Class Schedule: Introduction to Finance II. Spring, 2026

Block 3: The cost of equity capital

• Transitioning from FIN 510A
• Accompanying Notes.
• Overview of Block 3.

Concept 1:

• What is equity?
• How do we measure the rate of return on a stock?
• Statistical modeling of stock returns.
  • Normal Distribution
    • Mean return
    • Return standard deviation
• Monthly stock market data for ITT Inc. We will analyze ITT's December 2025 acquisition of SPX FLOW throughout the semester.
• Physical Shares in Pullman's Palace Car Company.

Concept 2:

• Portfolio expected return and variance.
  • Diversification: Intuition.
  • The correlation coefficient.

Concept 3: Expected return on equity under the Capital Asset Pricing Model

• Note the similarity between the cost of equity capital and the cost of debt capital.
• Problem Set
  • Data and Key to Problem Set
• Problem Set
  • Data and Key to Problem Set
• Sample Quiz
  • Key to Sample Quiz
• 2019 Quiz 3
  • Key to 2019 Quiz 3
• A linear regression perspective on systematic risk and the CAPM.
• 2020 Quiz 3
  • Key to 2020 Quiz 3

Block 4 Capital Budgeting

Concept 4:

• Project-specific cost of capital.
• Identifying a project's after-tax cash flows and computing its Net Present Value.
  • Accompanying Notes.
  • Capital Budgeting Notes and Make vs. Buy Problem
  • Spreadsheet with the Make vs Buy Problem solved.
  • MACRS Depreciation Tables--Half-year Convention. From Internal Revenue Service Publication 946.
  • Problem Set to prepare for Quiz 4.
    • Key to Quiz 4 problem set.
  • Quiz on Capital Budgeting material from 2018.
    • Key to 2018 Capital Budgeting Quiz.
  • 2019 Quiz 4
    • Key to 2019 Quiz 4
  • 2020 Quiz 4
    • Key to 2020 Quiz 4
  • Slides summarizing the key ideas in capital budgeting.

• In-class spreadsheet on make vs. buy capital budgeting problem, Feb. 9, 2023..

• Class spreadsheet with thoughts and example on traditional capital budgeting, Feb. 14, 2023..

Concept 5:

• Strategic Planning and Valuation: Acquisitions: ITT Inc's acquisition of SPX FLOW in December 2025. Lone Star Funds announced on December 5, 2025, that they have agreed to sell its industrial processing firm, SPX Flow Inc., to ITT Corp. for $4.775 billion in cash and stock. The purchase is on a cash-free, debt-free basis. Thus ITT is paying the Enterprise Value of SPX FLOW. The seller, Lone Star Funds, is a global private equity firm located in Dallas. It had acquired SPX Flow for $3.8 billion in a 2022 take-private transaction.
  • SPX Flow's public website.
  • SEC filing of SPF FLOW's financial results from the private equity firm, Lonestar Funds.
  • ITT's investor presentation explaining its planned acquisition of SPX FLOW, December 5, 2025.

Concept 6:

• Strategic Planning and Valuation: Real Options
  • The abandonment option
    • Example and notes.
      • Accompanying Spreadsheet.
    • Problem Set 1 on real options.
      • Spreadsheet with Problem solved.
    • Sample quiz on real options.
      • Key to sample quiz.
    • 2019 Quiz 5
      • Key to 2019 Quiz 5
    • In Class Case: Foxconn.
    • Sample quiz problem on abandonment option.
    • 2020 Quiz 5
      • Key to 2020 Quiz 5

• Spreadsheet from class on February 16, 2023 on the Foxconn Case.

• Spreadsheet from class on February 21, 2023 on project-specific costs of capital and the waiting option.

• Spreadsheet from class on February 23, 2023 on the Merck case and the abandonment option.

Concept 7:

• The waiting option
  • Example and notes.
  • Accompanying Spreadsheet.
• Valuing flexibility
  • Electricity generation case.
• Problem Set 2 on real options.
  • Spreadsheet with Problem solved.
• Sample Quiz 6 questions.
  • Spreadsheet with Sample quiz problems solved.
• 2019 Quiz 6
  • Key to 2019 Quiz 6
• 2020 Quiz 6
  • Key to 2020 Quiz 6

Spreadsheet from class on February 28, 2023.

Spreadsheet from class on March 2, 2023.

In-class Problem for March 6, 2025.

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