Foundations of Finance: The Logic and Practice of Financial Management

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SCHOOL OF BUSINESS ADMINISTRATION


SYLLABUS

FINC
-
3
01


FINANCIAL MANAGEMENT

FALL 20
1
3








Instructor

:

Dr. D.K. Malhotra

Office


:

1
0
4

Tuttleman
Building


Phone

:

(215) 951
-
2813

E
-
mail

:

Malhotrad@philau.edu


Web Page

:

http://faculty.philau.edu/MalhotraD


Office Hours:
1
1
.
00 a.m.


12:
3
0
p.m.

Monday
s and
Wednesday
s

or by
appointment




Required Text:

Foundations of Finance: The Logic and Practice of Financial Management

by Keown, Martin, Petty, and
Scott,
8th

Edition, Prentice Hall
/Pearson
,
ISBN
-
10:
0133423999





Calculators:




A calculator that has a power function will be necessary for the course.
Relatively inexpensive will suffice. No programmable (text storing) calculators
will be allowed

for tests. Calculators performing financial functions are allowable.

If you have a smartphone, you can download financial calculator application on it.

IT IS MANDATORY TO BUY A BUSINESS/FINANCIAL CALCULATOR FOR
THIS COURSE.




Digital Resources:

Power p
oint notes will be available on http://bb.philau.edu
Course Description:




This is an introductory level finance course that will examine the role of the
financial decision
-
maker at the corporate level. The emphasis will be on the goal
of the firm, the
efficient market hypothesis, discounted cash flow analysis, and
the trade
-
off between risk and return.


Prerequisite:




All students must have completed
ACCT 101
,
STAT 20
1, or M
ATH

321
.





It is the students' responsibility to make certain that they h
ave successfully
completed these courses. If at any time during the semester it is learned that a
student has not successfully completed these prerequisites, he/she will be
dropped from the course receiving, neither credit nor tuition refunds.






Cours
e Objective:




The objective of the course is to teach students how to approach and solve the
fundamental financial problems facing all businesses including non
-
profit and
government. Each topic explored in the course represents a real
-
life financial
pr
oblem facing the "firm". Much of what the students will learn currently is in use
in firms across the state and nation.




Course Outcomes:

A successful student should
have the ability to



use a financial calculator and excel spreadsheet in finance




Unde
rstand the goal of a firm



Understand the external financial environment



Compute expected return and risk of a security?



understand the significance of portfolio and compute risk and return of
portfolio



explain the concept of beta and application to portfol
io theory



comp
ute present and future value of a series of cash flows



identify an annuity and a perpetuity



distinguish between preferred and common stock



compute the value of common stock and preferred stock



explain the basic features of bonds



compute fair
market value of bond



distinguish between current yield and yield to maturity



compute payback period and interpret it



compute Net Present Value and interpret it



compute IRR and interpret it



compute PI and interpret it




Requirements:




1.


Attend cla
ss regularly.

2.


Do homework.

3.


Study class notes prior to next class and come prepared to the class to
participate actively in discussions.

4.


Be able to take time pressure tests.







Attendance:

Attendance is mandatory. You are re
sponsible for what is covered in the class
and any absence on your part leaves you responsible for finding out what was
presented in class. You will benefit a lot from the course by doing problems and
reviewing concepts, which are covered in the class.





Grading:





EXAM I



25%


EXAM II



25%


FINAL EXAM



25
%


QUIZZES



1
5
%


C
lass Participation


10%







No late homework will be accepted. No makeup exams will be given. If you miss
an exam due to an unavoidable reason, the grade on the missed ex
am will be
transferred to the final exam.
THE FINAL EXAM IS COMPULSORY AND
COMPREHENSIVE. DO NOT EXPECT ANY SCALING ON THE GRADES.





Help Sessions:




I do plan on devoting
a
class before each exam reviewing the material

that
will be
covered on the
test.





Academic Honesty:




Students are expected to perform according to a code of academic honesty that
prohibits cheating on tests and plagiarizing others’ work. Violation of this code
may result in failure of the course.










Grading Policy:





The following policy will be followed for assigning letter grades in this course.





93 and above


A



90


92


A
-




87


89


B+



83


86


B



80


82


B
-




77


79


C+



73


76


C



70


72


C
-



Less than 70


F




Retention of Student Ex
ams, Papers, etc:


Students’ materials will be retained for a minimum of four weeks into the
subsequent semester.


Academic Support Services:

Learning and Advising Center

:

http://www.philau.edu/learning

Gu
tman Library



:

http://www.philau.edu/library

Technology Assistance


:

http://www.philau.edu/OIT


TENTATIVE COURSE OUTLINE:





08/2
7


Introduction to Financial M
anagement (Chapters 1)





Forms of Business Organization




Goal of the Firm




Why Managers should maximize shareholders’ wealth



Ethics and Shareholder Wealth Maximization




08/2
9


Shareholder Wealth Maximization and Motivating Management



(Chapter 1)


0
9
/
03


Financial Environment

(Chapter 2)







Role of Financial Markets




Types of Financial Markets




Primary versus Secondary Markets




0
9
/
0
5


Financial Environment (Chapter 2)



09/10


Risks and Return (Chapter
6
)



Meaning of Risk



Meaning of Return


o

Actual Return

o

Expecte
d Return of a Security


09/
12


Risks and Return (Chapter
6
)






Measurement of Expected Return of a Security



Risk of a Security



Measurement of Risk of a Security







09/1
7


Risks and Return (Chapter
6
)



Meaning of a Portfolio



Why Create a Portfoli
o?



Expected Return of a Portfolio


09/1
9


Risks and Return



Measurement of Expected Return



Risk of a Portfolio



Measurement of
Risk of a Portfolio




09/
24


Risks and Return




Capital Asset Pricing Model




Security Market Line



09/2
6


Risk and Return and

Review for Exam I


10
/
01


Exam I


1
0/
03


Time Value of Money



Meaning of Time Value of Money



Why time value of money?



Concept of Present Value and Discounting



How to compute future value of a single cash flow?



Concept of Future Value and Compounding



How
to compute future value of a single cash flow?


10
/
0
8


Time Value of Money (Chapter
5
)




Calculation of Interest Rate



Calculation of time period





10
/
1
0


Time Value of Money (Chapter
5
)



The Effect of Compounding



Multiple Cash Flows and Present Value




10
/
15


Time Value of Money (Chapter
5
)



Annuities







10
/
1
7


Time Value of Money



Perpetuities



10/
22


Bond Valuation (Chapter 7)







Features of a Bond




Valuation of an Annual Bond




10/
24


Bond Valuation (Chapter 7)








Valuation of Semiannual Bonds



Bond Yields





10/2
9


Stock Valuation (Chapter 8)







Features of a Stock




Valuation of a Stock




Zero Growth Model




Constant Growth Model


1
0
/
31


Stock Valuation and Review for
Exam
2


1
1
/0
5


Exam 2


1
1
/
0
7


Capital Budgeting Analysis
(Chapter
10
)







Meaning and Significance of Capital Budgeting




Techniques of Capital Budgeting




Payback Period




Internal Rate of Return




1
1
/
12


Capital Budgeting An
alysis
(Chapter
10
)








Modified Internal Rate of Return




Net Present Value




Profitability Index






Evaluation of various techniques of capital budgeting





11/
14


Capital Budgeting Analysis
(Chapter
10
)


11/1
9


Capital

Budgeting Analysis

(Chapter
10
)


11/
2
1


Cash Flows Estimation for Capital Budgeting (Chapter 1
1
)








Significance of Estimation of Project Cash Flows




Relevant versus Irrelevant Cash Flows




Impact of Net Working Capital Change o
n Project Cash Flows




How to Estimate Project Cash Flows?





11/
2
6


Project Cash flows and Risk Analysis (Chapter 1
1
)





Project Risk Analysis





How to Evaluate Projects in the Presence of Risk?


11/2
8


Thanksgiving Break (No Class)






1
2
/
03


Cost of Capital (
Chapter
9
)







Concept of Weighted Average Cost of Capital



Cost of each component of capital




1
2
/
05


Cost of Capital (Chapter
9
)




How to Calculate WACC?



Review for Final Exam