Instructor:
MBA 606 FINANCIAL MANAGEMENT Spring 2007 Dr. Sung C. Bae Professor of Finance 204 BA Building Tel) 419-372-8714; Fax) 419-372-2527; E-mail) bae@bgsu.edu 11:00 a.m. – noon, Tuesday and Thursday or by appointment (An appointment sheet is posted on the office door.) (1) (2) Financial Management: Theory and Practice, 11th ed. Brigham and Ehrhardt (Thomson/South-Western, 2005) Course Package (Class Notes, Readings, and Cases): available from “Courses\Course Documents” at: http://my.bgsu.edu (Blackboard) Study Guide, 11th ed., Brigham and Ehrhardt (Thomson/S-W, 2005) Fundamentals of Financial Management, 11th ed. Brigham and Houston (Thomson/South-Western, 2007) Wall Street Journal, Business Week, Baron’s
Office Hours: Required Text:
Suggested Text:
(1) (2) (3)
Course Objectives: This course will provide students with the analytical techniques necessary in evaluating the two most important decisions taken by the financial manager of a modern business entity; the investment decision and the financing decision. Under the caption of investment decision, we shall study valuation, risk and return, the capital asset pricing model, cash flow estimation, and risk analysis in capital budgeting. Analysis of financing decision will embrace questions regarding the optimal capital structure, dividend policy, short- and long-term financing decision, and the cost of capital. This course will also cover mergers and acquisitions. Theories and principles are studied with a view to application to real case problems. The objective is to provide students with both the theoretical knowledge and the skills necessary for reaching correct management decisions in these areas of finance. Students are expected to become thoroughly familiar with the contents of assigned readings. Class lectures will focus only on the major points of each topic. Financial Calculator The concept of time value of money is an important part of business finance and is applied to almost all finance decisions. To facilitate easy and quick calculations of TVM problems, students are required to possess a financial calculator (e.g., HP10B II, HP12C, HP12C Platinum, TI BAII PLUS, etc.) for classroom usage. Tutorial manuals for these financial calculators are available from: “Courses\Course Documents” at: http://my.bgsu.edu (Blackboard). While I will demonstrate usage of these calculators in class, it is each student’s responsibility to read the manuals and learn how to use the calculator(s). Group Cases: We will cover FIVE cases for team analysis. The class will be divided into FIVE teams. Each team has to select ONE PRIMARY case and TWO SECONDARY cases from the five cases. Each team has to submit a written report and make an oral presentation pertaining to the primary case. Besides, each team has to turn in a written report on each of its secondary cases, for which no oral presentation is required. At the beginning of second class meeting, each team should turn in a list of team members’ names. Given below is a detailed note regarding oral presentation and case reports. i) About the Oral Presentation of the Primary Case Each team has about 30 minutes to present the case. ALL team members should participate in the presentation with about equal time of presentation. Each presenter will be graded on the clarity, MBA 606 - Financial Management, Spring 2007 (1)
organization, and professionalism of the presentation as well as on his/her ability to respond to questions from the audience. All teams are enjoined to use visual aids (e.g., tables and slides). Each member must know the case very well; responsibility regarding the knowledge about different aspects of the case must not be apportioned among the members of the team. ii) About the Written Report All case analyses must lead to action-oriented recommendations; try to define alternatives, probable outcomes; make a decision, then defend it. The most important aspect of the report is the effectiveness, accuracy, and consistency of the proposed solution to the problem. The grade on the report will also depend upon the style, clarity, and organization of the writing. Whatever may be the approach, the team must make sure that its final recommendation is unambiguously contained in the report. All reports should be typewritten with double spacing, at least one inch margin on all sides of letter-size paper, and at least Times New Roman 11-font size. The text of the report must not exceed five pages, and the total report, including tables, exhibits, and charts, must be confined to ten pages. Given this page constraint, it is extremely important that the report be precise. One should avoid quoting facts from the case unless it is germane to the point under consideration; irrelevant writing will be penalized. The case written report should be turned in at the beginning of the presentation day of the pertaining case. Late reports will NOT be accepted, and reports that do not meet the format/style requirements will be given a 20% penalty. Exams: There will be two exams given; one mid-term and a final. Final exam will be non-cumulative. All topics detailed in the course schedule are relevant for the exam. Students are also responsible for any additional material covered in class that may not be in the text or class notes. The exam is closed-book and closednotes. Students may bring a formula sheet for use in the exam. No make-up exam will be given. Chapter Readings, End-of-Chapter Questions and Problems, Self-Study CD-ROM: Students are expected to become familiar with the contents of assigned chapters and readings. Class lectures will focus on a few major points of those materials; hence, it is important for students to read assigned chapters and materials in advance and prepare for class discussion. Each chapter of the textbook is accompanied by end-of-chapter problems and a mini case. These problems are the most effective way to test students’ mastery of the concepts in each chapter. Answers for the end-of-chapter problems are available in the Appendix at the end of the textbook. Answers for mini cases are available on the Student CD (PowerPoint and Mini case models on the menu) which is enclosed in the textbook. The Student CD also offers an access to the Brigham web site for additional questions, problems, and study-guide materials. Individual Research Work Assignments From time to time I will assign research work on current, practical issues of corporate finance and collect its reports for grading. Students are strongly encouraged to use Compustat’s Research Insight database for companies’ accounting and financial statements which can be accessed at CBA computer labs. The report should be within TWO pages with double spacing, at least one inch margin on all sides of letter size paper, and at least TNR 11-font size. Late reports will NOT be accepted, and reports that do not meet the format/style requirements will be given a 20% penalty. A Note on Peer Evaluation You should note that a large proportion of your grade will be a function of the performance of your team. As a way to discourage a person(s) from letting the other members do all of the work (namely, a free-rider), there will be a peer evaluation during the last class. For this purpose, I will distribute a peer evaluation form to each student for the contribution weights for all of his/her members including himself/herself. I assure you that if you do not contribute your fair share, your fellow team members will let it be known. If you do not work as hard as other members of your team, then you should not expect to share fully in the team's grade. According to the contribution weights summed up, the group case grade will be re-adjusted, if necessary. MBA 606 - Financial Management, Spring 2007 (2)
Seating Chart I will use a seating chart to call on students and shall ask the students to pick a seat and then remain in that seat throughout the semester. Students are also required to bring a name stand to class. A Note on Material Retaining Policy All major papers, projects, quizzes, and exams will be retained by the instructor. If students want a copy of their report, they should make one before the report is turned in. Grading: The final grade will be determined according to the following weights: Weight Mid-term exam 25% Final exam 25% Group case analysis 35% Written: 10% each; Oral: 5% Individual research work 15% Total 100%
Points 100 100 140 60 400
Course Schedule: Students are responsible for being aware of any changes in the following course schedule to be announced in class. Additional assignments and handouts may be passed out in class which each student is also responsible for obtaining. ============================================================================ Date Topics/Cases/Readings Chapters SESSION I: Overview Jan 9 (T) 1. Financial Management Function 1 11 (R) 2. Basic Accounting Review 3 16 (T) 3. (U.S. Financial Markets and Institutions) 1 4. Determination of Interest Rates 1 18 (R) 5. Time Value of Money & Net Present Value 2 23 (T) 25 (R) 30 (T) Feb 1 (R) 6 (T) 8 (R) SESSION II: Valuation of Securities 1. Valuation of Bonds 2. Valuation of Stocks SESSION III: Corporate Investment and Capital Budgeting Decisions 1. NPV Rule and Alternative Investment Decision Rules 2. Cash Flow Estimation 3. Application of NPV Rule to Capital Budgeting Decisions Reading – Cash Flow Analysis Example (RIC Project) 6 7 10 10,11 11
CASE DISCUSSION I: LOTIS ELECTRONICS (sequential investment strategies) SESSION IV: Risk Analysis in Capital Budgeting 1. Modern Portfolio Theory 2. Concepts of the Capital Asset Pricing Model Reading – Does the CAPM Work? (by D. Mullins) 3. Application of the Capital Asset Pricing Model Reading – Investment Decisions Using the CAPM (by F. Weston) 4. Determining Cost of Capital 4,5 5 5,11 9
13 (T) 15 (R) 20 (T) 22 (R) 27 (T) Mar 1 (R)
CASE DISCUSSION II: NYSA RESOURCES CORP. (multinat’l capital budgeting) MID-TERM EXAM
MBA 606 - Financial Management, Spring 2007 (3)
Wk Date Mar 13 (T) 15 (R) 20 (T)
Topics/Cases/Readings
Chapters
SESSION V: Advanced Topics in Corporate Investment Decisions 1. Capital Budgeting Process - Practice and Strategy 11 Reading – The Theory and Practice of Corporate Finance (Graham & Harvey, 2001) 2. Real Options and their Applications 8,12 3. Performance Measurement – EVA and MVA 3 Reading – Resource Management in Whirlpool Corporation SESSION VI: Financial Analysis and Corporate Valuation 1. Financial Statement Analysis 2. Financial Forecasting Reading – Forecasting Financial Requirements (RPS Corp.) 3. Value-Based Management 13 14 15
22 (R) 27 (T) 29 (R)
CASE DISCUSSION III: CERAMIC STRUCTURES ENG. (financial forecasting) SESSION VII: Corporate Financing Decisions 1. Short-term Financing Sources 2. Long-term Financing Sources and Decisions Reading – Financing Capital Requirements (HTI Co.) 3. Capital Raising Process and Security Offerings
Apr 3 5
(T) (R)
22 20,21 19
10 (T) 12 (R) 17 (T)
CASE DISCUSSION IV: ENVIRONGARD CORP. (long-term financing decision) SESSION VIII: Capital Structure Decisions and Dividend Policies 1. Determining Optimal Capital Structure 16,17 2. Capital Structure Decision Process - Practice and Strategy 17 Reading – The Theory and Practice of Corporate Finance (Graham & Harvey, 2001) 3. Dividend Policies 18 4. Stock Splits, Stock Dividends, and Stock Repurchases 18 Reading – Payout Policy in the 21th Century (Brav et al., 2003) CASE DISCUSSION V: HANSEN MINERAL RESOURCES (dividend policy) SESSION IX: Corporate M&As and Restructuring 1. Merger Analysis 2. Corporate Restructuring Reading – RJR Nabisco’s LBO Transaction Reading – Case Study of Safeway Stores Leveraged Buyout Reading – Case Study of OCF Leveraged Recapitalization SESSION X: Corporate Risk Management Corporate Risk Management using Derivatives 25 25
19 (R) 24 (T)
26 (R)
23
April 30 (M) FINAL EXAM: 3:30 – 5:30 p.m. ===========================================================================
MBA 606 - Financial Management, Spring 2007 (4)