HEC MONTRAL

52-252-02
Period 4

Financial Management and Value Creation

Winter 2004

Course Outline
Instructors:

Joshua Slive (Assistant Professor)

Pierre Lvesque (Lecturer)

Course Website: http://www.hec.ca/sites/cours/52-252-02/

joshua.slive@hec.ca
levesquepierre@videotron.ca

Objectives
This course is a continuation of the course "Financial Analysis and Forecasting". It focuses on
long-term financial decisions.
The main objectives are to enable students to:
o

Develop investment project analysis skills;

Know the main investment criteria and understand their respective strengths and
weaknesses;

Become familiar with the concepts of capital cost and structure;

Understand the effects of financial leverage and their impact on earnings per share, risk
and value;

Understand the main principles of a companys dividend policy;

Understand the standard methods used to value a company as well as the interrelations
between capital budgeting and financing decisions and how these affect the value of
shares.

Workload and Teaching Approach

Several methods will be employed to reach the above-mentioned objectives. Students will prepare
for courses by reading assigned material and analyzing cases that will serve as a basis for in-class
discussions. For cases that are handed-in, each team will prepare a document including a text of a
maximum of three pages. If necessary, this text may be accompanied by quantitative addenda.
From time to time, the instructor will make formal presentations as well as needed summaries.

Required Reading
(RWJR)
(RC)
(COOP)

ROSS, WESTERFIELD, JORDAN, ROBERTS, Fundamentals of Corporate

Finance, McGraw-Hill Ryerson, 4th Canadian Edition, 2002.
Selection of texts and cases no 52252A
Off-print sold at the Coop store

Evaluation
Quizzes (Classes 3 and 5)
:
Cases (Team assignments to hand in at classes 2, 4, and 6)
Final exam

20%
30%
50%

Curriculum
Course No 1
o
o
o

Introduction
The idea of value
Value creation: decisions regarding capital investment, financing and dividends

Reference
(COOP):

Warren E. Buffett, 1995. (This case will serve as an example in class)

Capital Investment Analysis and Decisions

Course No 1 (continued)
o
o
o

Basic concepts
NPV (net present value): a value creation measure
Capital cost allowance

References
(RWJR):
(RWJR):
(RC):
(RC):

Chapter 9 (p. 264 to 269)

Chapter 10 (p. 306 to 318)
Investment Management and the Capital Cost Allowance
Analytical Grid

(RC):

Tartempion (This case will serve as an example in class)

Course No 2
o
o
o
o
o

Relevant data
Equipment replacement decision
Incremental analysis
Inflation
Comparison of tax rules in different countries

References
(RWJR):
(RC):

All of Chapter 10
Capital Investment Analysis What is incremental analysis?

(COOP):

Fonderio Di Torino S.P.A. (Case to be handed in at the beginning of Course 2)

Course No 3
o
o

NPV and other investment criteria: a comparison

Capital budgeting

References
(RWJR):
(RWJR):

All of Chapter 9
Chapter 11

(COOP):

The Investment Detective (This case will serve as an example in class)

Capital Cost and Long-term Financing

Course No 4
Capital Cost and Hurdle Rate
References
(RWJR):

Chapter 14

(COOP):

Teletech Corporation, 1996. (Case to be handed in at the beginning of Course 4)

Course No 4 (continued)
Capital Structure
o
o

Risk-return relation
Financing methods and financial leverage

(RC):

Financial Leverage (This case will serve as an example in class)

Course No 5
Capital Structure
o
o
o

Risk-return relation
Financing methods and financial leverage
Choice of a financing method

References
(RWJR):

Chapter 16

(COOP):

Tonka Corporation (This case will serve as an example in class)

Course No 5 (continued)
Dividend Policy
o
o
o

Signaling effects
Clientele effects
Implications for capital budgeting and financing decisions

References
(RWJR):

Chapter 17

(RC):

The Dividend Policy

Mergers and Acquisitions

Course No 6
Business Valuation
o
o
o

Discounted cash flow method

Other valuation methods
Mergers, acquisitions, restructuring and value

References
(RWJR):
(RC):
(RC):

Chapter 23 (skim through only)

Business Valuation
Valuation of Private Businesses Practices and Theories

(COOP):

Brown-Forman Distilleries Corporation (Case to be handed in at the beginning of

Course 6)