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INSTITUTE OF BUSINESS ADMINISTRATION-KARACHI

FINANCIAL MANAGEMENT (FIN401)


COURSE OUTLINE
Updated ONLINE
Spring 2020

Instructor: Dr. Irum Saba


Email: isaba@iba.edu.pk

COURSE OBJECTIVES:
The course is designed to provide the undergraduate students with a deeper understanding
of how firms finance, invest and manage themselves in the real world. Starting with a
review of basic topics covered in introductory business finance course, this course moves
on to explain how specific techniques and decision rules can be used to maximize the
value of the firm. The course, with the combination of finance concepts and
computations, will give the students a taste of various electives in finance that they will
choose later. Students who do not plan to major in finance will also enjoy working with
valuation models, rates of returns and risk analysis, which are part of the course. As a
consequence of this course, I expect to enhance the analytical skills of students.

COURSE OUTCOMES:
Successful completion of this course will enable the student to:

 Calculate the expected return and risk for a portfolio of two assets and explain the
minimum-variance and efficient frontiers.
 Compare and contrast dividends, free cash flow and residual income as alternative
measures in discounted cash flow models and identify the investment situations
for which each measure is suitable.
 Calculate the value of the common stock using the dividend discount and free
cash flow models.
 Compute the annual cash flows for an expansion and a replacement project and
evaluate and select the optimal capital project.
 Discuss the MM propositions concerning the capital structure and explain the
impact the impact of leverage, taxes, financial distress, and agency costs on a
company’s cost of equity, cost of capital and optimal capital structure.
 Compare and contrasts different theories of dividend policy and discuss the
factors which affect the dividend payout.
 Understand the basic features of forward and future contracts and contrasts the
different option strategies.

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SESSION DISCUSSION TOPIC CHAPTER/ TEXT Classes
READING
1 Discussion of the Course
Outline; Review of the Basic
Finance Concepts
2-4 Risk and Return for Individual 8 Gitman &
Stocks and Risk diversification Zutter
for portfolios; Optimal portfolio
and Efficient Frontier (Two-asset
case); CAPM Model; Beta
Coefficient
5-7 Cost of Capital: Component 9 Gitman &
Costs (Debt, Preferred Stock, Zutter
Retained Earnings, New
Common Equity); Marginal Cost
of Capital
8-9 Features of Equity Securities; 6&7 Gitman &
Overview of different stock Zutter
valuation models; Dividend
Discount Model for Stock
Valuation
10-13 FCFF and FCFE Model for Stock 7 Gitman &
Valuation; Comparing the DDM Zutter
and FCFF model
EXAM WEEK (In lieu of Exam students will complete their home
assignments)
14-18 Capital Budgeting Projects: 10 Gitman & Zoom
Projecting the Cash flows; Zutter
Evaluation Techniques: Payback,
NPV and IRR; Evaluating
projects with unequal lives: least
common multiple of lives
approach and Equivalent annual
annuity approach
19-22 Capital Structure Decisions: 22 CFA-II Zoom
Business and Financial Risk, Corporate
Estimating the Optimal Capital Finance
Structure under the MM Theory;
Cost of Equity and Firm’s value
with and without leverage;
Trade-off Theory, Signaling
Theory
23-24 Dividend Theories; Dividend 23 CFA-II Zoom
payout policies; factors affecting Corporate
the dividend policy; Stock Finance

2
Dividends and Repurchases.
25-27 Derivatives; Introduction to 57 CFA-I Zoom
Forwards, Futures, Swaps and Derivatives
Options; Uses of derivative and
instruments. Alternative
Investments
28 Revision of Course Work

COURSE ASSIGNMENTS:
 Home assignments will be given on weekly basis.
 These assignments must be submitted hand-written (not typed).
 The assignments must be submitted on LMS only (before 11:00 p.m. on Sunday).
A picture of each worked page with student’s name on top of the page is to be
submitted.
 The assignments submitted on email/dropbox or any other mode will not be
accepted.
 A student absent in the session/s during a week is responsible to submit the
assigned work on time.
 There will be no n-1 in the assignments regardless of the number of
assignments given.

MAIN TEXT BOOK:


Principles of Managerial Finance by Gitman and Zutter, 13 Edition

TEXT BOOKS:
Corporate Finance. CFA Program Curriculum (2017), Level II, Volume 3.
Derivatives and Alternative Investments. CFA Program Curriculum (2017), Level I,
Volume 6.
Equity. CFA Program Curriculum (2017), Level II, Volume 4.
Financial Management: Theory and Practice. Eugene F. Brigham & Michael C.
Ehrhardt, 12th edition.

REFERENCE BOOKS:
Options, Futures and Other Derivatives. John C. Hull, 6th edition.
Fundamentals of Corporate Finance. Stephen A. Ross, Randolph W. Westerfield &
Bradford D. Jordan, 9th edition.
Fundamentals of Corporate Finance. Brealey Myers Marcus, 4th edition.

Compiled chapters can be obtained from IBA photocopier. Course folder


comprising of additional practice questions and class material will be uploaded on
Learning Management System (LMS).

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COURSE REQUIREMENTS:
• You must bring the course folder (with practice questions) in every session.
• Many of the concepts you encounter are continuation of what you learned in IBF
course. It is assumed that you have clearly understood the basic finance concepts
in the introductory course, and advance concepts will be discussed without or
with little revision.
• Active class participation will be rewarded by adjusting the grade upwards when
it is on the margin.
• Since subsequent topics build on previously learned material, it is imperative that
students keep up with the material. In addition, you should ensure that lectures
are understood properly.
• A student who misses a class is responsible for obtaining any handouts and
information on course content, assignments, due dates, test dates, etc.
• Financial calculator is allowed for the course. If you are planning to buy the
financial calculator, Texas Instruments, BA II Plus is recommended.
• The quizzes may be in advance or from the previous topic. There will be a
perfect zero if you miss the quiz.
• You are expected to complete the assignments on the due date. No excuses will be
entertained in late submission.
• Unethical behavior (cheating, plagiarism, proxy attendance) will be strictly
penalized.

GRADING:
Old New Grading
Assignments 20% 30%
Mid Term Exam 30% covered in quiz/home tasks
Final Exam 40% 50%
Quizzes 10% 20%

COUNSELING HOURS:
I will be available for counseling on following days and timings:
Thursday 1pm-2pm (Students can set appointment via email)

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