Business Valuation (AIM 4337-521)

Accounting and Information Management

School of Management
The University of Texas at Dallas
Summer 2005

I. Instructor

Haeyoung Shin
Office: SOM 4.425
Phone: 972 883 4452
E-mail: Use WebCT mail or shy2001@utdallas.edu
Office hours: Tuesday 10:30 AM – 11:30 AM. Other times by appointment.

II. Course objectives and description

The objective of this course is to provide a framework for business valuation using financial and
accounting information. To attain our objective, we will rely on ‘fundamental analysis’, which implies the
use of financial reports and other relevant information to produce pro-forma financial statements and then
use them to estimate a value for the business.

This course is intended for students who want to develop basic knowledge to value a firm with
accounting information. This course is the right course for you if you want to find answers to the following
questions:
1. What is the ‘intrinsic value’ of a firm? How can it be calculated?
2. What are free cash flow and DCF valuation model?
3. What is cost of capital and how can we estimate it?
4. How can one get the necessary information on the projection of free cash
flow from the financial statements?
5. What benefit we can get from free cash flow valuation approach?
6. Is this DCF model applicable to real world?

III. Course administration

The course will have 11 meetings including two exams – on every Wednesday from 6:00 – 10:00
PM in SOM 2.116. The course content will be delivered to you primarily in the form of lectures and class
discussions. All students are expected to actively take part in class discussions. Grades are based on a
individual assignment, a group assignment, a mid-term exam, and a final exam.

Individual assignment will be based on the class lectures and class discussions. This will be in the
form of exercises, problems and mini cases. Even though, you can discuss individual assignment with
other students, you should submit only your own work. (Do not submit a copy of other students.) The
assignment is due in class, on the day indicated in the course schedule. The individual assignment will be
posted in the course website in due course of time, usually one week in advance. I will not accept late
assignment. If you will not be attending the class on the day an assignment is due, it is your responsibility
to make sure that I receive your completed assignment before the due date. You can send it through a
friend or email it to me. Please email the assignment only under exceptional circumstances and do not use
email submission as the “regular” mode of submission of assignments. In case you are forced to email your
assignment, make sure that you have properly formatted the assignment for printing (especially if it is excel
file). Your assignment will be graded and returned to you, usually, within a week. If you disagree with the
grading of an assignment, state the problem in writing and submit the assignment for re-grading.
Individual assignments account for 10% of the final grade.

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 Group assignments will be the projection of free cash flow of a given real world firm. Each of you
should form a group of no more than four students. You should communicate to me the composition of
your group by 1st of June. I will assign a company for each group to project free cash flow on or about 15th
of June. More details about group assignment will be supplied later. Group assignment will be worth
20% of your final grade and is due on the last class (20th of July).

There are two exams for this course. The exams will cover essentially what we discuss in the class
and final exam will be comprehensive. Both exam will be conducted with closed book and closed notes, but
you are allowed to bring one-sided-A4-size helping sheet. Mid term will account for 30% of your final
grade and final exam will account for 40% of final grade.

IV. Text book and other readings

Corporate Valuation: A Guide for Managers and Investors, by Phillip R. Daves et al, (Thomson
South-Western) will be used as the textbook for the course. Some of the problems and exercises from this
textbook will be included in your individual assignments.

I will make my lecture notes and other handouts available to you through the WebCT course home
page To access the course materials visit
http://webct.utdallas.edu/webct/public/home.pl?action=print_home

Please print out a copy of lecture notes and any other relevant materials (like financial statements or
annual reports of assigned companies) and bring them to class.

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Tentative schedule

Date Topic Remarks

May 18th Introduction to the course. Chapters 1 and

Introduction to the basics of discounting model Appendix 2
Bond valuation
May 25th Corporate valuation for a simple company Chapter 2
Introduction of free cash flow, cost of capital, DCF valuation
model for equity
Difference between bond and equity valuation
June 1 st Financial statement and free cash flow Chapter 3
How to calculate FCF from financial statements
June 8 th Estimating value of a firm using free cash flow approach Chapter 4
Brief introduction of other valuation approaches Assignment 1 due

June 15th Mid–term exam

June 22nd Projecting free cash flow Chapter 5
Projecting financial statements

June 29th Projecting financial statements (Cont’d) Chapter 6

July 6 th Multiyear projections Chapter 7

July 13th Technical issues of projecting financial statements Chapter 8

July 20th Projecting cash flow for real company and valuation – Home Chapter 12
Depot Assignment 2 due
Summing up and Review
July 27th Final- exam

Chapter numbers refer to the chapter numbers of your text book. This is tentative schedule. It may be
changed based on how the class progresses.