Finance 3101: Financial Management Syllabus (Fall 2011)

Course Instructor: Office: Office Hours: E-mail Address: Office Telephone: Steve Casper 435 Alter Hall TTh 11:0012:15,; or by appointment scasper@temple.edu 609-273-3347 (cell)

Prerequisites Economics 1101 (C051) and 1102 (C052); Accounting 2101 (0001) and 2102 (0002) or 2521; Statistics 1001 (C011) and 1102 (C012) and 2101 (C021) or 2103. Any exception to the foregoing prerequisites can only be approved by the Deans Office. Course Description This course provides a survey of the financial problems associated with the life cycle of a business firm. Topics include: financial analysis and planning, capital budgeting, cost of capital, and the sources and uses of business funds. While the emphasis is on decision making within a corporate environment, the tools taught in this course are just as relevant to other forms of business organization and to personal financial management. Course Objectives Finance 3101 focuses on two of the four main learning goals of the Fox Schools BBA program: (a) Understanding critical business concepts, and (B) Applying critical thinking to solve business problems. Specific learning objectives in pursuit of these two goals involve a basic understanding of the following: Goal of corporate financial management Structure and analysis of principal financial statements Time value of money Factors determining stock prices Determination of prices and yields on bonds and stocks Knowledge of the capital budgeting process Use of Net Present Value (NPV) and Internal Rate of Return (IRR) in the capital budgeting process Concept and nature of risk Determination of a firms cost of capital Key financial ratios Implications of the mix of debt and equity in a firms capital structure

Required Materials Financial Management: Core Concepts by Raymond Brooks MyFinanceLab (MFL) Access Purchase Options: Option 1: Bound Book Package includes the bound textbook and MFL Access. (ISBN: 0132479532) Option 2: Student Value Edition(SVE) Package includes a three-hole punch version of the textbook and MFL. This option cannot usually be returned, but it saves money on the front-end (ISBN: 0132706555) Homework Homework is an integral part of learning Finance and is the complete responsibility of the student. The homework portion of the course average will consist of the equallyweighted average of the 10 highest (out of 11) assignment scores. The policy for Finance 3101 is NOT to permit an extension of any homework assignment beyond the due date, subject to the following exceptions: (a) A medical condition or emergency (b) A death in the family (c) A University-sponsored activity. In all cases, full WRITTEN documentation is required from the appropriate medical or Temple University personnel. All Past Due assignments will receive a score of zero. Students are responsible for using a computer that meets the system requirements for MFL homework which can be found on the main MFL page at http://www.myfinancelab.com/support/system-requirements. Students are responsible for obtaining proper receipts for submitted homework and for contact with the MFL help desk. Students are responsible for working with the MFL help desk to correct any technical issues. Neither your instructor nor the course coordinator, Professor Keen, are able to assist you with any MFL technical issues. Calculators All calculations required for exams and HW can be performed using a scientific calculator rather than a financial calculator or a spreadsheet such as Microsoft Excel. In class coverage of financial calculators and Excel is to be limited to a maximum of 10% of available class time. Exams- 3 Under no circumstances will any exams be given before their regularly scheduled date. Make-ups will be considered only for reasons related to medical issues or University-scheduled activities. In all cases, appropriate notes are required. Calculators are permitted for exams, however, no other electronic devices are allowed. Failure to follow this policy will result in a grade of zero. Formulas will be provided for every exam but no other notes or aids are allowed.

Determination of Course Grade The course grade will be determined by an equally-weighted average of the scores on the three exams and the average of the 10 highest homework scores. The Finance Department requires a grade distribution with an average of 2.3 plus or minus 0.20. All questions regarding this policy should be directed to the department chair, Dr. Kenneth Kopecky. Course average scores (after any adjustment per Department of Finance grading policy) will result in course letter grades according to the following schedule: Score Grade Score Grade Score Grade 93 - 100 A 80 82 B67 69 D+ 90 92 A77 79 C+ 63 66 D 87 89 B+ 73 76 C 60 62 D83 86 B 70 72 CBelow 60 F

*You just need to pass the course to not have to take it again; a minimum of a C- is no longer required!
Academic Freedom The University has adopted a policy on Student and Faculty Academic Rights and Responsibilities (Policy # 03.70.02) which can be accessed through the following link: Http://Policies.Temple.Edu/Getdoc.Asp? Policy_No=03.70.02 Need for Accommodation Any student who has a need for accommodation based on the impact of a disability should contact the instructor at the beginning of the semester. Academic Integrity Cheating is not tolerated and will result in a grade of zero on any exam or homework assignment in which cheating occurs. Please consult university policy on academic integrity: http://policies.temple.edu/getdoc.asp? policy_no=03.70.12 Attendance Not mandatory, but necessary to do well in the course

MFL Homework Assignments and Course Exams

Students often indicate that the exams in Finance 3101 dont look

like the MFL homework assignments. This is in fact true. While the MFL homework assignments are a critical tool in helping to learn the mechanics of solving quantitative problems, exams are not based solely on this aspect of Finance. Exams are designed to test understanding of not only the mechanics of solving a quantitative problem but also the understanding of related definitions and concepts. In other words, exams in Finance 3101 test knowledge of all of the material from the covered sections of each chapter in the textbook. A high grade on exams and in the course requires mastery of ALL ASSIGNED MATERIAL FROM THE TEXT
My Responsibilities Present material clearly Provide opportunity to learn by doing Answer your questions Test your understanding of material Make requirements and criteria for grades known in advance Report grades earned by your performance Your Responsibilities Attend class PREPARED Have successfully completed all prerequisites Bring your book and calculator to class Check Blackboard frequently Do all assigned homework on time Inform me whenever you do not understand a concept, example, homework assignment or an answer to a question/problem Dont wait until the last minute to ask for help

Finance 3101: Topics by Week

Week 1: Aug 30 Key Questions

What does the study of Finance, Financial Markets and Financial Management entail? Whats to be gained from studying Corporate Finance? What are financial managers trying to accomplish and how might their decisions affect a companys stock price?

Introduction (Chapter 1)
1. Main Areas of Finance & Key Questions Faced by Financial Managers 2. Goal of Financial Management 3. Key Determinants of Stock Prices (Size, Timing and Risk of Future Cash Flows, Dividend Policy, Use of Debt) 4. Need for Knowledge of Finance by Non-Finance Majors

Week 2: Sept 6 Key Questions

What do the balance sheet and income statement tell us and how are they used? What are the principal cash flows of a firm?
Basic Setup of Balance Sheet and Income Statement Net Income v. Operating Cash Flow (OCF = NI +Depreciation + Interest Expense) Cash Flow Identity (CFFA = CFTC + CFTS) Accounting Cash Flows vs. Finance Cash Flows

Financial Statements & Cash Flows (Chapter 2)

1. 2. 3. 4.

Week 3: Sept 13 Key Question How do we compare cash flows that occur at different
points in time?

3)

Time Value of Money: Single Cash Flows (Chapter

1. 2. 3. 4. Need for TVM Application of TVM to Is This Investment Worth its Cost? Simple Future Value Formula (FV = PV(1+r)n) Solving for Each of 4 Variables (PV, FV, r and n)

Week 4: Sept 20 Key Question How do we compare cash flows that occur at different
points in time?

4)

Time Value of Money: Multiple Cash Flows (Chapter

1. Types of Cash Flow Patterns and Required Solutions Cash Flow Pattern PV FV PMT Uneven x x Perpetuity x x Ordinary Annuity x x x 2. Application of PVA to Fixed-Payment Loans r x n

Week 5: Sept 27 - Review for 1st Exam; 1st Exam Week 6: Oct 4 Key Questions

What are the principal determinants of interest rates? How do investors determine the value of a companys debt?

Interest Rates & Bonds (Chapters 5 & 6)

1. Determinants of Interest Rates a. Expected Inflation Real and Nominal Rates (Fisher Effect: r r* + h) b. Default (Including Bond Ratings) and Maturity Premiums 1. Valuation of Bonds a. Two Forms of Future Cash Flows b. Par Value, Coupon Rate and Coupon Payment c. Pricing Zero Coupon Bonds d. Pricing Annual and Semiannual Coupon Bonds 1. Bond Yields (Coupon, Current, YTM)

Week 7: Oct 11 Key Question How do investors determine the value of a companys
equity?

Valuation of Equities (Chapter 7)

1. Key Features of Equities (Non-Contractual Residual Claim on Future Income; Limited Liability) 2. Markets for Stocks (Primary, Secondary, Bull, Bear, Efficient) 1. Two Forms of Future Cash Flows (Compared to Bonds) 2. Stock Prices = f(Future Dividends to Infinity) 3. Ways to Bring Closure or Finiteness to Pricing of Equities a. Constant Dollar Dividends Forever (Pt = D(t + 1) /r)

b. Gordon Model (Pt = D(t + 1) /(r g)) c. Nonconstant Dividend Growth

Week 8: Oct 18 Key Questions

How do we handle the uncertainty surrounding actual and estimated rates of return? What determines the rate of return a company must pay to its shareholders?

Risk (Chapter 8)
1. 2. 3. 4. Holding-Period and (Simple-Interest) Annualized Rates of Returns Meaning and Measures (, ) of Risk Risk and Return Using the Normal Distribution Risk in Investing a. Unsystematic & Systematic Risk b. How Diversification Can Reduce Risk c. Role of Risk in Determining Required Return on Equities ( E(ri) = rf +[E(rM) rf] * i)

Week 9: Oct 25 - Review for 2nd Exam; 2nd Exam Week 10: Nov 1 Key Question How do you decide whether a particular use of

company funds will help or hurt the value of the company?

Valuation of Nonfinancial Assets (Chapter 9)

1. NPV and IRR 2. Capital Budgeting

Week 11: Nov 8 Key Question How do we determine the overall rate of return of
return (cost to the company) demanded by a companys investors?

Cost of Capital (Chapter 11)

1. 2. WACC = (E/V)*Re + (PS/V)*Rps + (D/V)*Rd*(1-T) WACC Adjusted for Risk

Week 12: Nov 15 Key Question What are some key measures used to analyze a
companys performance?

Ratio Analysis (Chapter 14)

1. Benchmarking and Common-Size Balance Sheet and Income Statement 2. What a Financial Ratio Tells Us 3. Financial Ratios: Current, Times Interest Earned, Equity Multiplier, Total Asset Turnover, Profit Margin, ROA, ROE, P/E, Market-to-Book 4. DuPont Identity

Week 13: Nov 18 Key Question How should a firm raise needed long-term funds? Sources of Long-Term Financing: Debt & Equity (Chapter 16)
1. 2. 3. 4. 5. Measures of Capital Structure (D/A, D/E) Advantages & Disadvantages of Debt Impact of Use of Debt on Shareholders Impact on Firm Value as Use of Debt Changes Internal vs. External Financing (Pecking Order Hypothesis)

Week 14: Nov 25 Review for Final Exam