Advanced Financial Management - Fall 2008

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Instructor: John Elder Phone/Office: 231-6532;  Putnam 22 E-mail: john.elder@ndsu.edu Web: http://www.ndsu.edu/ndsu/jelder/ Course: BUSN 740; 4948; Meeting: M 6:00-9:00 Min 136 Prereq: BUSN 340 (Econ 201/2;Acct 200/1;Stat 330)  Office Hr: T,Th 12:45-2:15,after class,by appt; Advanced Financial Management - Description This course is the core finance course in the MBA program. It addresses primary issues in finance and financial management at a more advanced level than a first course in financial management. In particular, this course will introduce new topics, as well as utilize more sophisticated analytical techniques combined with real-world applications (in the form of case studies) to build on topics with which you may already be familiar. The course content is designed around prominent issues actually confronted by financial managers in large (and small) firms, and so it may or may not closely mirror issues you (personally) confront at work. This fits with the generalist nature of the MBA degree, in which students are expected to have been exposed to prominent issues in each of the primary business fields. Course Objectives  A primary objective of this course is to become proficient at quantitatively assessing the profitability of proposed projects -- both large and small. In the language of corporate finance, this is known as budgeting a firm's financial capital, or "capital budgeting" for short. Determining whether to budget financial capital to a proposed project requires the ability to (1) identify the relevant cash flows associated with the proposed project; (2) discount these cash flows; (3) estimate the cost of raising financial capital and (4) assess the potential relevance and effect of future managerial decisions. This course is centered around developing these skills. In addition, we will also discuss a few other issues related to corporate finance, including an intuitive description of how a firm might determine whether to raise money by issuing debt or by issuing equity, and how a firm might determine whether to pay dividends. Please note that some of the topics in the course require reference to formulas or other standard relationships. You need not memorize these relationships, as I have a formula sheet on the course web page for you to reference. This is the same formula sheet that you will be provided with on exams. Pre-requisite Skills I will assume that you are comfortable manipulating basic accounting statements (income statements, balance sheets and the statement of cash flows), and that you are familiar with the time value of money and using spreadsheet programs such as Microsoft's Excel.  If you are unsure about your preparation in accounting or these other areas, I strongly encourage you to take ACCT 720 Advanced Managerial Accounting either prior or concurrently to this course. If you have any problems with this class, please see or e-mail me.  I am available after class and always during posted office hours, but feel welcome to e-mail or call me at the office anytime.  (Please note that the worst time to drop by is usually the 30 minutes just prior to class.)  I am at the office everyday (plus some weekends and evenings), unless I have another class, appointment or meeting.  If I am not in, the best way to leave a message is via e-mail.  You may also submit concerns and suggestions to me anonymously via a feedback form linked to my web page.  Be sure to also read my  secret tips for exams. Course materials The materials you will need for this course are: -Ross, Westerfield and Jordan, Fundamentals of Corporate Finance, 8th ed, Irwin, 2008. -Wall Street Journal; (optional) you can sign-up on-line, by visiting the link on my web page (see "other links" ). -Any calculator that computes exponents is sufficient, although you will find a financial calculator most beneficial. -Case Packet, Harvard Business School Publishing - more information in class. The Ross, Westerfield and Jordan text is a very accessible and well written text. You will undoubtedly find it an excellent resource. The Wall Street Journal is also available at the library at no charge. If you are interested in learning more about practical finance and the recent history and culture of Wall Street, there are a number of very entertaining bestsellers you should consider reading. They are listed on this web page. Course Organization This course is designed to foster participation and interaction. Usually participation will be solicited in a question and answer format, and you will frequently be called upon by name to participate. This requires that you prepare for each class by keeping current with the readings and "learning exercises". To encourage you to do so, there will be several quizzes throughout the term. The quizzes may be announced or unannounced, so you should be prepared for a short quiz each lecture, but especially when specific "learning exercises" are suggested. (Learning exercises are similar to homework, but they are not collected. The learning exercises are designed for your benefit: to help create and reinforce your learning. I call them learning exercises, because if you do not work through them, you are less likely to learn.) In addition, you will be asked to prepare for class discussion a short, two paragraph summary of a news article related to finance or economics (e.g,. from the WSJ), for at least one class. (I will assign dates for the news summaries on the first day of class.) Your summary must be typed and prepared to hand in at the beginning of class. As an alternative to the news summary, you may instead prepare a reaction statement to some topic discussed in class (or to be discussed). This statement might describe how the topic relates or applies to some aspect of business that you engage in.  (I hope that many students will choose this option!) Policies for the class that are likely to be obviously, but need to be presented, are as follows: 1. Please attend class and be on time. If you miss class, be sure to retrieve the notes from a classmate. 2. There are no provisions for make-up examinations or extra credit. 3. For assignments that are handed in, please type essays, staple pages and submit on time. 4. All work in this course must be completed in a manner consistent with NDSU University Senate Policy, Section 335: Code of Academic Responsibility and Conduct. ( http://www.ndsu.nodak.edu/policy/335.htm ) 5. Any students with disabilities or other special needs, who need special accommodations in this course are invited to share these concerns or requests with me as soon as possible. 6.  If a student withdraws after the initial deadline, WP will be granted if the students' average is above 60%. Grading There will be one midterm exam, a cumulative final exam, case studies and assignments/quizzes.  The exams will be administered on the dates indicated on the course outline. Excuses to the exams are very rare, but would include a College sponsored excursion or extreme illness documented by a physician's note. If you are excused from an exam for such a purpose, your final exam will be reweighted to account for the missing score. Please mark the days and times in your calendar now. Assignments/quizzes will be graded on a scale from 0 to 5. In the rare event that you have questions regarding the grading of a midterm exam or assignment, see me before the final exam is administered. Please note that missed quizzes cannot be rescheduled! Since many students are likely to miss one quiz for a valid reason, each student will be allowed to drop one quiz grade from their total. So, if you miss a quiz, that will be the grade we drop! Letter grades will be determined by computing an average according to the weighting scheme below, where an average of 90+ is an "A"; 80-89 is a "B"; 70-79 is a "C"; 65-69 is a "D"; and below 65 is an "F". It is possible that a curve on the final average will be implemented, if appropriate. The weighting scheme is as follows: HW, Cases, Quizzes 33.3%            Midterm I  33.3%          Final Exam 33.3% Course Outline (Please check the current class outline on the course web page for detail on dates.) Topics to review on your own, as necessary (covered in pre-requisites and ACCT 720) Balance sheet and income statement - RWJ 2 (sections 2.1, 2.2, 2.3). Valuation of Future Cash Flows - RWJ 5, 6. Review of Finance Principles -   Introduction to corporate finance - RWJ 1, 2 (section 2.4 only). Basic valuation concepts applied to bonds and stocks - RWJ 7, 8. Capital Budgeting - NPV and alternative criteria - RWJ 9, 10, 11 (sections 11.1 and 11.2 only), 14.6. Case study - TBA Midterm Exam I:  October 20, 2008 Estimating the Cost of Capital - Review of asset pricing, measuring risk and the CAPM - RWJ 12, 13. Cost of Capital and weighted average cost of capital - RWJ 15. Case Study - TBA Capital Structure and Long-Term Financial Planning - Raising financial capital - RWJ 16 (skip section 16.8). Capital structure and dividend policy, intuitive overview - RWJ 17 (skip equations in 17.4), 18. We will discuss the content of section 17.4 in class without equations. Options in Corporate Finance - Basic characteristics of financial options and futures; applications to risk mgt - RWJ 14, 23. Valuation of financial and managerial options - RWJ 24. Mergers and Acquisitions, International and Financial Planning (as time permits) Mergers - RWJ 25. International Corporate Finance - RWJ 22. Planning, Cash, Credit and Inventory Management -  RWJ 19-21. Final Exam:  December 15, 2008;  Meet at the usual time in our usual classroom.