SYLLABUS

CORPORATE FINANCE (FNCE 3010) 

FALL 2011 

PROFESSOR: IULIAN OBREJA 

OFFICE ROOM: KOBL 407, 

OFFICE HOURS: TR 10:00AM-12:00PM 

CONTACT: iulian.obreja@colorado.edu 

TA: ANIL ABBARAJU 

OFFICE ROOM: KOBL 455, 

OFFICE HOURS: W 12:30PM-2:30PM 

CONTACT: anil.abbaraju@colorado.edu 

SYLLABUS 

TEXTBOOK: Corporate Finance 2e, by Jonathan Berk and Peter DeMarzo (BDM), 

Pearson Publishing 

CLASS MATERIALS: All materials for this class will be posted on CULearn. That 

includes lecture notes and reading supplements. Make sure you check periodically for 

updates. 

ONLINE ASSIGNMENTS: This class makes use of myFinanceLab.com for individual 

assignments. The textbook from CU bookstore comes prepackaged with a subscription to 

myFinanceLab.com. You will have to go online to www.myFinanceLab.com and use the 

code provided with your textbook to log into the course page. You will need the 

following information: 

Textbook: Berk/DeMarzo: Corporate Finance 2e 

Course Name: Corporate Finance 

Course ID: XL0Q-D1Z8-101Y-5UB2 

IMPORTANT DATES 

MIDTERM EXAM 1: Approximately Sep 26 – 30, during class time (KOBL 302) 

MIDTERM EXAM 2: Approximately Oct 31 - Nov 4, during class time (KOBL 302) 

FINAL EXAM: 

Section 3:30-4:45PM: December 10, 7:30PM-10:00PM (KOBL 302) 


Finals Schedule: http://registrar.colorado.edu/calendar/exam_sched_fall11.html

CLASS SYNOPSYS 

This class consists of three parts: 

PART 1 will cover introductory topics in corporate finance such as financial statements, 

the law of one price, no-arbitrage pricing, fixed income assets, stock and bond valuation, 

NPV investment rule, and basic elements of capital budgeting decision. 

The impact of uncertainty on all concepts that we will cover during this part of the class 

will be kept to a minimum. 

EXAM WEEK: week 6 of classes, approximately Sep 26-30. Prior to this week I will 

post a concept review and a practice midterm exam to help you prepare for the exam. The 

plan for this week is as follows 

1. Tuesday we start with a review of the concepts that will be covered in the exam 

and then follow with a short Q&A session (where you ask the questions). Then 

we spend the rest of the lecture solving the practice midterm exam. 

2. Thursday is exam day. The test is 1h and 15 min long and will be administered 

during class time. 

PART 2 will cover topics such as risk and return in capital markets, portfolio analysis, 

risk premium and the CAPM, cost of capital, capital budgeting under uncertainty, 

strategic investments and real options. 

EXAM WEEK: week 11 of classes, approximately Oct 31 - Nov 4. Prior to this week I 

will post a concept review and a practice midterm exam to help you prepare for the exam. 

The plan for this week is as follows 

1. Tuesday we start with a review of the concepts that will be covered in the exam 

and then follow with a short Q&A session (where you ask the questions). Then 

we spend the rest of the lecture solving the practice midterm exam. 

2. Thursday is exam day. The test is 1h and 15 min long and will be administered 

during class time. 

PART 3 will cover topics such as security issuance, payout and financing policies, taxes, 

optimal capital structure, firm valuation, WACC and APV valuation methods, 

acquisitions and divestitures, and corporate restructuring. 

FINAL EXAM covers selected topics from PART 1, 2, and 3. This exam is 2h and 30 

min long and will take place in your classroom. 

ASSIGNMENTS: There will be two types of assignments: 

1. Group assignments (GA). A total of 2 or 3 GAs will be distributed approximately 

at the end of class parts 1, 2 and (possibly) 3. 

2. Individual assignments (IA). A total of 11 IAs will be distributed at the end of 

lecture weeks. 

Group assignments target relatively complex problems. You will be required to write a 

brief and concise memo summarizing your results and to provide a technical appendix

showing your calculations. These group assignments will increase in difficulty as the 

class progresses. Groups of 3 or 4 students should form by the end of third week of 

classes. That is by September 9. The group assignment will be distributed towards the 

end of each of the three class parts. You will get 1 week to work on it. The group 

assignment is meant to be part of your preparation towards the coming midterm/final 

exam. Each group member is expected to contribute to the group assignments or else 

he/she will receive a grade of 0. Each group assignment will be graded from 1 to 10. 

Individual assignments will be administered through www.myFinanceLab.com, so make 

sure you establish an account as soon as possible during the first week of classes. Please 

see the top of this syllabus for more information or contact me if you need help with this. 

Individual assignments (IAs) will be distributed at the end of each lecture week and will 

consist of sets of short problems on the material covered during that lecture week. IAs 

will be due the first Tuesday. 

Important: I have zero tolerance for late assignments. Pay attention to deadlines or your 

work will receive no grade. 

GRADING 

Please be aware that the Leeds School of Business has recently passed a mandatory 

grading policy stating that the average course grade cannot exceed 3.0. The school also 

recommends a grade distribution with no more than 25% A- or above, no more than 75% 

B- or above and at least 25% C+ or below. The official grading guidelines can be found 

at: http://leeds.colorado.edu/asset/undergraduate/gradingpolicy.pdf. 

In computing your final grade I will use the following weighting scheme: 

1. Midterm 1: 25% 

2. Midterm 2: 25% 

3. Final Exam: 25% 

4. Group Assignment: 10% 

5. Individual Assignments: 15% 

Example: Suppose you scored 80% in Midterm1, 90% in Midterm 2, 85% in Final 

Exam, 95% in Group Assignments and 89% in Individual Assignments. Then your total 

(percentage) score is 

86.6% = 0.25 X 80% + 0.25 X 90% + 0.25 X 85% + 0.10 X 95% + 0.15 X 89%.

TENTATIVE WEEKLY TOPIC COVERAGE 

Week 1 (Aug 22-26): a) Financial Statements b) Using Ratios c) Objective of the firm 

Chapters covered: 1, 2 

Individual Assignment 1 

Week 2 (Aug 29-Sep 2): a) Time value of money b) The NPV decision rule c) Arbitrage 

in capital markets and the Law of One Price d) No-arbitrage pricing e) Risky cash flows 

and risk premiums 



Week 3 (Sep 5-9): a) Valuing fixed income assets (bonds and annuities) b) US Treasury 

bonds and the term structure of interest rates 



Week 4 (Sep 12-16): a) NPV and other investment rules b) Choosing between projects c) 

Constraint resources d) Incremental earnings of a project e) Sunk costs, opportunity costs, 

competition, f) Working capital, g) Salvage value h) Free cash flows i) Project analysis 


Individual Assignment 4, Group Assignment 1 

Week 5 (Sep 19-23): a) Equity markets b) DCF valuation models c) Inferring the market 

capitalization rate for a stock d) The value of growth options 

Chapters covered: 9 


Week 6 (Sep 26-30): EXAM WEEK - MIDTERM EXAM 1 

Week 7 (Oct 3-7): a) Capital markets and risk b) Forms of compensation for bearing risk 

(risk premiums) c) Measuring the risk of an asset d) The ex-post risk-return relationship 

e) Financial vs. real assets f) General principles for estimating the opportunity cost of 

capital g) Measuring the risk characteristics of a portfolio of assets 



Week 8 (Oct 10-14): a) Portfolio vs. Individual asset risk b) Diversification c) Normallydistributed 

asset returns and the mean-variance efficient frontier d) Investors’ preferences 

e) Optimal portfolio allocation with or without risk-free assets f) Two-fund separation 


Individual Assignment 7

Week 9 (Oct 17-21): a) The Capital Asset Pricing Model (CAPM) b) Systematic vs. 

idiosyncratic risk c) Alternatives to CAPM 



Week 10 (Oct 24-28): a) Real assets and flexibility b) Real options: expansion, 

abandonment and timing options c) Real options and investment decisions 



Week 11 (Oct 31 - Nov 4): EXAM WEEK - MIDTERM EXAM 2 

Week 12 (Nov 7-11): a) Capital budgeting under uncertainty b) Opportunity cost of 

capital of a project c) Cost of equity capital d) Cost of debt capital e) Cost of capital for a 

firm f) Optimal capital structure and Modigliani-Miller result g) The tax benefits of 

corporate debt h) Impact of corporate taxes on the cost of capital (Tax-adjusted WACC) 

i) Personal taxes and the Miller equilibrium j) Net tax benefits: theory vs. empirical 

evidence, k) Theories of the optimal capital structure of a firm 

Chapters covered: 12, 14, 15, 16 


Week 13 (Nov 14-18): a) Optimal payout policy b) Firm valuation methods, tax shields 

for finitely-lived projects and recapitalization c) The WACC method d) The Adjusted 

prevent value method (APV) e) Comparing WACC vs. APV f) WACC and APV methods 

in practice g) When to use WACC vs. APV methods h) Acquisitions financed with equity 

i) Acquisitions financed partly with debt 


Individual Assignment 11, Group Assignment 2 

Guest Lecturer (exact date/time TBA): Clinton Kent, Director of Business 

Development, DAE Engineering and Manufacturing, Dubai Aerospace Enterprises 

Week 14 (Nov 28 – Dec 2): a) Valuing Ideko Corporation (Case Study) b) Motives for 

mergers, estimating synergies, and tax issues 


Group Assignment 3 

Week 15 (Dec 5 - 9): EXAM WEEK - FINAL EXAM 

FINAL EXAM SCHEDULE: 


Section 5:00-6:15PM: December 13, 7:30PM-10:00PM (KOBL 302)

IMPORTANT DISCLAIMERS 

Special Accommodations for Students with Disabilities or Medical Conditions 

If you qualify for accommodations because of a disability, please submit to me a letter 

from Disability Services in a timely manner so that your needs can be addressed. 

Disability Services determines accommodations based on documented disabilities. 

Contact: 303-492-8671, Center for Community N200, and 

http://www.colorado.edu/disabilityservices. 

If you have a temporary medical condition or injury, see guidelines at 

http://www.colorado.edu/disabilityservices/go.cgi?select=temporary.html 

Disability Services' letters for students with disabilities indicate legally mandated 

reasonable accommodations. The syllabus statements and answers to Frequently Asked 

Questions can be found at http://www.colorado.edu/disabilityservices 

Responsible Behavior 

Students and faculty each have responsibility for maintaining an appropriate learning 

environment. Those who fail to adhere to such behavioral standards may be subject to 

discipline. Professional courtesy and sensitivity are especially important with respect to 

individuals and topics dealing with differences of race, color, culture, religion, creed, 

politics, veteran's status, sexual orientation, gender, gender identity and gender 

expression, age, disability, and nationalities. Class rosters are provided to the instructor 

with the student's legal name. I will gladly honor your request to address you by an 

alternate name or gender pronoun. Please advise me of this preference early in the 

semester so that I may make appropriate changes to my records. See policies at 

http://www.colorado.edu/policies/classbehavior.html, and at 

http://www.colorado.edu/studentaffairs/judicialaffairs/code.html#student_code

Discrimination and Sexual Harassment 

The University of Colorado at Boulder Discrimination and Harassment Policy and 

Procedures, the University of Colorado Sexual Harassment Policy and Procedures, and 

the University of Colorado Conflict of Interest in Cases of Amorous Relationships policy 

apply to all students, staff, and faculty. Any student, staff, or faculty member who 

believes s/he has been the subject of sexual harassment or discrimination or harassment 

based upon race, color, national origin, sex, age, disability, creed, religion, sexual 

orientation, or veteran status should contact the Office of Discrimination and Harassment 

(ODH) at 303-492-2127 or the Office of Student Conduct (OSC) at 303-492-5550. 

Information about the ODH, the above referenced policies, and the campus resources 

available to assist individuals regarding discrimination or harassment can be obtained at 

http://www.colorado.edu/odh 

Academic Honesty 

All students of the University of Colorado at Boulder are responsible for knowing and 

adhering to the academic integrity policy of this institution. Violations of this policy may 

include: cheating, plagiarism, aid of academic dishonesty, fabrication, lying, bribery, and 

threatening behavior. All incidents of academic misconduct shall be reported to the 

Honor Code Council (honor@colorado.edu; 303-735-2273). Students who are found to 

be in violation of the academic integrity policy will be subject to both academic sanctions 

from the faculty member and non-academic sanctions (including but not limited to 

university probation, suspension, or expulsion). Other information on the Honor Code 

can be found at http://www.colorado.edu/policies/honor.html, and at 

http://www.colorado.edu/academics/honorcode/ 

Religious Holidays 

Campus policy regarding religious observances requires that faculty make every effort to 

deal reasonably and fairly with all students who, because of religious obligations, have 

conflicts with scheduled exams, assignments or required attendance. 

See full details at http://www.colorado.edu/policies/fac_relig.html

SYLLABUS

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