BUSINESS FINANCE FIN 3715
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This 5 page Class Notes was uploaded by Arthur Dicki on Tuesday October 13, 2015. The Class Notes belongs to FIN 3715 at Louisiana State University taught by Staff in Fall. Since its upload, it has received 16 views. For similar materials see /class/222544/fin-3715-louisiana-state-university in Finance at Louisiana State University.
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Date Created: 10/13/15
E Oar50 Colage omez39 ess wwwbuslsuedu FIN 3715 Cou rse Objectives Finance 3715 is an introduction to the nance function within the rm The course objectives are to develop the nancial and analytical skills logical thought processes and information literacy necessary to make and implement strategic corporate nancial decisions in a global environment The course stresses the impact of a global economy and legal social technological and ethical considerations on ef cient economic outcomes Upon successful completion of this course students will have developed an understanding of rm organization principalagent relationships fundamental financial statement analysis shortterm working capital management riskreturn relationships timevalueof money valuation and capital budgeting as they relate to the nancial management of the rm and its interactions with the nancial markets Students will also obtain institutional knowledge of how nancial markets function and their roles in a free market economy Through assignments and inclass discussions students will develop the effective written and oral communication skills required to implement nancial decisions in the corporation Since most business activities involve collaboration among various individuals students will develop teamwork skills by engaging in group assignments and activities Coverage and Learning Outcomes Each instructor puts his or her personal stamp on their sections of FIN 3715 through creative and innovative exercises learning methods etc At the same time however all instructors will include the same minimum set of learning outcomes described below These topics are arranged in the one possible order your section may follow a different sequence Working capital management and global nance are integrated throughout the course In the learning objectives that follow WC indicates a working capital objective and G indicates a global nance objective By the end of the term all students should be able to demonstrate competence in each of the learning outcomes Overview 9 Be familiar with the major organizational structures of businesses proprietorship partnership and the corporation 9 Be able to describe the advantages and disadvantages of the publicly held corporation 9 Know the international equivalents of publicly held corporations joint stock companies public limited companies limited liability companies etc G 9 Be able to describe wealth maximization as the primary goal of the publicly held corporation and how nancial managers contribute to the attainment of this goal 9 Be able to describe and distinguish the two types of agency conflicts that exist in the publicly held corporation 9 Understand the relationship between the rm and the capital markets including the globalization of the nancial markets as capital ows across international boundaries G 9 Be able to distinguish the difference between primary and secondary markets and identify major secondary markets around the world NYSE NASDAQ London Tokyo etc G Review of Financial Statements o Understand and be able to distinguish between the three major financial statements the balance sheet the income statement and the statement of cash flows o Be able to distinguish between accounting revenues and expenses and cash flow o Be able to find any major accounting item on a financial statement For instance they should know that inventory is an asset payables are liabilities and cost of goods sold is an income statement expense o Be able to compile an indirect statement of cash flows sources and uses Financial Statement Analysis o Conduct financial statement analysis using the DuPont breakdown o Be able to analyze financial statements to assess the liquidity of a firm o Understand the uses and relationships between ratios common size statements and cash flows o Know how to conduct both trend analysis and industry comparisons o Students should understand the limitations of financial statement analysis o Be able to calculate and interpret the operating cycle and the cash cycle WC Financial Forecasting and Growth o Be able to construct a pro forma income statement and balance sheet using a percentofsales forecasting technique o Know how to use the pro forma financial statements to estimate the financing needs ofthe firm o Understand the use of target ratios trends etc as a means of customizing a percentofsales forecast to obtain better estimates o Be able to use the sustainable growth model to forecast sustainable growth rates for the firm and understand the influence of excess assets particularly inventories and receivables on sustainable growth WC TVM and DCF Valuation o Define an opportunity cost rate Q Be able to illustrate any TVM problem with a time line o Be able to express any TVM problem mathematically o Know how to calculate using a financial calculator and mathematically present and future values for Simple lump sums Uneven cash flows Annuities ordinary annuities due and perpetuities o Be able to adjust for compounding periods and calculate an effective annual rate EAR o Be able to apply TVM principles to amortize loans plan for retirement etc and EAR to calculating the cost of trade discounts WC o Be able to calculate present and future values for continuous compounding Interest Rates and Bond Valuation o Understand the general terminology and characteristics that describe bonds debenture indenture the role of a trustee ca provisions ca protection sinking fund restrictive covenants etc o Know the various types of bonds debentures mortgage bonds indexed bonds subordinated bonds convertible bonds income bonds Eurobonds foreign bonds treasury bonds and zerocoupon bonds Be familiar with the growth of international capital markets Eurobonds and foreign bonds G Know the bond pricing parameters and be able to price a bond Be able to calculate a yield to maturity and yield to call for any bond 99 Know how to decompose nominal interest rates into the real interest rate and the inflation component using the Fisher effect and understand the relationship between inflation interest rates and bond values Stock Valuation o Understand stock valuation as the sum of future expected cash flows discounted to the present time at an appropriate cost of capital o Be able to price stocks using the 1 zerogrowth perpetuity model 2 the constant growth perpetuity model and 3 the uneven supernormal growth model o Understand the rights of common stockholders and the differences between equity and debt o Know the characteristics of preferred and commons stock o Be familiar with the institutional details of the stock markets the role of a market maker and the differences between the NYSE and NASDAQ o Know the definition of an American Depository Receipt and be familiar with the proliferation of foreign firms that are traded on the NYSE G Capital Budgeting o Be able to express mathematically calculate and utilize the following techniques to make capital investment decisions Net Present Value Internal Rate of Return Payback and Discounted Payback o Know the pitfalls of using accounting rate of return and payback and why NPV is superior to other capital budgeting measures o Be able to demonstrate when IRR is equivalent to NPV for investment decisions o Understand how the profitability index is constructed and how it can be used to rank projects under capital rationing o Distinguish between opportunity costs sunk costs and externalities o Be able to estimate incremental operating project cash flows from revenue and cost estimates o Know how to determine the depreciable basis for an investment and be able to use the MACRS depreciation schedule to calculate incremental depreciation for capital projects o Be able to calculate the incremental salvage value for any capital project o Understand how capital projects affect working capital needs and know how to incorporate this additional capital investment into the analysis WC o Know how to conduct sensitivity and scenario analysis excellent opportunity for an Excel application o Understand the difference between the home currency approach and the foreign currency approach in international capital budgeting Risk Return amp Capital Markets o Students should understand the basic riskreturn tradeoff and how this relates to 1 average historical returns 2 risk premiums and 3 return variability o Be able to discuss the historical average returns and variability of large company stocks small company stocks longterm corporate bonds longterm government bonds and treasury bills within a riskreturn framework o Know the definition of an informationally efficient market and the implications for prices of securities that are traded in an efficient market o Be able to distinguish between the three forms of market efficiency weak form semistrong form and strong form and be aware ofthe empirical evidence on market efficiency Risk Return amp SML o Be able to calculate the expected return the variance the standard deviation and the coefficient of variation for any security given 1 a probability distribution or 2 a time series of historical data o Be able to distinguish between total risk and market risk o Know how a portfolio of stocks diversifies risk and be able to illustrate this concept by calculating the expected return for a portfolio and the variance and standard deviation for a twostock portfolio o Understand beta as a riskreturn measure and calculate portfolio betas given security betas o Be capable to using the security market line to estimate security returns and be aware of the evidence regarding the CAPM Cost of Capital and WACC o Be able to estimate the cost of debt for a firm as the yield to maturity on outstanding bonds o Be able to estimate the cost of preferred equity using the perpetuity model o Be able to estimate the cost of common equity using the CAPM or the constant growth model o Know how to combine each of the above to create a weighted average cost of capital o Understand when it is acceptable to use WACC as a discount rate in capital budgeting and be familiar with techniques that are used to adjust WACC for divisions with different risk o Know how to apply the cost of capital to making decisions about working capital policy using the NPV approach Raising Capital o Be able to compare and contrast the advantages and disadvantages of issuing debt versus equity o Understand the financing life cycle of a firm the role of venture capitalist and the issues involved in the goingpublic decision o Know the steps in the investment banking process and the institutional detail of the primary markets eg syndicates greenshoe options shelf registrations etc o Know the evidence and basic explanations for IPO underpricing o Understand the difference between an IPO and SEO Shortterm Financing and Planning o Be able to calculate and interpret the operating cycle and the cash cycle this was first introduced mechanically under financial statement analysis the impact of working capital management on the value ofthe firm should now be apparent WC o Students should know the differences and understand the riskreturn tradeoffs between an ideal hedged shortterm financial policy a flexible conservative policy and a restrictive aggressive policy as they relate to carrying costs and shortage costs o Understand the basic types of shortterm financing including 1 a line of credit 2 the role and cost of a compensating balance 3 letters of credit 3 accounts receivable financing or factoring 4 commercial paper including securitization and trade credit o Be able to calculate a cash budget for a firm Calculator Requirements Students are required to use a financial calculator capable of calculating NPV and IRR Recommended calculators are 1 TI BAII Plus 2 HP 108 or 3 HP17B The first two calculators sell for approximately 3540 and the last for about 95 Students should understand the intuition and mathematics underlying Time Value of Money and valuation exercises and not simply know calculator procedures Evaluation and Grading Grading should be objective and based on criteria stated in the syllabus Although grades will vary depending on the composition of the class the faculty consensus is that a reasonable average grade across all sections of FIN 3715 is in the range of 2629 Each instructor however has the right and the responsibility to determine the final grade distribution for his or her class Course syllabi should clearly state the grading criteria and the method of determining the student s grade A typical range for grade distributions afterwithdrawals is A B C D F 1525 2535 3050 545 05 Student Responsibility Students are responsible for attending all classes except as excused under PS 22 available on the LSU Web Viable excuses include documented sickness death in the immediate family or participation in university sanctioned activities Students who do not attend the first class meeting without making prior arrangements with the department may be dropped to provide space for other students Instructors will enforce the university policy on academic misconduct and will report suspected academic misconduct to the Dean of Students
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