MGTA 341 by Levone


									                                          FINA 363
                                   Finance Fundamentals
                           Cohort 20B – Updated November 3, 2006

Instructor:   Dr. Fred Fortunato                           Office Phone 8344
              E-mail                Cell Phone 417-379-0959

Course Description: Students will study principles and problems involved in the finance
function of the firm, including taxes, cash flow, capital management, budgets, reorganization,
and investments.

Course Objectives: Course objectives are as follows:
   Prior to and during session one
       1. Categorize key participants in financial transactions and the basic activities of
           financial institutions.
       2. Identify different measures of performance that can be used to evaluate a business firm.
       3. Appreciate that cash is the lifeblood of a business enterprise.
       4. Create cash budgets for the short-term.
   Prior to and during session two
       1. Define the concept of time-value of money.
       2. Realize the meaning and fundamentals of risk and return.
       3. Apply the basic valuation model to all types of cash flows.
   Prior to and during session three
       1. Value the concept of market efficiency related to valuation.
       2. Understand basic definitions used in capital budgeting.
       3. Calculate, interpret, and evaluate capital budgeting techniques.
       4. Examine the role of risk in the capital budgeting process.
   Prior to and during session four
       1. Determine the short-term and long-term cost of capital.
       2. Differentiate between debt and equity capital.
       3. Recognize the financial planning process, including the role and interrelationship
           between long-term and short-term plans.
   Prior to and during session five
       1. Analyze credit terms offered by suppliers.
       2. Calculate effective interest rates.
       3. Evaluate the lease vs purchase decision.
       4. Discuss the principles learned in finance.
       5. Summarize ways to make application in your workplace.

Required/Recommended Materials:
   Text: Principles of Managerial Finance Gitman, Lawrence J. Eleventh edition, 2006,
          Pearson/Addison Wesley. (Required)
   Calculator: Texas Instruments BA-II Plus.

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                                     FINA 363, continued

Class Assignments:
The practical nature of the Evangel University degree completion program is designed for
learners to apply theory to real-life situations. The assignments for this module are designed to
enable students to apply text theory to their current work position and continue their personal
professional development. Accordingly, please be prepared to share assignments with your
colleagues during class time. During the next five weeks you will be doing work-related
All written homework should be presented in a professional manner. While problem-solving
work should be done on a spreadsheet program when possible, hand-written work for problems
will be accepted. Always include appropriate headings to your papers, no cover page is required,
and include your name and school number. Finish each assignment separately for easier grading.
You must show all your work, don’t just right down an answer and expect to receive credit.
In-class activities may be handwritten and informal. Please be prepared to discuss the objectives
contained in the assigned readings. You may call or e-mail the instructor with questions.
Homework will be collected each week. There will be an exam in each of the class sessions
beginning on the second night of class. (Four exams total.)

Week 1: To be completed prior to and submitted on the first night of class.
READ: Gitman, Chapter 1, The Role and Environment of Managerial Finance
   Demonstrate the discipline’s importance to students of all majors and the usefulness of
      the topic to individuals in their roles as consumers, investors, employees, and citizens.
   Establish the goal of the corporation: shareholder wealth maximization.
   Familiarize students with concepts that will recur throughout the text, including fixed and
      residual claims, bonds and stocks, markets, agency problems, forms of organizations and
      economic considerations.
   Discuss the fundamentals of business taxation of ordinary income and capital gains, and
      explain the treatment of tax losses.
       Chapter 1, pp 39-40, problems 1-6, 1-8, & 1-11. 20 points SHOW ALL YOUR WORK.
READ: Gitman, Chapter 2, Financial Statements and Analysis
   Appreciate financial analysis more broadly than the mechanical evaluation of standard
     financial ratios.
   Evaluate the standard techniques of trend and common size analysis of financial statements
     and demonstrate the importance of comparing ratios and stock returns to benchmarks.
   Discuss the relationship between debt and financial leverage and the ratios used to analyze a
     firm’s debt.
   Analyze a firm’s profitability and its market value using ratios.
READ: Gitman, Chapter 3, Cash Flow and Financial Planning
   Grasp the importance of cash flow.
   Understand why net income is not an accurate measure of cash flow.
   Identify several ways to estimate future cash flows.
   Construct a pro forma income statement.
   Explain the financial planning process, including long-term and short-term plans.

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                                     FINA 363, continued

Week 2: To be completed prior to and submitted on the second night of class.
PROBLEMS: From the first night’s discussions.
       Chapter 2, pp 84 #2-3 & pp 93 #2-20. 20 points, (All the ratios from #20 will be on the
         exam. Prepare a reference list for your use.).
       Chapter 3, pp 137 #3-3 (tax rate 34%) & pp 140 #3-10 on a spreadsheet. 20 points
READ: Gitman, Chapter 4, Time Value of Money
   Distinguish between simple and compound interest and have an appreciation for the
     effect of compounding on either the present value or the future value of cash flows.
   Solve for the present value or the future value of a single cash flow using simple or
     compounded interest.
   Solve for either the number of periods or the interest rate for a single cash flow problem
     where all other variables are know.
   Solve a multiple cash flow problem by continuously applying the single cash flow
   Solve for annuities and perpetuities.
   Understand and solve loan amortization problems as being an application of the annuity
READ: Gitman, Chapter 5, Risk and Return
   Review the meaning and fundamentals of risk, return, and risk preferences.
   Analyze the portfolio effect; the risk of diversified portfolios is reduced to market risk
   Discuss the measurement of return and standard deviation for a portfolio and the various
     types of correlation.
   Identify the origin and application of beta.
   Discuss the security market line and the capital asset pricing model and their application
     to security pricing.
READ: Gitman, Chapter 6, Interest Rates and Bond Valuation
   Describe interest rate fundamentals, the term structure of interest rates, and risk premiums.
   Apply the basic valuation model to bonds and describe the impact of required return and
     time to maturity on bond values.
   Solve for the price of a bond.

Week 3: To be completed prior to and submitted on the third night of class.
PROBLEMS: From the second night’s discussions.
       Chapter 4, pp 204-215 #4-1, 4-4, 4-7, 4-11, 4-16, 4-18a(1), 4-19a(2), 4-21a.b.c, 4-25b,
         4-30, & 4-46 (a loan amortization schedule is on page 194, table 4.8). 55 points
       Chapter 5, pp 264 #5-10 using a spreadsheet & pp 269 #5-22. 20 points
       Chapter 6, pp 313-320 #6-3, 6-11, 6-16, 6-24, & 6-25. 25 points
READ: Gitman, Chapter 7, Stock Valuation
   Differentiate between debt and equity capital.
   Discuss the concept of market efficiency and basic common stock valuation under zero
     growth and constant growth.
   Solve for the price of a share of preferred stock.

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                                     FINA 363, continued

      Solve for the price of a share of common stock whose dividends are judged to grow at a
       constant rate.
      Explain the relationships among financial decisions, return, risk, and the firm’s value.
READ: Gitman, Chapter 8, Capital Budgeting Cash Flows (pp 374-384 only)
   Understand the key motives for capital expenditure.
   Define basic capital budgeting terminology.
READ: Gitman, Chapter 9, Capital Budgeting Techniques
   Introduce students to the basics of the corporate investment decision.
   Recognize how markets create investment opportunities.
   Calculate, interpret, and evaluate three capital budgeting techniques; payback period, net
     present value and internal rate of return.
   Provide an opportunity to synthesize and reinforce much of the material covered in
     previous chapters.
READ: Gitman, Chapter 10, Risk and Refinements in Capital Budgeting (pp 450-459 only)
   Understand the importance of risk in the capital budgeting process.

Week 4: To be completed prior to and submitted on the fourth night of class.
PROBLEMS: From the third night’s discussions.
       Chapter 7, pp 361-362 #7-5, 7-7, 7-8, & 7-9. 20 points
       Chapter 8, pp 403 #8-5. 20 points
       Chapter 9, pp 438-442 #9-3, 9-5, 9-10, 9-12, & 9-16a,c,d,e, and pp 440 #9-9 using a
         spreadsheet. 30 points
       Chapter 10, pp 480 #10-2. 20 points
READ: Gitman, Chapter 11, The Cost of Capital
   Estimate the after-tax cost of debt, the cost of preferred stock, and the cost of equity using
     two methods; the CAPM approach and the discounted cash flow approach.
   Adjust these estimates for the costs of raising capital from outside sources.
   Combine all previous objectives and calculate the WACC.
   Explain the RADR and when it should be used rather than the WACC.
READ: Gitman, Chapter 12, Leverage and Capital Structure
   Explain how the “magnifying” effect of debt’s use on both good and bad operating results
     may increase the expected level of cash flows but also my increase risk.
   Realize that when corporations are taxed, debt acts as a tax shield and can increase the
     firms’ value.
   Recognize that debt forces the firm to pay out a part of its free cash flow, thereby
     lowering potential agency costs and increasing the value of the firm.
   Discuss the use of debt as a credible signal that the expected level of future cash flows is
     high enough to meet fixed obligations.
   Discover that the optimal capital structure is a trade-off that balances the benefits of
     leverage against the likelihood and size of potential bankruptcy costs.
READ: Gitman, Chapter 13, Dividend Policy
   Realize that dividend policy impacts stockholder’ wealth.

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                                       FINA 363, continued

      Discover that the board of directors of a company is responsible for synthesizing residual
       dividend policy, the implications of signaling, investor expectations, and agency costs.
      Combine all of the above into a coherent logical approach to setting dividend policy and
       come up with the value of the dividend.
      Explain stock repurchases, stock dividends, and stock splits and why such actions may
       (or may not) affect stockholders’ wealth.

Week 5: To be completed prior to and submitted on the fifth night of class.
PROBLEMS: From the fourth night’s discussions.
       Chapter 11, pp 526-530 #11-6, 11-9, & 11-16. 20 points
       Chapter 12, pp 576 #12-5 and pp 582 12-23 using a spreadsheet. 20 points
       Chapter 13, pp 612-616 #13-3, 13-7, & 13-11. 20 points
READ: Gitman, Chapter 14, Working Capital and Current Assets Management
   Introduce the concept of working capital and how working capital management adds
     value to the firm.
   Present what managers must address in striking a balance in managing cash, inventory
     and receivables.
   Describe the cash conversion cycle, its funding requirements, and the key strategies for
     managing it.
   Identify the management or receipts and disbursements, including float, speeding
     collections, slowing payments, zero balance accounts, and investing in marketable
READ: Gitman, Chapter 15, Current Liabilities Management
   Review the key components of a firm’s credit terms and the procedures for analyzing
   Realize the effects of stretching accounts payable with the firms’ suppliers.
   Describe the interest rates and basic types of unsecured bank sources of short-term loans.
   Calculate effective interest rates.
READ: Gitman, Chapter 16, Hybrid Derivative Securities (pp 708-717, Leasing)
   Review the basic types of leases and leasing arrangements.
   Evaluate the lease-versus-purchase decision.
   Describe the effects of leasing on future financing and the advantages and disadvantages
     of leasing.
PROBLEMS: To be turned in at the end of class.
      Chapter 14, pp 660-663 #14-1, 14-3 & 14-13. 20 points
      Chapter 15, pp 694-696 #15-2, 15-8, 15-9, 15-10, & 15-13. 20 points
      Chapter 16, pp 737 #16-4. 20 points

Grade Determination and Class Attendance:
The purpose of this course is to acquaint students with the fundamentals of Finance and relate them
to their chosen areas. It is expected that good written and oral skills will be practiced by all. Keep
this in mind when completing your assignments.

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                                        FINA 363, continued

All assignments will be assigned a point value based on the relative importance when compared to
other course assignments. See “Grading Scale” and “Distribution of Points”, for further discussion
and grading criteria.
Late assignments will be penalized. All work is due on the assigned due date. If you are absent
from class, please e-mail your assignment or give it to a classmate to submit. Work not received by
the end of the class period on the date due will be penalized 25% for each day (24-hour period, or
fraction thereof) it is late.
If you miss class, you will lose the class participation points for that class. In addition, please notify
the instructor in writing (prior to the class, if possible) to arrange to make up assignments and/or
tests you may miss.

                              Grading Scale (based on 870 total points)
        A:      93%       809 points                             C:     73%        635 points
        A-:     90%       783 points                             C-:    70%        609 points
        B+:     87%       757 points                             D+:    67%        583 points
        B:      83%       722 points                             D:     63%        548 points
        B-:     80%       696 points                             D-:    60%        522 points
        C+:     77%       670 points                             F:     <60%       <522 points

                                        Distribution of Points
      Chapter Problems (see assignments for details)                             370
      Attendance/Participation (20 per class, must be present)                   100
      Course Exams (4 @ 100 points each)                                         400
      Total                                                                      870

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                                                      FINA 363, continued

                                                     Grade Tracking Grid

                                                                                      Points                   Points
Assignment                                                   Week                    Possible                  Earned
Chapter problems and questions                                 1                        20
Participation                                                  1                        20
Chapter problems and questions                                 2                        40
Participation                                                  2                        20
Course Exam                                                    2                       100
Chapter problems and questions                                 3                       100
Participation                                                  3                        20
Course Exam                                                    3                       100
Chapter problems and questions                                 4                        90
Participation                                                  4                        20
Course Exam                                                    4                       100
Chapter problems and questions                                 5                       120
Participation                                                  5                        20
Course Exam                                                    5                       100
Total Points                                                                           870

   Evangel University abides by Section 504 of the Rehabilitation Act of 1973, which stipulates that no student shall be denied the benefits of
   an education "solely by reason of a handicap." Disabilities covered by law include, but are not limited to, learning disabilities and hearing,
   sight or mobility impairments. If you have a disability that may have some impact on your work in this class and for whic h you may require
   accommodations, please see me or the staff at Academic and Career Development, Student Union, Suite 107, so that such accommodations
   may be arranged.

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