Course Syllabus FINA : Financial Management Spring Professor:

Transcription

1 Professor: Dr. John Kensinger CBA 168G (office) (home) (fax) Office hours: Monday & Tuesday 4:00 PM-5:30 PM in office, Tuesday 9:20 PM-10:00 PM in classroom Classroom: 135 RTFP 6:30-9:20PM Tuesdays Finance Tutor Lab: 312 Curry Open Monday through Saturday Texts and Readings: 1. Keohn, Scott, Martin, Petty, And Financial Management :Principles & Applications, 10th Ed., Prentice-Hall (2005) ISBN Prentice-Hall provides a variety of worthwhile resources via its website ( including briefing notes on important financial concepts, news alerts about current events that are related to the course, plus a downloadable finance tutor that can give you additional practice with financial calculations. After accessing the Prentice-Hall homepage, navigate to the Business section, then the Finance section. Have fun! 3. Handouts for lecture notes, problem sets, and readings packets will be given throughout the course. Copies also can be downloaded on the Internet at These handouts are stored as portable document files that are fully cross-platform compatible (any computer can read them, including UNIX workstations or personal computers running under Windows or Macintosh operating systems). Most computers that have a web browser are ready to use these files. If you have trouble opening them, the difficulty would be that the computer does not have Adobe Acrobat Reader software. This software is available at and can be downloaded free of charge. 4. Additionally, I have authored finance tutor software that is distributed worldwide by Apple Computer s Intellimation Library for the Macintosh. It provides immediate feedback, including diagnosis of why mistakes are made. As developer, I can provide copies of the program to you upon request. This program runs only on Macintosh computers, which are available for student use at several locations on campus. If you would like a copy, it is available for download at then click on the folder Finance_Tutor and download the two files from the folder Or, please bring a blank diskette with your name on the label and I ll return it with the software (diskette may be either Macintosh or IBM format, because the Mac can read or write on either).

2 Prerequisites: Prerequisites include completion of pre-business requirements, including ACCT 2020 and 2030 or equivalent, or consent of department. Brief Description of the Course: The course consists of a series of fifteen lecture topics and eight problem sets. The requirements include a midterm examination and a cumulative final examination, plus four shorter examinations. Disability Accommodation: The College of Business Administration complies with the Americans with Disabilities Act in making reasonable accommodation for qualified students with disability. If you have an established disability as defined in the Americans with Disabilities Act and would like to request accommodation, please see me by the third class meeting. My phone numbers and address are shown at the top of this syllabus. Calculators: You will need a financial calculator. This is the minimum standard among financial professionals, and a suitable one can be bought for less than the price of a textbook. For overall value per dollar in the current generation of calculators I suggest the Hewlett-Packard HP-17B (price from HP is $100). At the lower end of the HP line, the HP-10B offers all necessary capabilities for this course at an affordable price (price from HP is $30). If you can find one, the HP-19B offers the most advanced capabilities available in the calculator market. In addition, the classic HP-12C is back in production, although it is not as advanced as the 10 or 17 (or as good a value). When ordering HP calculators, be sure you are getting the business version and not the science/engineering version. You may also want to consider the Texas Instruments (TI) BA-II Plus, since in-class demonstrations will use a projection version of this calculator. If you choose this route, you won t save much money, and you will give up in time much more than you save in dollars. A word of caution is in order: if you buy a used calculator be sure to get a complete instruction manual, otherwise you ll have a paperweight with great potential. You may be able to download a manual from the manufacturers website, but be sure to verify this before buying. If you are considering some other calculator you will need to be sure it can do all the financial calculations involving present and future value of single sums, annuities, uneven cash flows, interest rate calculations for single sums or annuities, and internal rate of return for uneven cash flows. (The TI-BA 35 Solar calculator does not have all the features needed for the course.) Calculators are required for examinations. Purpose of the Course: The course is concerned with the concepts and techniques employed in competing for capital in the global marketplace, and managing the firm in a manner that preserves its competitiveness as a repository for capital. Since this is a core course designed for all business students, it develops financial concepts that form the essential background for any manager making decisions for a firm that draws capital from public markets either directly through securities or indirectly through 2

3 financial intermediaries. The role of the financial markets in accomplishing an optimal allocation of economic resources is a central issue. Finally, students should finish the course with a muchimproved understanding of the management/investor relationship reflected in financial transactions such as leveraged buyouts, spin-offs, proxy contests, or private placements. Grading: Homework problem sets will not be graded. The scores on the examinations will be averaged and then converted to a letter grade as follows: Grading Chart A: 90%-100% D: 60%-70% B: 80%-90% F: below 60% C: 70%-80% The standard formula for calculating the course average will use weights of 15% for each of the four preliminary exams, 20% for the midterm, and 20% for the final. An optional grading formula may be selected in writing at the time of the midterm. The option at the time of the midterm would allow reduction of the weight for any of the preceding preliminary exams to 5%, with corresponding increased weight on the midterm (so that the combined weight for the midterm and the two preceding preliminary exams is 50%). The midterm option is available upon request, with no other conditions, except that choice of the optional grading formula cannot be changed after the fact. A similar option will be available at the time of the final examination. This choice allows weight reduction of either (or both) the 3rd or 4th preliminary exams to 10%, with corresponding increased weight on the final (so that the combined weight for the final and the two preceding preliminary exams is 50%). Another option is available after the midterm, and must be requested in writing within the week after the midterm is returned. This option would use weights of 20% for the exams in the first half of the course and 80% for the exams in the second half of the course. The written request for this grading option must include a plan for improved study that describes how the applicant will increase study time and take full advantage of the finance tutor lab. This request must be approved by the instructor, and the student must keep a log of tutor lab and office visits that will be turned in at the last class meeting. The option will be disallowed if the approved plan is not completed. The purpose of the preliminary examinations is to provide you with abundant feedback so you can avoid falling behind. The grading options are available to reduce the impact of inadvertent low scores, while preserving the benefit of timely feedback. Makeup or re-scheduled exams will be allowed only with valid medical justification, because of some other documented personal emergency, or by prior arrangement to accommodate some other unavoidable conflict. Routine makeup exams must be completed prior to the next class meeting (to schedule the makeup, contact the FIREL department office, ). In case of prolonged incapacitation that is documented, other arrangements will be tailored to fit the particular situation. A student who does not make up a missed examination or does not contact the instructor may be dropped for non-attendance. 3

4 Cell Phones: Cell phones must be turned off and put away during examinations. Absolutely no text messaging or wireless is allowed during examinations. Those leaving the examination room for any reason may not use cell phones and other wireless devices or discuss the exam with anyone while the examination is still under way. Study management: Read all the appendices associated with assigned chapters. Familiarize yourself with assigned readings prior to the lectures. A good strategy would be to skim for a general grasp of the issues before the lecture, and then do your focused study afterwards. It is essential not to get behind, since the new topics build on past material. Problem sets are designed to provide exercise in preparation for the examinations (problem sets themselves will not be graded). Problem sets are keyed directly to the examples given in class (you will have copies of these examples on the written handouts) and provide additional practice. Give the problem sets your best shot before we discuss them in class, even though they will not be collected or graded. Treat them as practice exams. By all means, don t look at the solutions until you have given the problems your best shot. When you want more practice to build your confidence, Prentice-Hall (the publishers of your text) offer very nice finance tutor software (on the CD-ROM included with the text (also available for separate order from titled FinCoach ) that you can use at your convenience. Additionally, I have authored finance tutor software that is distributed worldwide by Apple Computer s Intellimation Library for the Macintosh. As developer, I can provide copies of the program to you upon request (see Texts & Reading on the 1 st page of the syllabus for details). Learning Objectives for FINA 3770 (Source: Accreditation Guidelines for Colleges of Business) 1. Introduction to Financial Management Objectives: Understand the following topics What is the appropriate goal of the firm? What is financial management? What are the various forms of businesses, and the corporate tax structure? Also cover the major foundations of Finance such as Time Value of Money Efficient Capital Markets Agency Problems Diversification Cash Flow and Taxes and their implications for financial managers 2. Financial Markets and Interests Rates Objectives: Understand the following topics Types of financing used by firm Why financial markets exist Key components of financial market system Role of investment bankers Inflation and interest rates and their relationship; theories of interest rates 4

5 3. Mathematics of Finance Present and future value of lump sums, perpetuities, annuities, annuities due Loan amortization Annualized percentage rate (APR) Effective interest rate 4. Risk and Rates of Return : Risk of an individual asset and that of a portfolio How is risk-return tradeoff affected by diversification principles? Market risk, diversifiable risk Relation between risk and return; beta and its implications for investors 5. Bond Valuation Different kinds of bonds in the market How to read and understand market quotations from Wall Street Journal Basic process used to value bonds, find their yield to maturity, yield to call Important relationships that exist in bond valuation and implications for investors 6. Stock Valuation : Basic characteristics of stocks How to evaluate preferred and common stock How to calculate expected and required rate of return for stocks Assumptions behind models and their limitations How to read and interpret stock market quotations. 7. Cash Flow Estimations and Capital Budgeting Techniques Why it is so hard for firms to find profitable investment opportunities Role of taxes and depreciation in determining initial outlay, operating cash flows and terminal cash flow needed in evaluating long term capital investments The process of evaluating capital budgeting projects = Net Present Value = Internal Rate of Return = Profitability Index = Pay Back Period Conflicts between NPV and IRR and how to resolve these conflicts How to tie the capital budgeting decision to the overall goal of shareholder wealth maximization 5

6 8. Cost of Capital What is the cost of capital and how does it play a role in various decisions made by financial managers? What factors determine the cost of capital? How to compute cost of debt, preferred and common stock capital and put them together to develop the overall cost of capital for the firm What assumptions are made in such computations? Role of tax laws in computing cost of capital 9. Analysis of Leverage and Its Impact What is the difference between business and financial risk? How to do break-even analysis = Determine break even point = Understand the assumptions and implications Differences between operating, financial and combined leverage = How to compute these = Implications for decision-making. 10. Planning the Firm's Financing Mix What is the meaning of capital structure? How does a firm identify its optimum capital structure? What are some of the key theoretical developments in the field of capital structure and how do they relate to the real world? Tools for capital structure management Implications of tax laws, agency costs and bankruptcy costs in determining capital structure for firms 6

7 Class Schedule: Jan 18: Lecture Topic 1: Overview of the paradigms of finance what we know don t know about the world s oldest continuously-played game Chapters 1&2 Lecture Topic 2: The Net Present Value Rule and Fisher s separation theorem The rationale for value maximization Jan 25: Lecture Topic 3: Capital market efficiency and its importance for managers Reading packet on capital market efficiency (handout) Lecture Topic 4: Present Value and Future Value of a Single Payment Feb 1: Lecture Topic 4 (continued) 1st problem set: Present Value and Future Value of a Single Payment Feb 8: Lecture Topic 5: The Time Value of Money: Series of Payments Chapter 5 Calculator manual 2nd problem set: Feb 15: Lecture Topic 6: Present Value and Future Value of a Series of Payments Discounted cash flow approaches to security valuation Chapter 7 & 8 3rd problem set: Security valuation using the discounted cash flow approach 1st Preliminary exam, last half of class, Feb 15 th (covers Lecture Topics 1-5 and problem sets 1-2) Feb 22: Lecture Topic 7: 4th problem set: The standard capital investment tool kit Chapters 9, 10, 11 Basic capital budgeting tools Mar 1: Lecture Topic 8: Lease or buy Chapter 24 5th problem set: Net advantage of leasing 2nd Preliminary exam, full class period, Mar 1 st (cumulative, covers Lecture Topics 1-7 and problem sets 1-4) Mar 8: Lecture Topic 9: Cost of Capital: Modern portfolio theory, the value additivity principle, and Tobin s separation theorem Chapter 6 7

8 Mar 15: Spring Break Mar 22: Lecture Topic 10: 6th problem set: Cost of Capital: The value of securities within portfolios Chapter 6 Risk, reward, and project analysis Mar 29: MIDTERM EXAM (full class period, covers Lecture Topics 1-10 and problem sets 1-6) Apr 5: Lecture Topic 11: Issuing securities and analyzing the cost of capital Chapter 12 7th problem set: Apr 12:Lecture Topic 12: 8th problem set: Financing short-term and long-term Financial structure, financial strategy, and the 3rd separation theorem Chapters 14, 3, 4 Discussion of the MRC(A) case (handout) Arbitrage 3rd Preliminary exam, last hour of class, Apr 12 th (cumulative, covers Lecture Topics 1-11 and problem sets 1-7) Apr 19: Lecture Topic 13: Strategic considerations in capital budgeting managing the expansion process Chapters 13 & 21 Case Study: The Starship Project (hand-out) Apr 26 Lecture Topic 14: Is corporate restructuring good or bad? (Restructuring includes mergers, acquisitions, takeovers, proxy fights, leveraged buyouts, sell-offs, and spin-offs) Chapter 23 Excerpt from Peter F. Drucker, Management: Tasks, Responsibilities, Practices, Building Unity Out of Diversity (handout) Readings package on corporate restructuring and investor activism 4th Preliminary exam, last hour of class, Apr 26 th (cumulative, covers Lecture Topics 1-13 and problem sets 1-8) May 3: Lecture Topic 15: More unresolved questions: the new issue phenomenon, the value of liquidity, and dividend policy Chapters 15, 17 Fresh Evidence That Dividends Don t Matter (hand-out) May 12: CUMULATIVE FINAL EXAMINATION (Thursday, 4:00-6:00 PM) All sections of FINA 3770 take final examinations at the same time. Each instructor prepares the examination for specific sections, so be sure to find the right room for this section (locations to be announced). 8