Applied Corporate Finance

IBM Thomas J. Watson Research Center
Downloadable Materials Live Case Study Giddy's Home Page

Prof. Ian Giddy

Tel 212-998-0426
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Course Web site:

This seven-part module offers an overview of finance from the perspective of the corporate financial manager. Beginning with the premise that the goal of management is to increase the value of the firm, we will walk through the key decisions - investment, financing and risk management - that contribute to shareholder value. The investment side will include portfolio selection and management decisions, capital budgeting under risk, and M&A. The financing side comprises decisions about capital structure - how much debt, relative to equity, is optimal for a particular firm - as well as decisions about what kind of debt, and what kind of equity, is right for the firm. We will consider how companies can return value to shareholders via the dividend and other "payback" strategies. Both investment and financing decisions are tied to financial risk management, including the choice of hedging instruments, so the course will offer guidelines for the measurement and management of interest rate and currency risk and their link to financing choices. How and why companies undertake mergers, acquisitions and divestitures is covered in the sixth lecture. The last section pulls together many of these principles by examining why, when and how companies restructure their finances. Using real-world case studies, the course will introduce the key principles of selecting real investments, financing them, extracting value and managing financial risk.

Prof. Ian Giddy is a graduate of the University of Michigan (MBA 1972, PhD 1974) and the University of the Witwatersrand (BSc 1970). He has taught finance at NYU, Columbia, Wharton, Chicago and in over 30 countries abroad for the past twenty-five years. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. He is the author or co-author of numerous articles and books, including The Handbook of International Finance, The International Money Market, Cases in International Finance, Global Financial Markets, Asset Securitization in Asia and The Hudson River Watertrail Guide.

The course employs cases and problems as well as classroom lectures and discussions, and "live case studies" to offer a hands-on learning experience. We will make use of international as well as domestic examples. Each student will be expected to prepare thoroughly and to participate actively in class discussion. There will be a number of self-test assignments and quizzes but no formal exams.

The Course on the Internet
We will make use of the Web for resource material and communication. Indeed this course outline itself will evolve: the definitive version is the Web site at Certain lecture materials , as available, can be downloaded from the Web.

Aswath Damodaran, Applied Corporate Finance, Wiley, 1999.
Additional readings will be made available. Some may be found on the "Course Materials" Web site,

Students should have read the assignments before coming to class. Material covered in the assigned textbook readings will generally not be repeated in class. Rather, class time will be devoted to lecture and case discussion, applying the material covered in the readings.

The Live Case Study
Each student will work in a group to investigate the financial aspects of an actual company during the course. Selections should be made before the first class and emailed to the instructor. The goal will be to evaluate whether the company is maximizing its shareholder value, and in the end whether it is underpriced or overpriced in the marketplace. Details may be found at the Live Case Study website .

Preparation for the Course
Aswath Damodaran, Applied Corporate Finance, Appendix 1-4
Browse the Applied Corporate Finance Website
Try these Time Value of Money questions , then check the solutions .
For handy reference guides obtain the cheatsheets on Finance and Accounting 1 from BarCharts .
Start following markets and companies in publications such as the Wall Street Journal, the Financial Times, and The Motley Fool (
Assemble a group and pick your company for the Live Case Study . Groups outside the USA should pick a company that has good disclosure and research coverage.

Additional Resources
The following book may be useful to those wishing to learn more about the fixed-income and equity markets: Frank J. Fabozzi, Bond Markets, Analysis and Strategies, (Prentice-Hall). For equity markets, I recommend Malkiel's A Random Walk Down Wall Street and Bodie, Kane and Marcus, Essentials of Investments. For international finance, Giddy's Global Financial Markets (Houghton-Mifflin). For equity valuation, try Aswath Damororan, Damodoran on Valuation. For M&A and corporate financial restructuring, read Donald DePamphilis, Mergers, Acquisitions and Other Restructuring Activities (Academic Press).

The Wall Street Journal and the London Financial Times provide the most comprehensive daily coverage of financial and economic news. The most insightful economic commentary may be found in the weekly, The Economist.

Try the following Web sites:

Course Outline

Applied Corporate Finance
IBM Thomas J. Watson Research Center, Spring 2005

Date  Topics  Readings
Thu Mar 17
Corporate Finance and Investments Applied Corporate Finance, Ch 3-4
Thu Mar 24
2 Corporate Investment Decisions Applied Corporate Finance, Ch 5-6
Mon Mar 28
3 Corporate Financing Decisions Applied Corporate Finance, Ch 7-8
Thu Apr 14
4 Risk Management and Debt Design Applied Corporate Finance, Ch 9
Thu Apr  21
5 Valuing a Company Applied Corporate Finance, Ch 12
Tue May 3
6 Mergers, Acquisitions and Divestitures Damodaran, Corporate Finance, Ch 25
Thu May 12
7 Corporate Financial Restructuring Weston, et al, Takeovers, Restructuring and Corporate Governance, Prentice-Hall, 2nd Ed., Ch 13
Case Study TDI A (HBS 9-291-064)

Detailed Outline of Topics

  1. Corporate Finance and Investments
    • The Decisions that Create Shareholder Value
    • Investment, Financing, Payback and Risk Management
    • The Risk-Return Tradeoff
    • Financial Investments and Optimal Portfolio Management
    • Capital Asset Pricing in a Shareholder-Diversified Context
  2. Real Investment Decisions
    • Time Value of Money
    • Risk Value of Money
    • Making Real Investment Decisions
    • Capital Budgeting
    • The International Dimension
  3. Principles of Corporate Financing Decisions
    • Corporate Financing Decisions in Theory and Practice
    • Finding the Optimal Capital Structure: Debt, Equity or Mezzanine?
    • Corporate Taxation and Capital Structure
    • Financing and Corporate Volatility
  4. Risk Management and Debt Design
    • From "How Much Debt?" to "What Kind of Debt?"
    • Defining and Measuring Financial Risk
    • Managing Interest Rate and Foreign Exchange Exposure
    • Long-Term vs Short Term
    • Fixed vs Floating
    • Currency of Denomination
    • Using Hybrid Financing Techniques
  5. Valuation
    • How to Value an Investment
    • Strengths and Weaknesses of Accounting Valuation
    • Using Comparables
    • Economic Value of Future Profits
    • Building in Present and Future Values
    • The Free Cash Flow Growth Model to Value a Company
    • Adapting the Model to Different Situations and Companies
  6. Mergers, Acquisitions and Divestitures
    • Theory of the Firm: "Build vs Buy"
    • How do Mergers Work?
    • When do Mergers Work? Who Gains? Who Loses?
    • Divestitures: Why and When?
    • Valuation in the Context of an Acquisition
    • Criteria for Value-Adding Acquisitions
  7. Corporate Financial Restructuring
    • Reconfiguring Assets, Debt, Equity and Control
    • Financial Distress, Bankruptcy and Reorganization
    • Defensive Anti-Takeover Restructuring
    • Proactive Restructuring Including Share Buybacks and Divestitures
    • Summary and Conclusions | | | | contact
Copyright ©2005 Ian Giddy. All rights reserved.