Class Schedule: Introduction to Finance II. Spring, 2024

Block 3: The cost of equity capital

• Transitioning from FIN 510A
• Accompanying Notes.
• Overview of Block 3.

Concept 1:

• What is equity?
• How do we measure the rate of return on a stock?
• Statistical modeling of stock returns.
  • Normal Distribution
    • Mean return
    • Return standard deviation
• Monthly data for Coca Cola -- for in-class work.
• Shares in Pullman's Palace Car Company.

Concept 2:

• Portfolio expected return and variance.
  • Diversification: Intuition.
  • The correlation coefficient.

Concept 3: Expected return on equity under the Capital Asset Pricing Model

• Note the similarity between the cost of equity capital and the cost of debt capital.
• Problem Set
  • Data and Key to Problem Set
• Problem Set
  • Data and Key to Problem Set
• Sample Quiz
  • Key to Sample Quiz
• 2019 Quiz 3
  • Key to 2019 Quiz 3
• A linear regression perspective on systematic risk and the CAPM.
• 2020 Quiz 3
  • Key to 2020 Quiz 3

Block 4 Capital Budgeting

Concept 4:

• Project-specific cost of capital.
• Identifying a project's after-tax cash flows and computing its Net Present Value.
  • Accompanying Notes.
  • Capital Budgeting Notes and Make vs. Buy Problem
  • Spreadsheet with the Make vs Buy Problem solved.
  • MACRS Depreciation Tables--Half-year Convention. From Internal Revenue Service Publication 946.
  • Problem Set to prepare for Quiz 4.
    • Key to Quiz 4 problem set.
  • Quiz on Capital Budgeting material from 2018.
    • Key to 2018 Capital Budgeting Quiz.
  • 2019 Quiz 4
    • Key to 2019 Quiz 4
  • 2020 Quiz 4
    • Key to 2020 Quiz 4
  • Slides summarizing the key ideas in capital budgeting.

• In-class spreadsheet on make vs. buy capital budgeting problem, Feb. 9, 2023..

• Class spreadsheet with thoughts and example on traditional capital budgeting, Feb. 14, 2023..

Concept 5:

• Strategic Planning and Valuation: Real Options
  • The abandonment option
    • Example and notes.
      • Accompanying Spreadsheet.
    • Problem Set 1 on real options.
      • Spreadsheet with Problem solved.
    • Sample quiz on real options.
      • Key to sample quiz.
    • 2019 Quiz 5
      • Key to 2019 Quiz 5
    • In Class Case: Foxconn.
    • Sample quiz problem on abandonment option.
    • 2020 Quiz 5
      • Key to 2020 Quiz 5

• Spreadsheet from class on February 16, 2023 on the Foxconn Case.

• Spreadsheet from class on February 21, 2023 on project-specific costs of capital and the waiting option.

• Spreadsheet from class on February 23, 2023 on the Merck case and the abandonment option.

Concept 6:

• The waiting option
  • Example and notes.
  • Accompanying Spreadsheet.
• Valuing flexibility
  • Electricity generation case.
• Problem Set 2 on real options.
  • Spreadsheet with Problem solved.
• Sample Quiz 6 questions.
  • Spreadsheet with Sample quiz problems solved.
• 2019 Quiz 6
  • Key to 2019 Quiz 6
• 2020 Quiz 6
  • Key to 2020 Quiz 6

Spreadsheet from class on February 28, 2023.

Spreadsheet from class on March 2, 2023.

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