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					      ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD
          (Department of Business Administration)
                                         *****




       FUNDAMENTAL OF CORPORATE FINANCE (579)



                                 (CHECKLIST)



                        SEMESTER: AUTUMN 2011


    This packet comprises the following material:

        1.   Text Book
        2.   Course Outline
        3.   Assignment No 1 & 2
        4.   Assignment Forms (2 sets)


In this packet, if you find anything missing out of the above mentioned material, please
contact at the address given below:


        Mailing Officer
        Mailing Section, Block No. 28
        Allama Iqbal Open University
        H-8, ISLAMABAD
        Ph: 051-9057611-12


                                                                    Course Coordinator
      ALLAMA IQBAL OPEN UNIVERSITY ISLAMABAD
          (Department of Business Administration)
                        WARNING
 1.   PLAGIARISM OR HIRING OF GHOST WRITER(S) FOR SOLVING
      THE ASSIGNMENT(S) WILL DEBAR THE STUDENT FROM AWARD
      OF DEGREE/CERTIFICATE, IF FOUND AT ANY STAGE.
 2.   SUBMITTING ASSIGNMENTS BORROWED OR STOLEN FROM
      OTHER(S) AS ONE’S OWN WILL BE PENALIZED AS DEFINED IN
      “AIOU PLAGIARISM POLICY”.

Course: Corporate Finance (579)                                   Semester: Autumn 2011
Level: MBA                                                              Total Marks: 100
                               ASSIGNMENT No. 1
Q. 1 Ahmed wants to save money to meet three objectives. First, he would like to be
     able to retire 30 years from now with retirement income of Rs.20,000 per month
     for 20 years, with the first payment received 30 years and 1 month from now.
     Second, he would like to purchase a flat in Lahore in 10 years at an estimated cost
     of Rs.325,000. Third, after he passes on at the end of the 20 years of withdrawals,
     he would like to leave an inheritance of Rs.750,000 to his nephew Ahmed. He can
     afford to save Rs.2000 per month for the next 10 years. If he can earn an 11 percent
     EAR before he retires and an 8 percent EAR after he retires, how much will he
     have to save each month in years 11 through 30?                                 (20)

Q. 2 (a)    A project that provides annual cash flows of Rs.24,000 for 9 years costs
            Rs.110,000 today. Is this a good project if the required return is 8 percent?
            What if it is 20 percent? At what discount rate would you be indifferent
            between accepting the project and rejecting it?                             (10)
      (b)   Sharmeen is trying to determine whether to expand her business by building
            a new manufacturing plant. The plant has an installation cost of Rs.18
            million, which will be depreciated straight-line to zero over its four-year life.
            If the plant has projected net income of Rs.1,632,000, Rs.2,106,500,
            Rs.1,941,700 and Rs.1,298,000 over these four years, what is the project’s
            average accounting return (AAR)?                                            (10)
Q. 3 Consider the following information?                                           (20)
         State of    Probability of state        Rate of Return if state occurs
        Economy          of Economy             Stock X      Stock Y      Stock Z
          Boom               0.20                 0.30          0.45         0.33
          Good               0.40                 0.12          0.10         0.15
          Poor               0.30                 0.01         –0.15        –0.05
          Bust               0.10                –0.06          0.30        –0.09
     i.     Suppose the portfolio you invested is 30 percent each in stock A and C, and
            40 percent in B. What is the expected return on portfolio?
     ii.    What is the variance of this portfolio? The standard deviation?

                                             2
Q. 4 “Sensitivity analysis is useful in pinpointing the areas where forecasting risk is
     especially severe.” Discuss the statement in detail and list down the drawbacks to
     the various types of what-if analysis.                                        (20)

Q. 5 “Managers should not focus on the current stock value because doing so will lead
     to an overemphasis on short-term profits at the expense of long term profits.”
     Critically evaluate the statement.                                          (20)

                              ASSIGNMENT No. 2
                                                                    Total Marks: 100
                                                                     Pass Marks: 40
       This assignment is required to be presented in the workshop, which is expected at
the end of the semester, probably prior to your final examination. Your attendance and
presentation of the assignment in workshop in compulsory without which you will not be
allowed to appear in the final examination in any case. You are also advised to prepare
two copies of this report. Submit one copy to your tutor as per due date given in your
tutorial schedule, attempt to incorporate examples from the newspapers, research journals
and magazines you studied in relation to the subject courses. Remember, to provide the
reference from where you quoted the example or source of data, otherwise it would be
consider plagiarized.
       Use the second copy of resource person in workshop for presentation in the
workshop. During the presentation, you can bring supporting material liked
transparencies and visual aids. You must ask for your support on your own analysis
regarding organization chosen. Placed below are 10 topics of which you should select
only one for writing a paper consisting of 30 typed pages.
       Your are also required to select one of the following topics according to the last
digit of your roll number. For example, if your roll number is D-3427185 then you will
select topic # 5 (the last digit). The report should include:-
a)     Introduction to the topic
b)     Important sub-topics
c)     Practical study of the organization with respect to the topic
d)     Review of theoretical and practical situations
e)     Merits, de-merits of the organization with respect to the topic
f)     Conclusion and recommendation
g)     Annex, if any
List of Topic:
1.     Decision trees and subsequent decisions for two mutually exclusive projects
2.     General cash offers by any public limited company of Pakistan
3.     Impact of mergers and acquisitions upon the financial environment of Pakistan
4.     The effect of financial leverage upon stockholders of a corporation
5.     Working capital issues in a corporation
6.     Cash management in banking sector of Pakistan
7.     Various forms of debt financing available in Pakistan for a corporation
8.     A company’s procedure for selling securities to the public
9.     Cost of capital and capital structure of a business organization
10. Reasons for issues warrants and convertibles by the corporations

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          FUNDAMENTAL OF CORPORATE FINANCE
                Course Outline (MBA-579)
UNIT 1: VALUE
        1. Why Finance Matters?
               The Role of The Financial Manager
               Organizing a Business
        2. Present Value and the Opportunity Cost of Capital
               Introduction to Present Value
               Foundation of The Net Present Value Rules
        3. How to Calculate Present Values?
               Valuing Long - Lived Assets
               Looking for Shortcuts- Perpetuities and Annuities
               Compound Interest and Present Values
               Nominal and Real Rates of Interest
               Using Present Value Formulas to Value Bounds
        4. The Value of Common Stocks
               How Common Stocks are Traded?
               How Common Stocks are Valued?
               How to Estimate the Capitalization Rates?
               The Link Between Stock Price and Earnings Per Share
               Valuing a Business by Discounted Cash Flow
        5. Why Net Present Value Leads to Better Investment Decisions Than
           Other Criteria?
               Net Present Value’s Competitors
               Payback
               Average Return on Book Value
               Internal (or Discounted-Cash-Flow) Rates of Return
        6. Making Investment Decision with the Net Present Value Rules
               What to Discount?
               Project Interactions

UNIT 2: RISKS
        1.  Introduction to Risk, Return, and the Opportunity Cost of Capital
                 Measuring Portfolio Risk
                 Calculating Portfolio Risk
                 How Individual Securities Affect Portfolio Risk?
                 Diversification and Value Additively
        2.  Risk and Return
                 The Relationship Between Risk and Return
                 Validity and Role of The Capital Asset Pricing Model
                 Some Alternative Theories
        3.  Capital Budgeting and Risk
                 Measuring Betas
                 Capital Structure and The Company Cost of Capital
                 Setting Discount Rates When You can’t Use A Beta Book

                                       4
UNIT 3: PRACTICAL PROBLEMS IN CAPITAL BUDGETING
        1.  A Project is Not a Black Box
                Sensitivity Analysis
                Monte Carlo Simulation
                Decision Trees and Subsequent Decisions
        2.  Where Positive Net Present Value Come From?
        3.  Organizing Capital Expenditure and Evaluating Performance
                Capital Budgets and Project Authorizations
                Evaluating Performance
                What can’t we do About Biases in Accounting Profitability Measures?

UNIT: 4 FINANCING DECISION AND MARKET EFFICIENCY
        1.  Corporate Financing and the Lessons of Market Efficiency
               We Always Come Back to NPV
               What is An Efficient Market?
               The Lesson of Market Efficiency
        2.  An Overview of Corporation Financing
               Common Stock
               A Look At Debt, Preferred, and Convertibles
               Patterns of Corporate Financing
        3.  How Corporations Issue Securities?
               Venture Capital
               The Initial Public Offering
               General Cash Offers By Public Companies
               The Role of The Underwriters
               The Private Placement

UNIT 5: DIVIDEND POLICY AND CAPITAL STRUCTURE
        1.  The Dividend Controversy
                 How Dividends are Paid?
                 How Do Companies Decide on Dividend Payments?
                 Controversy About Dividend Policy
                 The Rightist
                 Taxes and The Radical Left
        2.  Dose Debt Policy Matter?
                 The Effect of Leverage In A Competitive Tax-Free Economy
                 How Leverage Affects Returns
                 The Traditional Position
        3.  How Much Should A Firm Borrow?
                 Corporate Taxes
                 Corporate and Personal Taxes
                 Cost of Financial Distress
                 The Pecking Order of Financing Choices
        4.  Interactions of Investment and Financing Decisions
                 The After-Tax Weighted -Average Cost of Capital
                 Adjusted Present Value
                 Adjusted Discount Rates and Adjusted Present Value
                 Discounting Safe, Nominal Cash Flows
                                         5
UNIT 6: OPTIONS
        1.  Corporate Liabilities and the Valuation of Options
                Calls, Puts, and Shares
                Holding Calls, Puts, and Shares In Combination
                What Determines Option Values?
        2.  Application of Option Pricing Theory
                The Value of Follow-On Investment Opportunities
                The Option to Abandon
                The Timing Option
                Flexible Production Facilities
        3.  Warrant and Convertibles
                What Is Warrant?
                What Is Convertible Bonds
                The Difference Between Warrants and Convertibles
                Why Do Companies Issue Warrants and Convertibles
UNIT 7: DEBT FINANCING
        1.  Valuing Risky Debt
                The Classical Theory of Interest
                Term Structure and Yields to Maturity
                Duration and Volatility
                Explaining The Term Structure
                Allowing for The Risk of Default
        2.  The Many Different Kinds of Debt
                Domestic Bounds, Foreign Bounds and Eurobonds
                The Bonds Contract
                Security and Seniority
                Repayment Provisions
                Restrictive Convents
                Private Placement and Project Finance
                Innovation in The Bond Market
        3.  Hedging Financial Risk
                Insurance
                Hedging With Futures
                Forwards Contents
                Swaps
                How to Set Up A Hedge?
                Is “Derivative” A Four Letter Word?
        4.  Leasing
                What is A Lease?
                Why Lease?
                Operating Leases
                Valuing Financial Leases
                When Do Financial Lease Pay?
                Evaluating A Large, Leveraged
UNIT 8: FINANCIAL PLANNING
        1.  Analyzing Financial Performance
                Financial Ratios
                The Earning Record

                                     6
                 Application of Financial Analysis
        2.   Approaches to Financial Planning
                 What Financial Planning
                 Three Requirements for Effective Planning
                 Financing Planning Models
                 External Financing and Growth
        3.   Short Term Financial Planning
                 The Components of Working Capital
                 Links Between Long Term and Short Term Financing Decisions
                 Tracing Changes in Cash and Working Capital
                 Cash Budgeting
                 The Short Term Financing Plan
        4.   Credit Management
                 Terms of Sale
                 Commercial Credit Instruments
                 Credit Analysis
                 Credit Decision
                 Collection Policy
        5.    Cash Management
                 Inventories and Cash Balances
                 Cash Collection and Disbursement Systems
                 Bank Relations
        6.   Long Term & Short Term Lending and Borrowing
                 Short-Term Lending
                 Money Market Investments
                 Floating-Rate Preferred Stock-An Alternative to Money-Market
                  Investment
                 Short Term Borrowing
                 Term Loans
UNIT 9: MERGERS AND INTERNATIONAL FINANCE
        1. Mergers
                Estimating The Economic Gains and Cost From Mergers
                Sensible Motives For Mergers
                Some Dubious Reasons For Mergers
                Estimating The Cost of A Mergers
                The Mechanics of A Merger
                Merger Tactics
                Leveraged Buy-Outs
                Mergers and Economy
        2. International Financial Management
                The Foreign Exchange Markets
                Some Basic Relationship
                Insuring Against Currency Risk
                International Investment Decisions
                The Cost of Capital for Foreign Investments
                Financing Foreign Operations
                Political Risk
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Description: DOWNLOAD Assignments Autumn Semester 2011 for Post Graduate / M.Phil / Ph.D. Courses