required CoursePack; The preview notes Introduction to Corporate Finance, Class 1A: Understanding Cash Flows, and "Class 1B: Discount Rates" in the Required CoursePack; and The following sections in the textbook: 3.1-3.3, 4.6, 5.2, 7.1-7.2, and 10.4-10.8. Note that in the first class meeting I will assume mastery of Net Present Value (NPV) and the Capital Asset Pricing Model (CAPM) at the level of Business 35000. If necessary, you should review these concepts before the quarter begins. Note about the Optional CoursePack The Optional CoursePack consists solely of my lecture slides (two slides per page stacked vertically). These slides will also posted on Chalk in PowerPoint format. So you can choose whether you want to purchase the Optional Course Pack with everything all printed out for you and bound together, or whether you want to print out the slides on your own from Chalk.