College of Commerce and Finance
Learning Outcomes:

By the end of this course, you will have done, or be able to:

       •   State the goals and function...
Class Attendance. You are expected to attend each regularly scheduled class. Please note that exam
questions are taken fro...
•   Disability Fairness Policy. It is the policy of Villanova to make reasonable academic
       accommodations for qualif...
Week 4      September 17, 2003
            Topic: The Basics of Risk and Return
            Description: Investors general...
Week 9      October 29, 2003
            Topic: The Basics of Capital Budgeting: Evaluating Cash Flows
Week 14     December 10, 2003
            Topic: Derivatives and Risk Management
            Description: The greatest gro...
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  1. 1. VILLANOVA UNIVERSITY College of Commerce and Finance Master of Business Administration Corporate Finance MBA 8401 Course Outline Fall 2003 Professor: Dr. A. DeMaskey Office: 2017 Bartley Hall Phone: 610-519-6108 Homepage: E-mail: Office hours: 5:30-6:00 Wednesday and by appointment Course Description: Basic business problems and tools of financial decision-making, including present value techniques, capital budgeting and cost of capital, asset management, introduction to the theory of portfolio management and capital asset pricing. Course Prerequisites: The prerequisites for this course are MBA 8101 Financial Accounting and MBA 8502 Statistical Analysis or equivalents. It is the student’s responsibility to be certain that the prerequisites have been successfully completed. If at any time during the semester it is determined that a student has not completed the prerequisites, the student can be administratively dropped from the course without credit or tuition refund. Course Objectives: The course is designed to provide students with an overview of the basic principles and concepts of financial management, with particular emphasis on risk, rates of return, and valuation. It also provides an overview of contemporary financial events as they occur and gives students the opportunity to use spreadsheets in a financial management setting as well as practice written communication skills. The course will focus on theories, concepts, and principles as opposed to institutional material, although some institutional background is required. Since this course is required of all MBA students, a great deal of material will be covered, but in-depth treatments will be left to follow-on courses. MBA 8401: Corporate Finance Page 1 of 7
  2. 2. Learning Outcomes: By the end of this course, you will have done, or be able to: • State the goals and functions of financial management. • Use financial ratio analysis to assess the relative strengths and weaknesses of a company. • Measure financial risk and determine financial return using quantitative methods. • Use time value of money analysis to assist in making investment decisions. • Estimate a firm’s weighted average cost of capital. • Explain how financial managers decide to use debt and equity instruments for long-term financing. • Determine the optimal levels of working capital. • Describe the derivative instruments used in corporate risk management. • Differentiate between multinational and domestic financial management. Course Requirements: Texts. Eugene F. Brigham and Michael C. Ehrhardt’s Financial Management: Theory and Practice, th 10 Edition, published by Harcourt College Publishers Press (2002). This text will be supplemented by relevant readings from a variety of sources, including the Wall Street Journal, Financial Times, Barron’s, and Business Week. In addition, Harcourt offers a companion web site as a supplemental learning resource: Exams. The final exam will be given in class. The two midterm exams will be completed outside of class, but will need to be submitted by the due date. A hard copy of the exam must be turned in. You will be penalized for late submission. Assignments. Several problem-solving assignments from the end-of-chapter problems including spreadsheet problems will be given during the semester to ensure the learning of the concepts covered in the course. These problems have been noted in the course schedule. Specific instructions and due dates for these problems will be announced in class as well as posted on the web at least one week before the due date. It is your responsibility to keep track of the assignments and their due dates. The assignments will be graded based on completeness and accuracy and are worth 10% of your course grade. Hard copies of the assignments should be turned in. You will lose points for late submission of assignments. Project. Each student is expected to complete a project with the objective of estimating a firm’s cost of capital. Students will be required to collect background information on a firm, gather relevant data and perform a detailed analysis to calculate the cost of capital of a non-financial corporation. Instructions for the project will be handed out separately. Failure to submit the project by the due date will result in a lower grade. Class Participation. Class sessions will consist of discussions relating to the assigned chapter readings and exercises, mini cases, and current events. Thus, student participation in class discussions is extremely important. You are expected to participate in these discussions in a meaningful way, which requires you to be fully prepared at all times. MBA 8401: Corporate Finance Page 2 of 7
  3. 3. Class Attendance. You are expected to attend each regularly scheduled class. Please note that exam questions are taken from lecture material, the text, relevant readings, and current events. Thus, absences tend to reduce exam performance and, consequently grades. Calculator. While we will be using Excel to solve finance problems, it is also recommended that you have access to a financial or business calculator. Be sure that the financial calculator you use has a “Cash Flow or CF” key to perform NPV and IRR calculations. Grading: Grades will be based on relative performance and determined as follows: Final Exam (comprehensive) 25% Midterm Exam (2 @ 20%) 40% Assignments 15% Project 20% Total 100% The following grading scale is used to determine your final course grade: A 94%-100% B+ 87%-89% B- 80%-82% C 70%-74% A- 90%-93% B 83%-86% C+ 75%-79% F < 70% Student Responsibilities: 1. Students should come prepared to each class meeting by reading ahead the materials to be covered in class, so as to ask questions and participate in class discussions. 2. Students must take the responsibility for learning the course material specified in the syllabus by reading the text and relevant current event articles, reviewing the Power Point slides and the chapter(s) learning objectives, and taking the in-class quizzes. 3. Students are encouraged to review the self-test questions and end-of-chapter questions and solve as many problems as possible from the end of each chapter. 4. All assignments and the project must be submitted by the due dates specified for each. 5. Email and homepage should be checked regularly for any updates, announcements or instructions concerning the course. Applicable Policies • Attendance Policy. Participation points can be earned in a number of different ways, including attending class, completing one-minute papers and in-class exercises as well as active participation in class discussions of assigned readings, problems and mini-cases. Any unexcused absence will lower your participation score. Your absence is considered ‘excused’ if it is unavoidable and if I am notified at least 24 hours in advance. If your absence is excused you will neither gain nor loose participation points. • Make-Up Exam Policy. As a general rule, there will be no make-up exam. • Late Submission Policy. Any work submitted after the deadline will loose 10% of its full credit per day. MBA 8401: Corporate Finance Page 3 of 7
  4. 4. • Disability Fairness Policy. It is the policy of Villanova to make reasonable academic accommodations for qualified individuals with disabilities. If you are a person with a disability, please contact me after class or during office hours and make arrangements to register with the Learning Support Office by contracting 610-519-5636 or as soon as possible. Registration is needed in order to receive accommodations. • Academic Integrity and Policy Code. The Code of Academic Integrity of Villanova University addresses cheating, fabrication of submitted work, plagiarism, handing in work completed for another course without the instructor’s approval, and other forms of dishonesty. For the first offense, a student who violates the Code of Villanova University will receive 0 points for the assignment. The violation will be reported by the instructor to the Dean’s Office and recorded in the student’s file. In addition, the student will be expected to complete an education program. For the second offense, the student will be dismissed from the University and the reason noted on the student’s official transcript. Schedule of Topical Coverage: Week 1 August 27, 2003 Course Introduction: Review of syllabus, course requirements, and student responsibilities. Topic: Overview of Financial and Multinational Financial Management Description: Finance is the application of economic principles and concepts to business decision-making and problem solving. We will examine the primary areas of finance, the different forms and sizes of businesses, the financial goal of the firm, the important trends in finance, the role of ethics and social responsibility, and the agency relationship. Read: Chapters 1 and 27 (pp. 1015-1019) Week 2 September 3, 2003 Topic: Financial Planning and Forecasting Description: Accounting is called the language of finance. We will review the basic financial statements, cash flows, and the federal income tax system. Next, we will discuss techniques used by investors and managers to analyze financial statements. While it is clearly important to understand past performance, both managers and investors must look ahead and anticipate what is likely to happen in the future. Read: Chapters 2, 3 and 4 Work: Problems 2-7, 9, 15; 3-15, 17 (use the file Ch 03-17 Build a Model.xls); and 4-11 (use the file Ch 04-11 Build a Model.xls) Week 3 September 10, 2003 Topic: The Global Financial Environment Description: Financial managers need to understand the economic environment and markets within which they operate. As world economies become more integrated, the role of multinational corporations is increasing. Thus, we will examine the nature of global financial markets, the types of institutions that operate in these markets, the determination of interest rates and exchange rates, and the effect interest rates have on business decisions. Read: Chapters 5 and 27 (pp. 1025-1035) Work: Problems 5-6, 10, 15 (use the file Ch 05-15 Build a Model.xls) MBA 8401: Corporate Finance Page 4 of 7
  5. 5. Week 4 September 17, 2003 Topic: The Basics of Risk and Return Description: Investors generally dislike risk. Thus, a higher risk security must offer a higher return. We will explore the trade-off between risk and return and examine the procedures used to measure risk and return for both individual assets and portfolios. Read: Chapters 6 and 7 (pp. 248-251) Work: Problems 6-8, 11, 17 (use the file Ch 06-17 Build a Model.xls) Week 5 September 24, 2003 Topic: Time Value of Money Description: Most financial decisions involve the payment and receipt of dollars at different points in time. This difference is recognized and accounted for by the discounted cash flow analysis. We will examine the basic mathematical techniques used to translate the value of one or more cash flows from one period to another. Read: Chapter 8 Work: Problems 8-14 (use the file Ch 08-30 Build a Model.xls), 20 Midterm Exam 1 handed out Week 6 October 1, 2003 Topic: Bond Valuation Description: While bonds are relatively safe investments, investors can certainly lose money on them. We will examine the different types of bonds, the types of risks to which investors and issuers are exposed, and the procedures used to determine the value and rates of return on bonds. Read: Chapter 9 Work: Problems 9-15, 19 (use the file Ch 09-19 Build a Model.xls) Midterm Exam 1 Due Week 7 October 8, 2003 Topic: Stock Valuation Description: The cash flows on common stocks are more difficult to predict than the cash flows received on bonds. We will examine models that can be used to estimate the true or intrinsic value of a common stock. Read: Chapter 10 Work: Problems 10-14, 15, 22 (use the file Ch 10-22 Build a Model.xls) Week 8 October 22, 2003 Topic: The Cost of Capital Description: The cost of capital is a critical element in business decisions. We will explore the determination of the cost of capital, which provides an important framework for both investment and financing decisions. Read: Chapter 11 (pp. 419-438, 445-452) and Mini Case (p. 458) Work: Problems 11-12, 18 (use the file Ch 11-18 Build a Model.xls) MBA 8401: Corporate Finance Page 5 of 7
  6. 6. Week 9 October 29, 2003 Topic: The Basics of Capital Budgeting: Evaluating Cash Flows Description: Investment opportunities available to firms need to be evaluated in terms of whether they will increase the value of the firm. We will explore various techniques used in the capital budgeting analysis. Read: Chapter 13 and Mini Case (p. 542) Work: Problem 13-29 (use the file Ch 13-29 Build a Model.xls) Week 10 November 5, 2003 Topic: Cash Flow Estimation Description: The most important and most difficult step in the capital budgeting process is the estimation of cash flows. We will develop a framework for analyzing a project’s cash flows and risk. Read: Chapters 14 (pp. 546-563) and 27 (pp. 1035-1039) Work: Problems 14-6, 11 (use the file Ch 14-11 Build a Model.xls) Midterm Exam 2 handed out Week 11 November 12, 2003 Topic: Capital Structures: The Basics Description: When a firm expands, it needs capital, which can come from debt or equity. The combination of debt and equity is called capital structure. We will explore the determination of the optimal capital structure as well as examine the effects of financial leverage on the stock price, earnings per share, and the cost of capital. Read: Chapters 16 and 27 (pp. 1040-1041) Work: Problem 16-4 Midterm Exam 2 Due Week 12 November 19, 2003 Topic: Dividend Policy Description: Successful companies earn income, which can be reinvested or distributed to stockholders. We will examine the firm’s optimal dividend policy and the factors that affect the dividend policy decision. Read: Chapter 18 Week 13 December 3, 2003 Topic: Current Asset Management and Short-Term Financing Description: Working capital policy involves decisions related to current assets. We will examine the management of current assets, specifically cash, marketable securities, inventory, and accounts receivables. Any decisions related to current assets include decisions about financing them. We will examine and evaluate alternative sources of short-term financing as well as alternative current asset financing policies. Read: Chapters 22, 23 and 27 (pp. 1041-1044) Work: Problem 23-17 MBA 8401: Corporate Finance Page 6 of 7
  7. 7. Week 14 December 10, 2003 Topic: Derivatives and Risk Management Description: The greatest growth and development in the last two decades has been in the area of derivatives. We will explore the basic principles of corporate risk management and the derivative instruments used in terms of a general description. Read: Chapter 24 Work: Problem 24-4a,b (use the file Ch 24-4 Build a Model.xls) Project Due Week 15 December 17, 2003 FINAL EXAM (7:00 p.m.) MBA 8401: Corporate Finance Page 7 of 7