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  • 1. BUS 558: FINANCIAL MANAGEMENT Waynesburg College Fall II 2006 John Niedenberger, CFA Office: 412 471-4191 x8903 E-Mail: FAX: 412 471-2993 Course ID BUS 558 Course Name Financial Management Day and Dates of Course: Thursdays or Saturdays November 2 to December 18, 2006 Class Site: Southpointe Required Text(s):Brigham and Ehrhardt, Financial Management, 11th edition, Thompson Facilitator: John Niedenberger Facilitator Bio: Facilitator Attendance Policy: If an absence is unavoidable, please contact facilitator to a makeup an discuss a makeup assignment in lieu of missed class participation. Policy For Make-up work and Late Assignments: Due by last class Extra Credit Assignments: Not applicable Grading Scale (Graduate Courses do not offer a passing grade below a C or C-): 92 – 100 A 90 - 91 A- 88 – 89 B+ 82 – 87 B 80 – 81 B- 78 – 79 C+ 72 – 77 C 70 – 71 C- Additional Information and/or Directions While there are no formal prerequisites for this course, it is assumed that the student has some basic knowledge of accounting principles, elementary algebra, and descriptive statistics. I will distribute a basic math and statistics handout in the first class for review. Throughout the course certain terminology or concepts are central to understanding
  • 2. finance. As a backup to the text and the coverage during class time, I recommend the website as a reference tool. It allows you to search for financial and investment buzzwords, giving you a practitioner interpretation of many academic terms and concepts. Especially noteworthy are the tutorials on topics such as basic financial concepts, fundamental analysis, discounted cash flow analysis, and financial ratio analysis. Accessing Class Articles on E-Reserve Go to and in the top corner of the homepage you will see “I Connect.” Select that box and prepare to log-on. You log on by using your college user name and password. Call the help desk at (724) 852-3413 to apply for this information. Being assigned a user name and password will require a 24 to 48 hour turn around time. The office is open Monday – Friday from 8:00 am – 4:30 pm. Once you have logged in click on the WC Folder tab across the upper part of the screen. A window will open and you should single click on the S drive link. Look for the “e- learn” folder, and double click on that. Then double click on the “E-Reserve” folder. Double click on our class readings in that folder. Print the items, as you like. Assignments and Activities Assignment Prior to Start of First Class: Read Chapters 1 and 2 Course Objective: This course will apply the tools of financial management to maximize the value of the firm, that is, shareholder wealth. The financial manager is primarily interested in the investment decision, the financing decision, the dividend decision, and working capital management. Specific topics relating to these four broad areas include financial statement analysis, risk analysis, valuation of securities, discounted cash flow analysis, cost of capital, long-term financing, and derivative securities. Method of Instruction: Combination of case studies highlighting the main concepts and lecture/discussion format to outline the fundamental principles and analytical techniques. The emphasis is on applying theory to real-world examples. All assigned problems or cases focus on finding solutions to a particular decision a firm must make to optimize its financial structure. A few brief outside articles (approximately one per workshop) will be distributed to highlight a concept as it applies to an actual company, and to provide a springboard to class discussion.
  • 3. Evaluation: Case Study 15% (Due Class 3) Mid-term 25% (Class 5 – in-class) Company Presentation 25% (Due Class 7) Final Exam 25% (Class 8 – in-class) Class Participation 10% Workshop 1: Overview and Time Value of Money Read the following chapters prior to the first workshop: Chapter 1: An Overview of Financial Management Chapter 2: Time Value of Money This workshop emphasizes the two cornerstones of finance: risk management and the time value of money, both of which are “mega-concepts” that will be repeated throughout the course. Chapter 2 is a hands-on guide to the many uses of present value and future value in personal and corporate finance. Workshop 2: Financial Statements and Analysis Chapter 3: Financial Statements, Cash Flow and Taxes Chapter 13: Analysis of Financial Statements Read E-Reserve articles for class discussion: “Cash Flows, Ratio Analysis and the W.T. Grant Bankruptcy” and “Using ROE to Analyze Stocks” Financial statement analysis and ratios constructed from the statements form the core of company analysis from the viewpoint of a creditor or investor. We will spend considerable time in looking at several actual companies to apply the analysis in identifying strengths and weaknesses. This topic will likely continue into Workshop 3. Workshop 3: Risk and Return Chapter 4: Risk and Return: The Basics Chapter 5: Risk and Return: Portfolio Theory and Asset Pricing Model E-Reserve article: “Is It Time for REITs?” Case Study due The purpose of this workshop is to understand the sophisticated concept of risk in the portfolio context rather than risk of an individual security. We will develop and criticize the use of beta as a risk measure and apply to several stocks in class. The text is rather technical on this topic; you may want to refer to to look up some of the terms and concepts.
  • 4. Workshop 4: Security Valuation Chapter 6: Bonds and Their Valuation Chapter 7: Stocks and Their Valuation E-Reserve Article: “Champions of Long-Term Investing” We will apply the tools developed in Workshops 1 – 3 as the basis for determining the fair value of bonds and stocks. Bond valuation is a fairly straightforward application of present value analysis, whereas stock valuation is more complex due to the difficulty of projecting future earnings and dividend increases. We will look at several ways of determining the value of a stock, from the most theoretical to some practical methods used by analysts on Wall Street. Workshop 5: The Cost of Capital and Capital Budgeting Chapter 9: The Cost of Capital Chapter 10: The Basics of Capital Budgeting Midterm Exam (in-class) for Workshops 1-4 One of the key concepts of corporate finance is that a company needs to earn a return on investors’ money in excess of the actual opportunity cost of that money in order to add to shareholder value. This is the concept of economic value added, as described in the text. Capital budgeting is a decision process to choose the projects that should best enhance shareholder wealth, i.e., the ranking of projects with the highest expected return relative to the cost of debt and equity financing. Workshop 6: Strategic Financing Decisions Chapter 16: Capital Structure Decisions Chapter 18: Distributions to Shareholders: Dividends and Repurchases E-Reserve Article: “The Importance of Dividends in a Low-Return Environment” How does the firm decide the proportion of debt and equity financing to maximize shareholder wealth? The readings examine this question as well as the important related concepts of operating and financial leverage. The issue of whether to pay a dividend and the level of dividend also relate to return on invested capital and to cash flow analysis. Workshop 7: Working Capital Management and Special Topics Chapter 22: Working Capital Management Chapter 25: Mergers, LBOs, Divestitures and Holding Companies Company Presentation Due A brief look at some special topics in finance: the first an extension of financial statement analysis, and the second a special case of capital budgeting and enhancement of shareholder value.
  • 5. Workshop 8: Derivatives Securities Chapter 8: Financial Options and Their Valuation, pp. 284-95 Final Test on material covered in Workshops 5 – 7 No course in finance would be complete without considering the risk modification tools of call and put options. Some basic examples and practical applications will be discussed.