COURSE MANUAL

Intermediate Corporate Finance

EBB079B05
2023/2024

1. Overview of the course

Coordinator and lecturer of plenary sessions
Prof.dr. Abe de Jong
Email: [email protected]

Tutorial lecturers
Dr. Amaury De Vicq Thalassa de Waal, MSc
Email: [email protected] Email: [email protected]

Office manager
Erna van der Vinne
Email: [email protected]
Phone: +31(0)50 363 3685
Office: 5411.0836

Description
In this course, the lessons learnt from studying the valuation of financial assets, will be
applied to the valuation of real assets, such as factories and machines. Various methods for
real asset valuation will be considered, including the Weighted-Average-Cost-of-Capital
method. Also, ways to derive expected future cash flows (being an important input for real
asset valuations) from accounting statements and other information will be discussed. In
addition to the valuation of real assets, the financing and risk management strategies of
firms will be covered in this course. Taking a globally active firm, the course will explore the
consequences of cross-border activities for, for instance, risk management with derivatives,
on the operations and financing of firms.

Learning outcomes
Upon completion of the course the student is able to:
1. Combine accounting and other information to derive an overview of the expected cash
flows of international capital budgeting projects, including cross-border mergers.
2. Describe, explain and apply in considerable detail various valuation techniques, including
the WACC method.
3. Describe and explain in considerable detail capital structure and risk management
theories, and analyze the outcomes under different sets of assumptions, for internationally
active corporations.

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4. Know how exposure is measured and financial instruments are used to manage the
currency risks of international operations.
5. Solve relatively complex capital budgeting problems in and international setting, including
country risk.
6. Analyze how various theories can be used to explain phenomena observed in
international financial markets.
7. Make a well-founded decision about whether or not to apply for a position in the field of
finance or to enrol for a Master programme in this field.

IMPORTANT! Tutorial groups and group assignment teams

Students have to enroll themselves into teams of four students (maximum) and tutorial
groups. By registering for a team, you also enroll for a tutorial group. Students can choose
which team they will enroll in (each team will have a unique identifier, which also
determines the tutorial group; e.g., 2.03 is team 3 in tutorial group 2). Between April 15
(from 14:00) and April 18 (before 15:00), students must register via Brightspace using the
Tools/Groups option for a tutorial group and team. The teams are created to facilitate
discussion and to work jointly on the assignment. All this requires putting in effort and the
collaborative participation of all team members. Teams are responsible for organizing their
meetings and distribution of work.

Lectures and tutorials

There will be seven two-hour plenary lectures, in which the main contents of the course will
be covered. In addition, there will be six two-hour tutorials. In the first five tutorials,
problems from the textbook, examples of exam questions, and real-world applications of
the theoretical concepts will be presented and discussed. The final tutorial will be an
interactive workshop delivered by Zanders, a consulting firm in treasury and risk
management.

Grading: exam, assignment, and workshop

The course has three exam components:
Component Weight
Written exam 75%
Group assignment 20%
Workshop participation 5%

The written exam weighs 75% and consists of multiple-choice and open questions. The
exam is two hours long, is closed book, and will be held digitally. The exam will cover the
relevant chapters and problems from the Shapiro-Hanouna textbook, the three academic
articles, and the slides and contents of the plenary and tutorial lectures. A practice exam will
be provided in week 5. For the exam dates, see
https://rooster.rug.nl/#/en/current/schedule/course-EBB079B05

The group assignment has to be completed by groups of at most four students and weighs
20%.

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In the final week, students can attend a workshop by an external party. The tutorial
lecturers will be present to register presence and active participation. In the case of active
presence, students can obtain a 10, which has a 5% weight.

The final grade is 75% of the written exam result, 20% of the group assignment result, and
5% for workshop participation. Not submitting the group assignment before the deadline
will result in a grade of 1.0. There is no repair option for the group assignment. The written
exam result must be at least 5.0 to pass the course. The group assignment and workshop
participation results only count in the 2023/2024 academic year.

Notes
 This course builds on the knowledge obtained from the first-year courses Financial
Accounting for E&BE and Asset Pricing & Capital Budgeting, the second-year course
Capital Structure & Financial Planning, and the third-year course Intermediate Asset
Pricing.
 For up-to-date information, see:
https://ocasys.rug.nl/current/catalog/course/EBB079B05
 Information for re-sitters: students cannot use assignments from previous years in
this year’s course.

2. Literature
Textbook:
 Shapiro, A.C. & Hanouna, P. (2020). Multinational Financial Management, 11th
Edition (ISBN 9781119559900). (Referred to as SH; Chapters 1, 4, 6-11, 14-18)

Academic articles:
 Carter, D. A., Rogers, D. A., & Simkins, B. J. (2006). Does hedging affect firm value?
Evidence from the US airline industry. Financial Management, 35(1), 53-86.
 Smithson, C., & Simkins, B. J. (2005). Does risk management add value? A survey of
the evidence. Journal of Applied Corporate Finance, 17(3), 8-17.
 Stulz, R. M. (2022). Rethinking risk management. Journal of Applied Corporate
Finance, 34(1), 32-46.

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3. Week-by-week schedule
Week Plenary lecture Tutorials
(1)  Introduction to the course [No tutorial]
15-19  Multinational firms (SH 1)
April  Exchange rates (SH 4)
(2)  Foreign exchange markets (SH  SH problems, chapters 6 and
22-16 6) 7
April  Futures and options (SH 7)
(3)  Currency, interest rate and  SH problems, chapter 8
29 April- credit derivatives and swaps (SH
3 May 8)
(4)  Measuring exposures (SH 9-10) [No tutorial]
6-10  Risk management (academic
May articles)
(5)  International investment  SH problems, chapters 9 and
13-17 decisions (SH 14-16) 10
May  International capital budgeting
(SH 17)
(6) [No lecture]  SH problems, chapters 14-16
20-24
May
(7)  Capital structure and  SH problems, chapter 17,
27-31 international financing (SH 11) and additional capital
May budgeting/valuation
problems
(8)  Multinational companies and  Zanders workshop
3-7 May internal capital markets (SH 18)

4. Instructions for group assignment and workshop

Group Assignment: Analyzing Multinational Corporate Responses to the Ukraine War
Students will apply concepts from "Multinational Financial Management" to understand and
analyze how multinational corporations active in Russia responded to the war in Ukraine.

Assignment Details:
 Students (in groups of up to four students) will research a multinational corporation
that had significant operations in Russia before the Ukraine war from the Yale CELI List
of Companies Leaving and Staying in Russia. Groups of students can choose their
preferred company on a first-come, first-served basis through a Google sheet, which
will be accessible starting April 22nd at 12:00 CEST.
 Students should gather data on the company's financial performance, investment in
Russia, and overall international strategy.
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 o Potential sources include:
 Company websites
 Websites of financial regulatory and supervisory authorities (e.g.,
FMA), ESMA, NCAs or ESEF databases
 Business news websites like Bloomberg, Reuters, CNBC, and Yahoo
Finance
 Academic databases like JSTOR and Google Scholar
 Analysis: students are expected to perform a detailed analysis on the selected
companies, focusing on the following aspects:
o Explore the reasons behind the company's original expansion into Russia
(Please apply the theoretical framework from Chapter 16 to elucidate their
expansion strategy).
o Discuss how the company navigated exchange rate risks and economic
exposure, and detail their risk management strategies (as outlined in Chapters
6 to 10). Also, examine how these strategies evolved over time.
o Employ the country risk analysis framework (from Chapter 14) to assess how
the company evaluated political and economic risks in Russia before the war,
and whether their assessments changed post-conflict. Consider whether the
company anticipated the possibility of a war in Ukraine.
o Analyze the company's strategic response to the conflict, including decisions
on capital budgeting, which may involve divestment, downsizing, or
restructuring investments (as discussed in Chapters 16 and 17).
o Assess the ethical considerations in the company's response, weighing
financial goals against corporate social responsibility (as discussed in Chapter
1).
 Report: compile the findings into a detailed report (max 2,500 words), incorporating
theoretical frameworks from the textbook to support the analysis.
 Expected outcome: students will gain an understanding of how theoretical concepts
in international finance are applied in real-world situations, especially in crisis
scenarios. They will also learn to critically assess corporate strategies in the face of
geopolitical challenges and ethical considerations.
 Assessment Criteria:
o Quality and depth of research
o Application of theoretical concepts to real-world situations
o Critical thinking and analysis
o Clarity and structure of the report

Zanders Workshop
During the workshop, Zanders will provide insights into current and best market practices in
the field of Corporate Financial Risk Management (FRM). The core elements of a
comprehensive FRM Framework will be discussed, this includes exposure identification,
quantification, strategy and policy, and as last step in the FRM framework the FRM
processes and hedge execution. During the tutorial, Zanders will dive into real-world

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applications by working through scenarios involving FX risk, interest risk, inflation risk, and
counterparty credit risk. Moreover, insights on market practices are shared by reviewing the
FRM White Paper (accessible on Brightspace), which shares experiences from our corporate
clients