INDEPENDENT UNIVERSITY, BANGLADESH

School of Business
BBA Program Course Outline

Semester Course Code Course Title Section

Spring 2017 Fin 302 Business Finance II 02

INSTRUCTORS DETAILS:

Instructor: G. M. Wali Ullah Class Time: ST 13:40-15:10

Office: 4004 Class Room: 2014
Email: wali@iub.edu.bd
Office Hours: ST: 11:15 - 13:30, 15:30 - 16:30
MW: 13:00 - 15:00
Thursday: 10:00 14:00
My SB Address: http://103.254.86.4/sb/course/view.php?id=55

COURSE DESCRIPTION:
The course content includes: Risk and return: estimation of risk and return using statistical tools;
Markowitz's efficiency portfolio model and Sharpe's tangency portfolio (CAPM). Leverage and capital
structure decisions: effect of debt-equity ratio on stockholders' return; operating and financial leverage and
their relation to changes in fixed cost funds; Modigliani-Miller (MM) irrelevance theory----assumptions,
validity and proof; MM with taxes; effects of financial distress, agency cost and asymmetric information on
MM theory; finding the optimal capital structure. Dividend policy: Target payout policy; investors'
preference between dividend and capital gains, MM dividend irrelevance theory, Bird in the hand theory,
tax preference theory; other issues in target payout decision---signaling hypothesis, clientele effects,
changing dividend preference and agency cost. Dividend stability. Maintaining stock price stability----
repurchases stock splits and stock dividend. Bankruptcy, reorganization and liquidation: financial distress
and its consequences; settlement of short-term formal bankruptcy; reorganization in bankruptcy;
prediction and analysis of potential bankruptcy. Business combination and analysis of mergers: forms of
business combination, rationale for mergers, ways of mergers, forms of mergers.

PREREQUISITE (IF ANY):

FIN301 (Business Finance I)

COURSE POLICY:
1. It is the students responsibility to gather information about the assignments and covered topics
during the lectures missed. Regular class attendance is mandatory. Points will be taken off for missing
classes. Without 70% of attendance, sitting for final exam is NOT allowed. According to IUB system
students must enter the classroom within the first 20 minutes to get the attendance submitted.
2. The date and syllabus of quiz, midterm and final exam is already given here, however, announcements
will be given ahead of time. There is NO provision for make-up quizzes.

Page 1 of 8
 3. The reading materials for each class will be given prior to that class so that student may have a
cursory look into the materials.
4. Class participation is vital for better understanding of sociological issues. Students are invited to raise
questions.
5. Students should take tutorials with the instructor during the office hours. Prior appointment is
required.
6. Students must maintain the IUB code of conduct and ethical guidelines offered by the School of
Business.
7. Students must refrain from any type of cheating and/or plagiarism in a course. Any student acting
otherwise will receive an F grade in the course. School of Business, IUB, maintains a zero tolerance
policy regarding violation of academic integrity.
8. Students are not allowed to keep bags, handouts, books, mobile phones, smart watches or any other
smart electronic devices with them during any exam. Students are advised to keep everything in the
front of the class room before the exam starts. Please note that, just carrying any smart electronic
devises (even if the devise is turned off or put it in silent mode) during the exam will be considered
as cheating. Moreover, during the exam, anything written on hand palms (or anywhere else) and
carrying paper materials (whatever is written) will be considered as cheating. Any sorts of
cheating will result in an F grade with no exception. During the exam, students are only allowed
to carry pen, pencil, eraser, sharpener, ruler, highlighter and calculator in a clear plastic bag.

ASSESSMENT AND MARKS DISTRIBUTION:

Type of Evaluation Nos. Weight

Class Attendance and Participation 5
Quiz (Best 3 quizzes will be counted) 4 15
Project and Presentation 02 30
Midterm Exam 01 20
Final Exam 01 30
Total 100%

[Class attendance is mandatory; failure to do so may deduct the final marks]

GRADE CONVERSION SCHEME:

The following chart will be followed for grading. This has customized form the guideline provided by the
School of Business.

A A- B+ B B- C+ C C- D+ D F
90-100 85-89 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 0-44

* Numbers are inclusive

Page 2 of 8
REQUIRED TEXT:
The course will be based mostly on the following books [some other books and journals may be referred time
to time]:

Ross, S A , Westerfield, R W & Jaffrey, J F; 2013, Corporate Finance; 10th Edition; McGraw Hill

Link to virtual learning system: http://103.254.86.4/sb/ (School of Business Faculty name- Login
as a guest- password is 1234).

REFERENCE READINGS:

Gitman, Lawrence J; 2011, Principles of Managerial Finance; 13th Edition; Prentice Hall
Reilly, F K & Brown, K C; 2011, Investment Analysis and Portfolio Management; 10th Edition;
Cengage Learning

CLASS AND EXAM SCHEDULE, TOPIC AND READINGS:

Sessions Topic Learning Outcomes Readings

Session - Introduction Understand the term capital structure and Ross, Chapter 16
1 the important questions it tries to answer and Course Outline
Understand the pie theory
Page 494-496

Handout available
on virtual
learning system
Session - Capital Structure: Basic Describe how maximizing the value of the Ross, Chapter 16
2 Concepts firm leads to shareholder wealth
maximization Page 495-499
Understand the role of financial leverage in
affecting the value of the firm Handout available
Explain the concept of homemade leverage on virtual
learning system
Session - Capital Structure: Basic Understand the Modigliani and Miller Ross, Chapter 16
3 Concepts propositions on selecting the optimal
capital structure Page 499-505
Review the MM propositions assumptions
and identify their lackings Handout available
Relevant Problem Solving from Text on virtual
learning system
Session - Capital Structure: Basic Calculating firm value for different capital Ross, Chapter 16
4 Concepts structures
Page 505-520

Page 3 of 8
 Discuss the growth in online investing and Handout available
the pros and cons of using the Internet as an on virtual
investment tool. learning system
Relevant Problem Solving from Text
Session - Capital Structure: Limits Understand the costs of financial distress Ross, Chapter 17
5 to the Use of Debt Differentiate between bankruptcy cost and
bankruptcy risk Page 525-530
Identify the different direct and indirect
costs of financial distress Handout available
Relevant Problem Solving from Text on virtual
learning system

Session - Capital Structure: Limits Discuss the agency costs associated with Ross, Chapter 17
6 to the Use of Debt bankruptcy risk
Understand the role of protective Page 530-535
covenants in reducing costs of debt
Relevant Problem Solving from Text Handout available
on virtual
learning system
Session- Capital Structure: Limits Explain the effect of integration of tax and Ross, Chapter 17
7 to the Use of Debt financial distress costs in the MM
propositions Page 535-541
Identify the consolidated pie model of a firm
Relevant Problem Solving from Text Handout available
on virtual
learning system
Session - Capital Structure: Identify the different agency costs of equity Ross, Chapter 17
8 Limits to the Use of Describe the free cash flow hypothesis
Debt Understand the pecking-order theory Page 541-558
Discuss the real life implications on the
capital structures of firms around the Handout available
Project Distribution world on virtual learning
Relevant Problem Solving from Text system
Session - Dividends and Other Explain the different types of dividend Ross, Chapter 19
9 Payouts payouts
Page 580-583
Explain the cash dividend payout
procedures Handout available
on virtual
learning system
Relevant Problem Solving from Text

Session - Dividends and Other Describe the effect of dividend payouts on Gitman, Chapter 14
10 Payouts stock price

Page 4 of 8
 Explain the cash dividend payment Page 565-572
mechanics
Quiz 1 Understand the theoretical arguments for Handout available
dividend relevancy on virtual
learning system
Relevant Problem Solving from Text

Knowledge on Capital Structure: The

Basic Concepts and the Limits to Debt

Session - Dividends and Other Understand the theoretical arguments for Gitman, Chapter 14
11 Payouts dividend irrelevancy
Understand the Modigliani & Miller
propositions on dividend relevancy. Page 572-582
Explain the types of dividend policies
Handout available
Relevant Problem Solving from Text on virtual
learning system
Session - Dividends and Other Explain the concepts of stock repurchase Ross, Chapter 19
12 Payouts and stock splits
Identify the real world considerations for Page 587-599
stock repurchases and cash dividends
Understand the real world factors favoring Handout available
a high-dividend policy on virtual
Relevant Problem Solving from Text learning system

Session - Mergers, Acquisitions Understand the three basic forms of Ross, Chapter 29
13 and Divestitures acquisitions
Explain the sources of synergy from Page 886-919
mergers and acquisitions
Identify the different defensive techniques Handout available
Quiz 2 used against takeover attempts on virtual
Explain the different ways of divestiture learning system

Relevant Problem Solving from Text

Knowledge on Dividends and other

payouts
Session - Midterm Exam CHAPTERS 16, 17, 19 and 29 Ross, Chapter 16,
14 17, 19 and 29
Session - Risk and Return Understand how to calculate dollar and Ross, Chapter 10
15 percentage returns on investments
Understand the different components of Page 306-310
return on investments

Page 5 of 8
 Learn the calculation of Holding period Handout available
returns on virtual
learning system
Relevant Problem Solving from Text

Session - Risk and Return Describe the various measures of return Ross, Chapter 10
16 statistics calculations i.e. average return
and geometric mean Page 311-316
Relevant Problem Solving from Text
Handout available
on virtual
learning system
Session - Risk and Return Understand the concept of Risk statistics Ross, Chapter 10
17 Describe the normal distribution and
implications in calculating risk Page 316-330
Explain the concept of risk free returns and
treasury securities Handout available
on virtual
Relevant Problem Solving from Text learning system

Session - Return and Risk: The Understand the different numerical Ross, Chapter 11
18 Capital Asset Pricing characteristics of individual securities
Model (CAPM) Learn to calculate individual security risk Page 331-344
and return and their correlations and
covariance Handout available
Explain the different parameters of on virtual
correlation coefficients learning system
Learn how to use the Markowitz
mechanism in calculating portfolio risk and
return
Understand the diversification benefits of a
portfolio from the perspective of systematic
and unsystematic risk

Relevant Problem Solving from Text

Session - Return and Risk: The Explain the efficient set of a portfolio with Ross, Chapter 11
19 Capital Asset Pricing two risky assets
Model (CAPM) Drawing the efficient set of a portfolio with Page 344-353
many assets
Quiz 3 Constructing the optimal portfolio of a risk Handout available
free and many risky securities by drawing on virtual
the CML learning system

Page 6 of 8
 Knowledge on Risk and Return

Session - Return and Risk: The Understand the concept of Beta of Ross, Chapter 11
20 Capital Asset Pricing individual securities and portfolios
Model (CAPM) Understand the Capital Asset Pricing Model Page 353-368
(CAPM) with the construction of SML
Using the CAPM to determine the pricing of Handout available
individual securities on virtual
learning system

Relevant Problem Solving from Text

Session - Multifactor Models of Explain the concept of Arbitrage pricing Reilly, Chapter 9
21 Risk and Return Theory (APT) and benefits of using
multifactor models over CAPM Page 241-248
Project Distribution Security valuations using APT models
Learn about different stock market Handout available
anomalies on virtual
Explain the usage of different real life learning system
multifactor models

Relevant Problem Solving from Text

Session - Efficient Capital Understand the concepts and foundations Ross, Chapter 14
22 Markets and Behavioral behind efficient capital markets
Challenges Identify the different types of market Page 435-450
efficiency
Quiz 4 Handout available
Knowledge on Return and Risk and the on virtual
usage of Capital Asset Pricing Model learning system
(CAPM)
Session - Efficient Capital Identify the different behavioral biases faced Ross, Chapter 14
23 Markets and Behavioral by market participants
Challenges Understand the market anomalies caused by Page 450-458
behavioral biases
Handout available
on virtual
learning system
Session - Project Presentation Capital Structure and dividend policy analysis
24 of a particular industry and individual
companies using 5 years of historical data
Session- Project Presentation Capital Structure and dividend policy analysis
25 of a particular industry and individual
companies using 5 years of historical data
Session - Final Exam CHAPTERS 10, 11, 14 and 9 (Reilly) Ross, Chapter 10, 11
26 and 14

Page 7 of 8
 Reilly Chapter 9

AUDIT:
Students who are willing to audit the course are welcome during the first two classes and are advised to
contact the instructor after that.

NOTE:
Plagiarism- that is the presentation of another persons thoughts or words as though they were the students
own must be strictly avoided. Cheating and plagiarism on exam and assignment are unacceptable.

UNIVERSITY REGULATION AND CODE OF CONDUCT:

Please see the green book for further information about academic regulation and policies, including
withdrawal and grading, apples and penalties for pilgrims and academic misconduct.

STUDENTS WITH DISABILITIES:

Students with disabilities are required to inform the School of Business/ Department of Economics of any
specific requirement for classes or examination as soon as possible.

Page 8 of 8