The Chinese University of Hong Kong

FINA 3070-E: Corporate Finance: Theory and Practice

2024-25 Term 2

Instructor: Prof. Chao Liu

Room 1242, Cheng Yu Tung Building
[email protected]
Office Hours: Thursdays 10:00am-11:30am or by appointment

Lectures:
Wednesdays 2:30pm-5:15pm, Cheng Yu Tung Building 203

Course Website: https://blackboard.cuhk.edu.hk/

(All course materials, including lecture slides, homework assignments, practice problems,
sample exams, and references, will be posted there.)

Teaching Assistant:
Shuting Li
Room 735, Cheng Yu Tung Building
[email protected]
Office Hours: By appointment

1. Course Description

This course provides a comprehensive introduction to the principles and practices of corporate
finance. Students will learn how financial managers make investment and financing decisions to
maximize firm value. Topics covered include capital budgeting, risk and return, options, capital
structure, dividend policy, corporate governance, mergers and acquisitions, and financial distress.
The course emphasizes both theoretical frameworks and practical applications, enabling students

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to analyze real-world financial decisions critically. Case studies and problem-solving exercises
will be used to illustrate the concepts in practice.

By the end of the course, students will have developed a solid foundation in corporate finance,
equipping them with the tools to evaluate complex financial decisions and apply them in
professional settings.

2. Prerequisites

Students should have completed FINA2010 or FINA2310, or obtain permission from the
instructor to enroll in this course. This course is not for students who have taken ECON3540.
It is also very important that you familiarize yourself with Microsoft Office Excel. We will be
using this software extensively throughout the semester.

3. Teaching Materials

The recommended textbook of this course is Corporate Finance by Jonathan Berk and Peter
DeMarzo (6th edition). See Section 7 of this syllabus for the optional reading assignments. I also
recommend Principles of Corporate Finance by Richard Brealey, Stewart Myers, Franklin Allen,
and Alex Edmans (14th edition) as a reference.
The textbook readings and problems are highly recommended, but optional. Some students will
find the lecture notes sufficient to learn the required material; however, many other students find
the textbook to be very helpful.

4. Grading

Your final grade will be based on participation, homework, and two exams. The relative
weightings are as follows:

Participation *
Homework 20%
Midterm Exam 35%
Final Exam 45%

4.1 Participation
Participation is a wildcard. You may have your grade adjusted upward based on active
participation (e.g., from A- to A). However, no student will have his or her grade adjusted
downward based on participation.

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Active participation is important for your learning experience and is highly encouraged. It also
keeps you involved and motivated rather than removed and disinterested. It is therefore
important for you to prepare for class (make sure you understand the previous lectures), attend
class (go to class on time and pay attention), and participate in class (make constructive
contributions to discussions).
4.2 Homework
There will be three assignments throughout the course. Your final grade will be calculated based
on the highest two scores among them. If you submit only two assignments, both will be used in
the calculation.
Homework assignments will be available on the course website once I have prepared them. You
will have roughly two weeks to complete the assignment. Any late assignment will earn zero
credit – no exceptions.
4.3 Exams
There will be two closed-book, closed-notes exams: a midterm and a cumulative final. A formula
sheet will be provided. Details will be provided one week before the exams.
Except for students who have time conflicts with other classes or exams, there will be no make-
up exams offered. (If you have time conflicts, please let me know before February 5, 2025, and
we will make an arrangement.) Note that both the midterm and final exams are compulsory.
Absence from the exam will not be excused except under circumstances described in the
University Regulations. These cases must be substantiated by the appropriate documentation
within one week of the missed exam. Should you miss the midterm with a legitimate reason,
your final exam will be re-weighted accordingly, i.e., it will be worth 80% of your final grade. If
you miss the final exam with a legitimate reason, you will be assessed on a case-by-case basis
(you should come to talk to me as soon as possible). If you miss an exam for any other reasons,
you will receive zero marks for that exam.
Cheating will not be tolerated. Any student caught cheating during the exams will receive zero
credit and may face further disciplinary action.
Please refer to https://www.cuhk.edu.hk/policy/academichonesty/ for CUHK rules regarding
academic honesty.

5. Grade Descriptor

Grade Description
A / A- Outstanding performance on all learning outcomes.

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 B+ / B / B- Substantial performance on all learning outcomes, OR high performance
on some learning outcomes which compensates for less satisfactory
performance on others, resulting in overall substantial performance.
C+ / C / C- Satisfactory performance on the majority of learning outcomes, possibly
with a few weaknesses.
D+ / D Barely satisfactory performance on a number of learning outcomes.
F Unsatisfactory performance on a number of learning outcomes, OR failure
to meet specified assessment requirements.

6. Course Outline (Tentative)

Date Course
Jan 8 Course Introduction and The Time Value of Money
Jan 15 Capital Budgeting
Jan 22 Risk, Return, and CAPM
1st Assignment Due
Feb 5 Cost of Capital
Feb 12 Financial Options and Real Options
Feb 19 Selected Advanced Topics and Midterm Review
2nd Assignment Due
Feb 21 Tutorial by TA
Feb 26 No Class
Midterm Exam
Mar 12 Capital Structure I
Mar 19 Capital Structure II
Mar 26 Payout Policy
Apr 2 Risk Management
3rd Assignment Due
Apr 9 Selected Advanced Topics and Final Review
Apr 11 Tutorial by TA
Apr 16 No Class
Final Exam

7. Suggested Readings

BD stands for Corporate Finance by Jonathan Berk and Peter DeMarzo (6th edition).

Course Suggested Readings

Introduction and Time Value of Money BD Chapters 1, 4.1-4.8, 5.1-5.3, 6.1-6.3
Capital Budgeting BD Chapters 2, 3, 7, 9.4, 19
Risk, Return, and CAPM BD Chapters 10, 11
Cost of Capital BD Chapters 12, 18
Financial Options and Real Options BD Chapters 20, 22
Capital Structure BD Chapters 14, 15, 16

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Payout Policy BD Chapters 17
Risk Management BD Chapters 30