// SYSTEM ONLINE  ·  PEPPERDINE GRAZIADIO MBA  ·  SUMMER 2026 //

FINC 603

NIGHT CITY CAPITAL MARKETS

INSTRUCTOR: DR. MARETNO AGUS HARJOTO  |  FORMAT: HYBRID (F2F + ONLINE)  |  STUDENT: ROB
ACCESS DASHBOARD VIEW MODULES

// MISSION PARAMETERS //

COURSE DASHBOARD

Everything you need to know about FINC 603 before opening a single textbook.

GRADE BREAKDOWN

Quizzes (8 total)25%
Midterm Exam25%
Final Exam25%
Group Project (DCF)20%
Online Class Participation5%

KEY DATES

JUN 23 MIDTERM DUE — Take-home · Covers Wks 1–7
No class this week — submit on Canvas
JUL 25 GROUP PROJECT SATURDAY SESSION
West LA Campus · 9am–4pm · REQUIRED
AUG 04 FINAL EXAM DUE — Take-home · Wks 9–13 + cumulative
No class this week — submit on Canvas

QUIZ SCHEDULE

Q1WK 3
Q2WK 4
Q3WK 5
Q4WK 6
Q5WK 9
Q6WK 10
Q7WK 11
Q8WK 12

8 quizzes · 25% combined · No quiz weeks 7, 8, 13, 14

// NEURAL HACK WARNING — AI POLICY //

Prof. Harjoto permits AI use — but you must show all Excel or handwritten work AND explain the intuition behind every answer. Answers without a clear explanation of why the formula works = zero points, regardless of whether the number is correct. This site exists to help you understand the why, not just get the answer.

// CURRICULUM DISTRICTS //

13 MODULES

Corporate finance structured as Night City districts — each with its core formula rendered in full LaTeX.

WEEK 1
MODULE // 01
MEGACORP GOVERNANCE PROTOCOLS
Corporate Finance & FCF
  • Goal: maximize market value of shareholders' equity (NPV > 0)
  • Investment decision vs. financing decision
  • Agency problem: managers vs. shareholders
  • EVA = NOPAT − (WACC × Invested Capital); MVA = PV(EVA stream)
  • ESG as a long-run value driver, not just a constraint
$$\FCF_t = \NOPAT_t - \Delta\TNOC_t = \text{EBIT}(1-T) - \Delta\text{Net PPE} - \Delta\NOWC$$
WEEK 2
MODULE // 02
NETRUNNER DATA EXTRACTION
Financial Statement Analysis & AFN
  • DuPont: ROE = profit margin × asset turnover × equity multiplier
  • Liquidity, leverage, efficiency, profitability ratio families
  • Additional Funds Needed (AFN) — pro forma percent-of-sales method
  • Book value ≠ market value — only market values belong in WACC
$$\text{AFN} = \frac{A^*}{S_0}\Delta S \;-\; \frac{L^*}{S_0}\Delta S \;-\; M\,S_1(1-d)$$
WEEK 3
MODULE // 03
TEMPORAL CREDIT CYCLES
Time Value of Money
  • Compounding: money earns interest on prior interest
  • Rule of 72: money doubles in ≈ 72/r years
  • Annuity formula = closed-form PV of equal periodic payments
  • EAR always > APR when compounding periods > 1
  • Excel: PV(), FV(), PMT(), RATE(), NPER()
$$\EAR = \left(1 + \frac{\APR}{m}\right)^m - 1 \qquad \text{PV}_{\text{ann}} = \text{PMT}\cdot\frac{1-(1+r)^{-n}}{r}$$
WEEK 4
MODULE // 04
RISK CALIBRATION MATRIX
Risk, Return & CAPM
  • ~20–30 stocks eliminates specific risk; market risk remains
  • Only systematic (market) risk earns a return premium
  • Beta = slope of regression: stock returns on S&P 500 returns
  • β > 1 → aggressive; β < 1 → defensive; avg β = 1.0 exactly
  • Excel: =SLOPE(stock_returns, market_returns) over 60 months
$$r_i = r_f + \beta_i\underbrace{(r_M - r_f)}_{\text{equity risk premium}} \qquad \beta_i = \frac{\text{Cov}(R_i,R_M)}{\text{Var}(R_M)}$$
WEEK 5
MODULE // 05
ASSET PRICING ENGINE
Bond & Stock Valuation
  • Bond price = PV of coupons + PV of par; price ↑ when YTM ↓
  • YTC: substitute call price & call date for par & maturity
  • Gordon Growth Model: requires g < r always
  • High P/E ≠ overpriced — may reflect high PVGO
  • PVGO = 0 when ROE = cost of equity (investing at break-even)
$$P_0 = \frac{D_1}{r_e - g} \qquad P_0 = \frac{\text{EPS}_1}{r_e} + \text{PVGO}$$
WEEK 6
MODULE // 06
HYBRID WARE CONTRACTS
Hybrid Securities
  • Preferred stock: fixed dividend, senior to common, no tax deduction for issuer
  • Cost of preferred = perpetuity formula (no growth term)
  • Warrants: long-dated call options on new shares issued by the firm
  • Convertible bonds: debt + embedded call option on equity
  • Dilution: when converts or warrants exercised, share count rises
$$r_{ps} = \frac{D_{ps}}{P_{ps}} \qquad \text{(preferred = perpetuity, no tax shield)}$$
WEEK 7
MODULE // 07
PROJECT DELTA CLEARANCE
Capital Budgeting: NPV · IRR · MIRR
  • NPV is the only rule that measures value creation in dollars
  • IRR fails: multiple solutions (sign changes), scale blindness, mutually exclusive ranking
  • MIRR: reinvest positive CFs at WACC → single, conservative rate
  • PI for capital rationing; EAA for unequal project lives
  • Incremental, after-tax cash flows only — never include sunk costs
$$\NPV = \sum_{t=0}^{n}\frac{\FCF_t}{(1+r)^t} \quad \text{Accept if } \NPV > 0$$
WEEK 8–9
MODULE // 08
WEIGHTED NEURAL NETWORK COST
WACC
  • Weights MUST be market-value, never book-value proportions
  • After-tax cost of debt: interest is tax-deductible, preferred is not
  • WACC = minimum acceptable return on average-risk projects
  • Don't use firm WACC for a project with different risk (WACC fallacy)
  • Circularity: equity value depends on WACC → solve iteratively
$$\WACC = \underbrace{\frac{D}{V}\,r_d(1-T)}_{\text{after-tax debt}} + \underbrace{\frac{P}{V}\,r_{ps}}_{\text{preferred}} + \underbrace{\frac{E}{V}\,r_e}_{\text{equity}}$$
WEEK 10
MODULE // 09
LEVERAGE OPTIMIZATION PROTOCOL
Capital Structure: M&M & Hamada
  • M&M I (no tax): VL = VU — slice pizza differently, same pizza
  • M&M I (with tax): VL = VU + TcD — IRS subsidizes interest
  • Trade-off: optimal D/E balances tax shield vs. distress costs
  • Pecking order: prefer retained earnings > debt > equity issuance
  • Hamada: unlever a comp firm's beta, re-lever at your target D/E
$$\beta_L = \beta_U\!\left[1 + (1-T)\frac{D}{E}\right] \quad V_L = V_U + T_c D$$
WEEK 11
MODULE // 10
EDDIES DISTRIBUTION NETWORK
Dividends, Repurchases & Working Capital
  • Residual dividend model: pay out only what's left after funding all positive-NPV projects
  • M&M dividend irrelevance: form of payout doesn't matter in perfect markets
  • Dividend cut: −1.5% avg. stock reaction. Increase: +0.7%. Signaling is real.
  • CCC = DSO + DSI − DPO; reduce it to free up cash
  • Skipping 3/10 trade credit discount = 74.3% p.a. effective rate
$$\text{CCC} = \text{DSO} + \text{DSI} - \text{DPO} \qquad r_{\text{trade}} = \frac{d}{1-d}\cdot\frac{365}{\Delta t}$$
WEEK 12
MODULE // 11
GLOBAL NET CORRIDORS
International Finance
  • CIRP: forward rate is determined by the interest rate differential
  • PPP: expected spot change = inflation differential
  • High foreign interest rates compensate for expected depreciation — no free lunch
  • International NPV: convert FCFs at forward rates, discount at domestic WACC
  • Hedge transaction risk with forward contracts or money-market hedge
$$F = S\cdot\frac{1+r_d}{1+r_f} \qquad \mathbb{E}[S_t] = S_0\cdot\left(\frac{1+\pi_d}{1+\pi_f}\right)^{\!t}$$
WEEK 13
MODULE // 12
DERIVATIVES STREET
Financial Options
  • Call payoff = max(ST − K, 0); put payoff = max(K − ST, 0)
  • Payoff ≠ profit — subtract the premium to get P&L
  • Volatility ↑ → option value ↑ (asymmetric payoff benefits the holder)
  • Binomial: construct risk-neutral probability p, price by discounted expectation
  • Real options: expand (call), abandon (put), delay (call on a call)
$$C - P = S_0 - Ke^{-rT} \qquad p = \frac{e^{r\Delta t} - d}{u - d}$$
JUL 25 ⚠
MODULE // 13
VALUATION STRIKE MISSION
Group Project: DCF Firm Valuation
  • Pick a publicly traded company; pull 10-K from SEC EDGAR
  • Build FCF from scratch: NOPAT → NOWC → TNOC → FCF
  • Calculate WACC from market data (β, rf, ERP, YTM)
  • 3-scenario DCF: optimistic / base / pessimistic growth rates
  • Compare intrinsic price per share to current market price
$$P^* = \frac{\EV - D + \text{Cash}}{\text{Shares}} \qquad \EV = \sum_{t=1}^{n}\frac{\FCF_t}{(1+\WACC)^t} + \frac{\FCF_{n+1}/(\WACC - g)}{(1+\WACC)^n}$$

// FORMULA DATABASE — FULL LaTeX //

FORMULA REFERENCE

Every exam formula typeset in proper mathematics. Know the intuition behind each, not just the symbol.

TIME VALUE OF MONEY
Future Value
$$\text{FV} = \text{PV}\cdot(1+r)^t$$
Present Value
$$\text{PV} = \frac{\text{FV}}{(1+r)^t}$$
Ordinary Annuity PV
$$\text{PV} = \text{PMT}\cdot\frac{1-(1+r)^{-n}}{r}$$
Payments at END of each period. Annuity-due: multiply by (1+r)
Perpetuity & Growing Perpetuity
$$\text{PV} = \frac{C}{r} \qquad \text{PV} = \frac{C}{r-g}\;(g < r)$$
Effective Annual Rate
$$\EAR = \left(1+\frac{\APR}{m}\right)^{\!m} - 1$$
m = compounding periods per year. EAR > APR whenever m > 1.
Real vs. Nominal (Fisher)
$$(1+r_{\text{real}}) = \frac{1+r_{\text{nom}}}{1+\pi}$$
RISK & RETURN / CAPM
CAPM — Security Market Line
$$r_i = r_f + \beta_i\!\left(r_M - r_f\right)$$
Beta (regression slope)
$$\beta_i = \frac{\text{Cov}(R_i,\,R_M)}{\text{Var}(R_M)} = \rho_{i,M}\cdot\frac{\sigma_i}{\sigma_M}$$
Excel: =SLOPE(stock_returns, market_returns) — use 60 monthly obs.
Portfolio Expected Return
$$\mathbb{E}[R_p] = \sum_{i} w_i\,\mathbb{E}[R_i]$$
Sharpe Ratio
$$\text{SR} = \frac{\mathbb{E}[R_p] - r_f}{\sigma_p}$$
BOND & STOCK VALUATION
Bond Price (semi-annual coupons)
$$P = \sum_{t=1}^{2n}\frac{C/2}{\left(1+\frac{r}{2}\right)^{\!t}} + \frac{\text{Par}}{\left(1+\frac{r}{2}\right)^{\!2n}}$$
r = YTM; n = years; C = annual coupon; solve for r to get YTM.
Gordon Growth Model
$$P_0 = \frac{D_1}{r_e - g} = \frac{D_0(1+g)}{r_e - g}$$
PVGO decomposition
$$P_0 = \underbrace{\frac{\text{EPS}_1}{r_e}}_{\text{no-growth value}} + \underbrace{\text{PVGO}}_{\text{growth opportunities}}$$
Cost of equity from DDM
$$r_e = \frac{D_1}{P_0} + g$$
CAPITAL BUDGETING
Net Present Value
$$\NPV = \sum_{t=0}^{n}\frac{\FCF_t}{(1+r)^t}$$
IRR definition
$$0 = \sum_{t=0}^{n}\frac{\FCF_t}{(1+\text{IRR})^t}$$
Fails when CFs change sign >1×; always prefer NPV for ranking.
Profitability Index
$$\text{PI} = \frac{\text{PV of future FCFs}}{|C_0|}$$
Use for capital rationing. Accept all PI > 1; rank by PI descending.
Equivalent Annual Annuity (unequal lives)
$$\text{EAA} = \frac{\NPV \cdot r}{1-(1+r)^{-n}}$$
WACC & FIRM VALUATION
WACC (three components)
$$\WACC = \frac{D}{V}r_d(1-T) + \frac{P}{V}r_{ps} + \frac{E}{V}r_e$$
V = D + P + E at market values. Never use book values.
Terminal Value (Gordon)
$$\text{TV}_n = \frac{\FCF_{n+1}}{\WACC - g_\infty}$$
Enterprise Value
$$\EV = \sum_{t=1}^{n}\frac{\FCF_t}{(1+\WACC)^t} + \frac{\text{TV}_n}{(1+\WACC)^n}$$
Equity Value per Share
$$P^* = \frac{\EV - D_{\text{total}} + \text{Cash}}{\text{Shares outstanding}}$$
CAPITAL STRUCTURE — M&M
M&M Proposition I
$$V_L = V_U \quad\text{(no taxes)} \qquad V_L = V_U + T_c D \quad\text{(with taxes)}$$
M&M Proposition II — levered cost of equity
$$r_e = r_0 + (r_0 - r_d)\frac{D}{E}(1-T_c)$$
r₀ = unlevered cost of equity (all-equity firm)
Hamada equation
$$\beta_L = \beta_U\!\left[1 + (1-T)\frac{D}{E}\right]$$
Unlever a beta (remove financial risk)
$$\beta_U = \frac{\beta_L}{1 + (1-T)\dfrac{D}{E}}$$
WORKING CAPITAL & LEVERAGE
Cash Conversion Cycle
$$\text{CCC} = \underbrace{\frac{\text{AR}}{\text{Sales}/365}}_{\text{DSO}} + \underbrace{\frac{\text{Inv}}{\text{COGS}/365}}_{\text{DSI}} - \underbrace{\frac{\text{AP}}{\text{COGS}/365}}_{\text{DPO}}$$
Cost of trade credit (annual)
$$r_{\text{trade}} = \frac{d}{1-d}\cdot\frac{365}{\Delta t}$$
e.g. 3/10 net 30: d=0.03, Δt=20 → r≈74.3% per year
Degree of Operating Leverage
$$\text{DOL} = \frac{S - \text{VC}}{\text{EBIT}}$$
Degree of Financial Leverage
$$\text{DFL} = \frac{\text{EBIT}}{\text{EBIT} - \text{Interest}}$$
INTERNATIONAL FINANCE
Covered Interest Rate Parity
$$F = S \cdot \frac{1+r_d}{1+r_f}$$
F = forward rate; S = spot. Arbitrage enforces this exactly.
Purchasing Power Parity
$$\mathbb{E}[S_t] = S_0\cdot\left(\frac{1+\pi_d}{1+\pi_f}\right)^{\!t}$$
International NPV (forward-rate method)
$$\NPV = \sum_{t=1}^{n}\frac{\FCF_t^{\text{FC}}\cdot F_t}{(1+r_d)^t} - C_0^{\text{DC}}$$
Convert foreign-currency FCFs at CIRP forward rates; discount at domestic WACC.
OPTIONS
Call & Put payoffs at expiry
$$C_T = \max(S_T - K,\;0) \qquad P_T = \max(K - S_T,\;0)$$
Put-Call Parity (European, no dividends)
$$C - P = S_0 - Ke^{-rT}$$
Binomial risk-neutral probability
$$p = \frac{e^{r\Delta t} - d}{u - d}$$
Binomial option price
$$C = e^{-r\Delta t}\!\left[\,p\,C_u + (1-p)\,C_d\,\right]$$
Black-Scholes (reference)
$$C = S_0 N(d_1) - Ke^{-rT}N(d_2)$$ $$d_1 = \frac{\ln(S_0/K) + (r+\sigma^2/2)T}{\sigma\sqrt{T}}, \quad d_2 = d_1 - \sigma\sqrt{T}$$
N(d₁) = option delta; N(d₂) = risk-neutral P(ITM at expiry).

// COMPUTATION SUITE //

CALCULATORS

Results display in rendered LaTeX. Show this work to Prof. Harjoto — then explain the intuition in your own words.

// RESULT //
—
Enter values and compute
// WACC OUTPUT //
—
Enter capital structure data
// DCF OUTPUT — BASE CASE //
—
3-scenario intrinsic value per share
// BOND OUTPUT //
—
Enter bond parameters and compute
STEP 1 — enter the comparable company's observed (levered) beta and capital structure.
STEP 2 — enter your target company's D/E.
— OPTIONAL: CAPM INPUTS —
// HAMADA OUTPUT //
—
Unlevered (asset) beta appears here
TYPE
POSITION
// POINT CALCULATION AT ST //
PAYOFF
—
PROFIT
—
BREAK-EVEN PRICE
—
// PAYOFF & PROFIT DIAGRAM //
--- PAYOFF (ignores premium) ── PROFIT (net of premium) ● BREAK-EVEN
// TRADE-OFF THEORY OUTPUT //
LEVERED VALUE VL
—
OPTIMAL DEBT D*
—
TAX SHIELD Tc·D
—
DISTRESS COST λD²/VU
—
// FIRM VALUE vs. DEBT LEVEL //
── VL (trade-off) --- VU + Tc·D (M&M+tax) ── Distress cost | D*
// DUPONT DECOMPOSITION //
—
Enter financial statement data
01COMPUTE NOPAT
NOPAT = EBIT × (1 − T) = —
02NOWC — CURRENT YEAR
NOWCt = (CA − Cash) − (CL − ST Debt) = —
03CHANGE IN NET PPE
ΔPPE = PPEt − PPEt-1 = —
04NOWC — PRIOR YEAR
NOWCt-1 = (CA − Cash) − (CL − ST Debt) = —  ·  ΔNOWC = —
05COMPUTE FREE CASH FLOW
ΔTNOC = ΔPPE + ΔNOWC  ·  FCF = NOPAT − ΔTNOC
// FCF RESULT //
—
Complete all steps and compute

// STRIKE MISSION — DUE JUL 25 //

GROUP PROJECT

Full DCF valuation of a public company. Saturday July 25, West LA Campus, 9am–4pm — required attendance.

FCF EXTRACTION (from 10-K)

  1. Net Operating Profit After Tax
    $$\NOPAT = \text{EBIT}\times(1-T)$$
  2. Net Operating Working Capital
    $$\NOWC = (\text{Cash}+\text{AR}+\text{Inv}) - (\text{AP}+\text{Accruals})$$
  3. Total Net Operating Capital
    $$\TNOC = \text{Net PPE} + \NOWC$$
  4. Investment in operating capital
    $$\Delta\TNOC_t = \TNOC_t - \TNOC_{t-1}$$
  5. Free Cash Flow
    $$\FCF_t = \NOPAT_t - \Delta\TNOC_t$$

DCF VALUATION SEQUENCE

  1. Forecast FCF for n years, three scenarios
    $$\FCF_t = \FCF_0\cdot(1+g)^t$$
  2. Terminal value at year n
    $$\text{TV}_n = \frac{\FCF_{n+1}}{\WACC - g_\infty}$$
  3. Enterprise value
    $$\EV = \sum_{t=1}^n\frac{\FCF_t}{(1+\WACC)^t} + \frac{\text{TV}_n}{(1+\WACC)^n}$$
  4. Equity value
    $$\text{Equity} = \EV - D_{\text{total}} + \text{Cash}$$
  5. Intrinsic price per share
    $$P^* = \frac{\text{Equity}}{\text{Shares outstanding}}$$

WACC BUILD FROM MARKET DATA

  1. Estimate beta (60 months vs. S&P 500)
    $$\hat\beta = \frac{\text{Cov}(R_i,R_M)}{\text{Var}(R_M)}\quad\text{[=SLOPE() in Excel]}$$
  2. Cost of equity via CAPM
    $$r_e = r_f + \hat\beta\,(r_M - r_f)$$
  3. After-tax cost of debt
    $$r_d(1-T) = \text{YTM on bonds}\times(1-T)$$
  4. Market-value weights
    $$w_e = \frac{E}{D+E},\quad w_d = \frac{D}{D+E}$$
  5. Final WACC
    $$\WACC = w_d\,r_d(1-T) + w_e\,r_e$$

TIMELINE

JUL 01
Pick company; download 10-K from SEC EDGAR
JUL 07
Build FCF worksheet; pull 60-month returns for beta
JUL 14
Complete WACC; run 3-scenario DCF in Excel
JUL 21
Draft full report; TNR 12pt, 1.5 line spacing, tables in Appendix only
JUL 25
SATURDAY SESSION — West LA Campus · 9am–4pm · REQUIRED

// INTELLIGENCE NETWORK //

FREE RESOURCES

Best external materials — all free, all directly mapped to FINC 603 topics.

FREE // BEST IN CLASS
Damodaran — NYU Stern
World authority on valuation. Full course: 26 sessions, webcasts, slides, industry beta/ERP data tables. Maps to every FINC 603 week.
OPEN ›
FREE // MIT
MIT OCW 15.401 — Andrew Lo
Finance Theory I with video lectures. TVM, CAPM, capital budgeting, options from first principles. Rigorous complement to the textbook.
OPEN ›
FREE // WHARTON
Wharton Corp Finance — Coursera
Free to audit. TVM, risk/return, capital structure. MBA-level delivery. Good supplement if Harjoto's videos don't click on a topic.
OPEN ›
DATA
SEC EDGAR — 10-K Filings
All annual reports for U.S. public companies. Required source for the group project FCF calculation and company overview section.
OPEN ›
DATA
Damodaran Data — Beta & ERP
Current implied ERP backed out from S&P 500. Industry beta tables. Historical market returns. Essential for WACC calculation.
OPEN ›
FREE // YALE
Shiller — Financial Markets (Yale)
Nobel laureate Shiller's 23-lecture course. Broader than FINC 603 but excellent context for risk, derivatives, and market structure.
OPEN ›