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1 UNIVERSITY OF CONNECTICUT SCHOOL OF BUSINESS ADMINISTRATION FINANCE DEPARTMENT SPRING 2001 HARTFORD PROFESSOR GOLEC FNCE 301 FINANCIAL MANAGEMENT OFFICE: SBA 419B FAX: HOURS: Tues. 5-6 PM PHONE: COURSE DESCRIPTION This course explains how managers maximize firm value by raising money (financing) as inexpensively as possible and optimally investing it in corporate assets. To do so, managers need to consider the economic and legal environments, risk, return, and the basic idea that a dollar paid today is worth more than one paid in the future. CAREER FOCUS This course provides the basics for you to become a junior member of a finance unit in a corporation. The finance unit provides the analysis of potential projects a company might undertake and is responsible for selling securities to investors to obtain cash to fund the acceptable projects. The basic concepts can also be usefully applied in most other units of the corporation that require analytical skill especially accounting, operations and marketing. file:///c /WINDOWS/DESKTOP/SYLLFMAN.htm (1 of 12) [12/19/2000 4:37:04 PM]

2 COURSE OBJECTIVES Financial management combines accounting, economics, and statistics concepts into a comprehensive whole. At the close of the course you should understand the techniques required to analyze and select corporate investments and the best methods to finance them. You will learn the basic tools and concepts that underlie all of finance and how to apply them in the corporate environment. In particular, you will be able to: Analyze corporate financial statements and make comparisons between competitor companies. Find data necessary to perform many financial analyses using the Web. Calculate and compare various methods (such as NPV, IRR etc.) of selecting among simple corporate investments. Perform a thorough investment analysis for complex corporate investments, options, leases, mergers, acquisitions and divestitures. Evaluate and select among various financial instruments for financing corporate investments. Read brokerage reports to understand how the investment community evaluates a company s performance. CLASS MATERIALS ON MY WEBSITE: (1) My Power Point class notes along with homework problems and past exam problems and answers by lecture topic. (2) Homework problem answers are also on the website and can be unlocked with a password after homework is handed in. (3) Short articles from the Wall Street Journal and other periodicals along with class discussion problems. TEXT: FINANCIAL MANAGEMENT: Theory and Practice by Eugene Brigham, Louis Gapenski and Michael Ehrhardt (Dryden 1999) 9th edition. Financial Data on the Web see my website: CLASS JOURNAL: Print out the lecture notes or get a notebook and record your questions and observations that can be added to class discussions. BROKERAGE REPORTS WALL STREET JOURNAL: Read daily if possible. file:///c /WINDOWS/DESKTOP/SYLLFMAN.htm (2 of 12) [12/19/2000 4:37:04 PM]

3 Watch WALL STREET WEEK on Friday nights at 8:30 on PBS. Also CNBC analysis segments. GRADING 1. CLASS PARTICIPATION 20% 2. TEST 1 30% - 3 hrs 3. TEST 2 30% - 3 hrs 4. WEEKLY HOMEWORK 20% 1. CLASS PARTICIPATION - includes your responses to questions and problems from the notes, homework and short case problems covered in class. This includes your presentation of any work done together with your team. You will receive a grade each class from the following scale -1 (incomprehensible or disruptive), 0 (unprepared or no response), 1 (attempted to participate - raised hand), 2 (asked or answered one question), 3 (asked or answered one question correctly), 4 (asked or answered more than one question correctly or gave one particularly interesting response). 2. TESTS - Many exam problems will resemble the homework problems or the short case problems done in class. Others will look somewhat different but still require the same solution methods of the problems covered in class or at the end of the chapters. These problems test whether you have learned the concepts well enough to identify when to use them in a slightly different situation. This approach tests your knowledge of the finance models (i.e., solution rules) as well as your ability to discern when to use them. The exams are in-class and must be taken with the class at the specified times. ABSOLUTELY NO TALKING OR WHISPERING DURING EXAMS. The first exam date depends upon how fast we cover the material and the second exam is on the last day of class. For exams you are allowed up to two 8.5 x 11 page of notes and formulas along with a calculator and any relevant tables. Put only formulas and short notes to yourself on how you will approach particular problems. Do not copy old exam problems or write excessively long notes that require small writing. This is counter-productive because trying to make out what you have written will distract you from solving the exam problems. Examinations will consist of problems and short answer questions and are file:///c /WINDOWS/DESKTOP/SYLLFMAN.htm (3 of 12) [12/19/2000 4:37:04 PM]

4 non-cumulative. Good exam and assignment answers will be brief, clear, and pertinent. 3. WEEKLY HOMEWORK - graded on a scale from 0 (not handed in or most problems poorly done) to 5 (all problems answered correctly). They are due the class following the completed lecture on the topic(s) but not on an exam day. You are allowed one late assignment, otherwise, late work is not accepted. The purpose of the assignments is to give you practice in solving the types of problems that will appear on the exams. Hence, although you are encouraged to work on homework in groups, be sure that you complete all the problems on your own since relying too heavily on others will probably result in poor test performance. 4. WEEKLY DISCUSSION OF ARTICLES Each week you should read the articles posted for the topic covered in the previous week s lecture. There are a few questions to be covered for each article. You may split coverage of the articles between group members. STEPS TO PREPARE FOR EACH CLASS IN ORDER OF IMPORTANCE 1. Complete the homework problems assigned for the material covered in the previous week s lecture - meet with your team to work together. Team members should take turns as team leader. The team leader for the week must be prepared to present the homework answers to the class. You can look at the problems solved in the text and the past test problems and their answers to get an idea of how to solve related homework problems. 2. To prepare for the coming week s lecture, read my class notes and pay attention to each question or problem presented in the notes. The notes are not detailed; for detailed explanations, see the corresponding text assignment. 3. Read the assigned chapter(s) in the text if you need more explanation than the notes give and pay attention to the problems worked out in the text. 4. Read the short articles and be prepared to discuss them in class with your team. If you are the team leader for the week, you are responsible for presenting answers to the article questions if your group is called upon. file:///c /WINDOWS/DESKTOP/SYLLFMAN.htm (4 of 12) [12/19/2000 4:37:04 PM]

5 STRUCTURE OF A TYPICAL CLASS BEFORE CLASS - students see the material for the first time and can think about the material without being inhibited by other students or the professor. Students are encouraged to propose innovative solutions to questions and problems posed in the notes that may differ from traditional approaches. BEGINNING - students are asked to present their answers to homework problems for the previous week s topic. Each student hands in his or her written answers at the end of class. This is the third time students see the material which reinforces their pre-class reading and in-class lecture coverage. MIDDLE - students discuss the short articles and questions related to the previous week s topic. Each student has read the articles before class although the team leader is responsible for answers if no one volunteers an answer and the team is called upon. END - lecture focuses on the main concepts of a new topic and the related techniques that students commonly find confusing. Students are responsible for asking questions about issues that have not been resolved in the preparatory readings or in the lecture. They are prodded to show whether they clearly understand by answering questions about the notes and solving problems from the notes that they have had time to think about before class. A video on the day s topic may also be shown. The materials overlap somewhat by design, although for most the materials are complementary. The combination of lectures, homework problems, articles, class discussion and video is meant to accommodate an array of learning styles. Ultimately, you will have to decide which materials work best for you and perhaps focus more closely on some and less on others. This learning approach is reflected in the grading which is distributed over assignments, class participation and exams. Exams are more highly weighted because they measure your performance under more controlled circumstances (fixed time and individual effort) and thus may be a more accurate gauge of your learning. HINTS file:///c /WINDOWS/DESKTOP/SYLLFMAN.htm (5 of 12) [12/19/2000 4:37:04 PM]

6 1. The crucial rule to good performance in this class is to understand the material covered in class. My lectures, the homework problems and articles show you which concepts I feel are most important. My lecture notes are provided along with past exam problems. Try to think and ask questions during the lecture. If you miss writing something down during the lecture you can go back to my notes. The notes are in shorthand form so I will be embellishing them during class. My notes also should help you in the unfortunate and unlikely event that you miss a class. 2. Read the old exam problems and think of how to answer them before you look at the answers. Old exam problems should help you with your assignments and on the exams. For additional problems work, try the problems at the end of the relevant text chapters. 3. If you are struggling on the homework problems then seek help either by phone, or after class. Even if you are struggling, keep at it because learning the material requires continuous practice, especially for the less quantitative. By the end of the class you'll be much improved. "Trust me" WE MAY NOT FINISH THE WHOLE OUTLINE AND THE WEEKS COLUMN IS ONLY SUGGESTIVE SINCE WE WILL COVER THE MATERIAL AT A PACE CONSISTENT WITH THE CLASS' ABSORPTION RATE. READINGS BELOW ALWAYS INCLUDE THE APPROPRIATE SECTION OF CLASS NOTES. COURSE OUTLINE WEEK# TOPIC READING ASSIGNMENT (CHAPTERS) (In Homework File) 1 INTRODUCTION - 1, 4, 27 (basic financial concepts and international issues) file:///c /WINDOWS/DESKTOP/SYLLFMAN.htm (6 of 12) [12/19/2000 4:37:04 PM]

7 2 TIME VALUE ADJUSTMENT 7 #1 (pay me now or pay me more later) Video: Apple Grower 3 BOND & STOCK VALUATION 8, 9 #2 (discounting bond and stock cash flows) Videos: Stock Pricing, Bond Buccaneers 4 MEASURING RISK 5 #3 (return volatility) Video: Who Needs Experts - diversification 5 COST OF CAPITAL 10 #4 (cost to finance corporate investments) CAPITAL STRUCTURE 15, 16 (debt vs. equity - how much?) Video: Leverage s Impact on Management Completion bonds - Disney file:///c /WINDOWS/DESKTOP/SYLLFMAN.htm (7 of 12) [12/19/2000 4:37:04 PM]

8 6 - cover homework - review for test - introduction to capital budgeting 7 TEST covers up to and including Capital Structure 8 BASIC CAPITAL BUDGETING 11 #5 (methods to select good corporate investments) Video: DuPont s Methods 9 CALCULATING CASH FLOWS 12 #6 AND NET PRESENT VALUES Video: Sunco: Risk in Oilsands Project 10 MERGERS AND RESTRUCTURE 26 #7 - Video - Takeover artists debate politicians and CEOs 11 OPTIONS AND LEASING 13, 24, 19 #8 (corporate investments as options, buy or lease?) file:///c /WINDOWS/DESKTOP/SYLLFMAN.htm (8 of 12) [12/19/2000 4:37:04 PM]

9 12 FINANCIAL ANALYSIS - 2, 3 #9 (ratio analysis) Video: Toronto Maple Leafs FINANCIAL PLANNING 14, 21(pp ) (only cash matters) Video: Kurzwiel 13 COMMON STOCK FINANCING 18 #10 DEBT FINANCING Videos: Junk Bonds Importance of Bond Market 14 TEST noncumulative covers everything after the first exam Some Simple Rules for Solving Finance Problems 1. Slow down to avoid confusion - take a deep breath - don't waste time but don't rush. 2. Identify the problem - write the problem type down - example - Present value of an annuity. file:///c /WINDOWS/DESKTOP/SYLLFMAN.htm (9 of 12) [12/19/2000 4:37:04 PM]

10 - if you can't identify it immediately - write out all the data given in the problem including the units of measure - example - discount rate = 15 percent = If you think you have the problem type but appear to be missing some information, check if the information you do have can be used to calculate the missing piece. 4. Don't try to solve the whole problem at once - break it down into parts - write notes on the steps as you go - don't try to save paper. - take a guess at the solution to the whole or part of the problem so you have some intuition about what the answer might be - compare with actual solution. 5. Be prepared to stop when you hit a mental block and take a break or go on to try another problem or try another solution method (even if you put a lot of time into the first one you tried). - don't waste time and energy on frustration - missing a problem is not file:///c /WINDOWS/DESKTOP/SYLLFMAN.htm (10 of 12) [12/19/2000 4:37:04 PM]

11 the end of the world - remember, Einstein once flunked math. 6. After you have an answer, ask yourself if it seems reasonable - if it doesn't, check for errors - if you can't find any errors, leave well enough alone. INFORMATION AVAILABLE AT UCONN AND LOCAL LIBRARIES Abstracts of Recent Business Articles - search for articles that mention specific companies or industries on ABI Inform and Info-Trac Expanded Academic Index PERIODICALS: Barrons,Wall Street Journal, Business Week, Forbes, Fortune, N.Y. Times REFERENCE SOURCES The Outlook (S & P) Robert Morris Associates (RMA) Annual Statement Studies U.S. Industry and Trade Outlook Standard & Poor's Stock Guide S&P's Stock Market Encyclopedia Trendlines Current Market Perspective Moody's Bond Record Moody's Bond Survey Moody's Handbook - major stocks Moody's Handbook - OTC stocks Moody's Industry Review file:///c /WINDOWS/DESKTOP/SYLLFMAN.htm (11 of 12) [12/19/2000 4:37:04 PM]

12 Disclosure Worldscope - Company information by industry Hoover's Handbooks - 3 types (World, American and Emerging Companies) PARTICULARLY USEFUL REFERENCE SOURCES Value Line Ratings & Reports Moody's Manuals: Bank & Finance Standard & Poor's Industrial Survey Standard & Poor's Industry Handbook SEE MY WEBSITE - Substitutes for most of the sources can now be found on the web. CHECK YOUR LOCAL LIBRARY FOR INVESTEXT INFOTRAC GENERAL BUSINESS FILE SEARCHBANK DATA BASES These are excellent sources of company and industry information, in particular, analysts reports. FOR THE COUCH POTATO A. Watch WALL STREET WEEK on Friday nights at 8:30 on PBS B. Watch CNBC file:///c /WINDOWS/DESKTOP/SYLLFMAN.htm (12 of 12) [12/19/2000 4:37:04 PM]