University of Arkansas
Sam M. Walton College of Business
Advanced Financial Management
FINN5303, Spring 2003
Lectures: Tuesdays&Thursdays, 6:00-8:50 p.m.; Business Bldg. 338
Instructor: Tomas Jandik (pronounce „Yandik‟)
Office: Business Building 321
Phone: (479) 575-6147
Office hours: Wednesdays 5:00-5:45 p.m., and by appointment.
“The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right. Greed
works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.”
(Gordon Gekko in movie „Wall Street‟)
“Oh, smashing, groovy, yay capitalism!”
(Austin Powers in movie “Austin Powers:
International Man of Mystery)
Welcome to the Advanced Financial Management, the cooolest college course, ever . This
course is primarily a corporate class, based on frequent analysis of financial cases. The main goals of this
course will be:
1) to show you some practical applications of theoretical concepts that you learned in your Financial
Management and Investment courses. For example, we will discuss advanced capital budgeting
decisions, practical impact of firms capital structure and dividend choices, as well as usage of option
valuation techniques in corporate finance.
2) to familiarize you with additional computation techniques used in corporate finance – such as
financial planning models used to determine company’s long-term financing needs, valuation using
discounted cash flows, and valuation techniques for estimating firm’s real option values.
3) to introduce you to some additional interesting, previously uncovered corporate finance topics, such
as bankruptcy, firm compensation policies, as well as issues of optimal corporate governance.
To sum it all, we will learn why greed (or less emphatically, the ever-present desire to make more money)
works – by analyzing the sources of value creation and ways how investors, and more importantly,
company managers, can influence both cash flows and risk of investment to enhance shareholder value.
This course is elective and as such it covers a lot of material and is very challenging. However, the
work and lectures are designed to help you succeed. If you keep up with the reading assignments and spend
time working the problems, you will do well in the course.
My goal is to see you learn. I want you to do well and I use a straight scale, so lots of people can
get A's if the class as a whole is highly motivated. Plus, I will do my best to help you to understand the
material and to do well on the exams. I realize that you have a busy schedule and often face difficulty in
getting enough time to study. This makes it all the more important to get involved while you are here. We
are going to have fun but expect to work hard. Remember, Financial Management and Investment are
prerequisites for this course, some of material we will cover has already been covered in the introductory
course. However, the level of difficulty and the pace will be higher.
I expect you to work hard because the material will help you to do better in your career. The ideas
in this course are some of the most important in business and require that you really work hard to
understand the material.
If you feel you cannot commit the necessary time to learning this material at this point in your
education, I recommend you drop the course now and re-register for it at a more appropriate time.
Course Prerequisites: FINN5203
1) Corporate Finance; Sixth (or Fifth) Edition by Ross, Westerfield, and Jaffe.
2) Real Options; by Copeland and Antikarov
3) Assigned cases (can be purchased at UA bookstore and/or Dickson Street bookstore at least one week
prior to the class discussion)
4) Initial set of cases:
Harvard Business School:
Cost of Capital at Ameritrade 9-201-046
Clarkson Lumber Company 9-297-028
Marriott Corporation: The Cost of Capital 9-298-101
American Home Products Corporation 9-283-065
Advanced Medical Technology Corporation 9-287-028
Netscape Initial Public Offering 9-296-088
Arundel Partners: The Sequel Project 9-292-140
MW Petroleum Corporation (A) 9-295-029
E.I. Du Pont de Nemours and Company - 1983 9-284-062
University of Western Ontario (Ivey Management Services):
The T. Eaton Company Limited’s Initial Public Offering 9A98N024
Oxford Learning Centres Inc.: The Childtime Alternative 9A98N013
5) Assigned readings – students are expected to make copies of selected articles from financial journals
that will be discussed during classes (the financial journals can be found in the UofA library and on the
Internet). Assigned reading will be announced in class, and is subject to change.
In addition, students are asked to bring the lecture notes to the class. The lecture notes for every week
can be downloaded from http://wcob.uark.edu/tjandik , starting with the evening before the first class of
every week (i.e., on Monday evening).
Recommended reading: Wall Street Journal.
Examinations and Grading: Your final grade will be determined by your performance on the following:
1. Exam 1 (25%)
2. Exam 2 (35%)
3. Exam 3 (40%)
(Each exam will likely have two different weekly installments!)
Bonus for 100% attendance (2%) or Bonus for attendance with at most one absence (1%)
The grades will be computed using a straight scale (90 and above = A, 80 and above = B, 70 and above =
C, 60 and above = D).
The exams will incorporate both applied and conceptual problems and will contain a mixture of problems,
and case analysys. The exams will be “take-home”, students are not allowed to discuss the exams with
their classmates, colleagues, friends, etc. prior to the submission. Each exam will likely have two parts,
students will have at least one week to submit each of the parts. No late submissions will be accepted for a
grade. Please, make a photocopy of your answers!!
Other Course Policies:
Lectures will stress the most important issues addressed in the textbook, lecture notes and assigned
cases/readings. You are responsible for all material covered in class, assigned readings, suggested problems
and study questions. Lectures will go beyond the scope of the textbook for certain topics. Therefore, it is
important for you to attend class. You are responsible for all announcements made in class. Class
lectures will sometimes involve working through problems. Thus, you should bring a calculator to class so
that you may work problems and participate in class.
Cheating on exams and other academic misconduct is grounds for failing the course and additional
sanctions. Refer to “Policy on Academic Honesty”, as published in the Catalog of Studies.
Inclement Weather Policy
Simple – if the university closes, there is no class.
Communication in a class this size can be difficult and I want to make it as efficient as possible. It is easy
and effective to email me your questions and I will reply as soon as I can. I am available during office
hours and will gladly schedule an appointment with you if the alternatives listed above do not meet your
If you don’t know/understand something, ask!!
Last (but definitely not the least) – have fun!!
Course Outline: This is tentative. Reading material may be added or deleted as the semester progresses.
The exam dates will remain firm. Students are asked to complete the reading assignments, and,
especially, cases, in advance (i.e. before the particular class sessions).
Week 1 (March 6, March 11): Cash Flow Projections, Cost of Capital - Review, Divisional Cost of Capital
Read: RWJ: Chapter 7, 10, 12
HBS Case: Marriott Corporation: The cost of capital (Tuesday), Cost of Capital at
America's wealth creators; Shawn Tully; Fortune, New York; Nov 22, 1999; Vol. 140,
Iss. 10; pg. 275, 6 pgs
America's best & worst wealth creators; Geoffrey Colvin; Fortune, New York; Dec 18,
2000; Vol. 142, Iss. 14; pg. 207, 6 pgs
America's best & worst wealth creators; David Stires; Fortune, New York; Dec 10, 2001;
Vol. 144, Iss. 12; pg. 137, 4 pgs
Week 2 (March 13): Applications of capital structure policies
Read: RWJ: Chapter 15,16
HBS Case: E.I.du Pont de Nemours and Company (1983) (Wednesday), American Home
Week 3 (March 17): Spring Break
Week 4 (March 25): Valuation of IPO’s
Read: HBS Case: Netscape Initial Public Offering
Exam 1 due on Tuesday
Week 5 (April 1): Comprehensive valuation case: DCF vs. multiples valuation
Read: Ivey Case: The T. Eaton Company Limited’s Initial Public Offering, Oxford Learning
Centres Inc.: The Childtime Alternative
Exam 2( part 1) due on Thursday
Week 6 (April 8): Valuation of real options
Read: RWJ: Chapter 8, Section 4. Real Options: (Chapter 4), Chapter 5
Exam 2( part 2) due on Thursday
Week 7 (April 15): Valuation of real options
Read: Real Options: Chapter 7, Chapter 9
Exam 3( part 1) due on Thursday
Week 8 (April 22): Valuation of real options
Read: HBS Case: MW Petroleum Corporation (A), Arundel Partners: The Sequel Project
Week 9 (April 29): Financial planning
Read: RWJ: Chapter 26.
HBS Case: Clarkson Lumber Company, Advanced Medical Technology Corporation
Exam 3( part 2) due on Thursday