Advance Financial Management Graduate Business Administration 645 CRN: Building 98 C Room 023 Winter Quarter 2018 Monday: 6:00-9:50 p.m.

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1 Advance Financial Management Graduate Business Administration 645 CRN: Building 98 C Room 023 Winter Quarter 2018 Monday: 6:00-9:50 p.m. Paul Sarmas CATALOG DESCRIPTION: A seminar course in finance utilizing comprehensive cases to simulate the role of the financial manager. 3 seminar-discussion. Prerequisite: GBA 546, all required 500-level courses, and microcomputer proficiency. Unconditional standing requirement. EXPANDED DESCRIPTION OF THE COURSE AND INSTRUCTIONAL METHODS: A. Expanded Description of the Course: This course reinforces the basic concepts of financial management. The course provides an indepth discussion of key topics that are critical to financial management: (1) the goals of the firms, (2) financial statement analysis, planning, and forecasting, (3) working capital policy and management, (4) capital budgeting techniques without and with risk, (5) capital structure theory and application, (5) the cost of capital estimation, and (6) long-term financing decisions. In addition, the course examines issues such as lease financing, merger and acquisition, and international financial management. B. Instructional Methods: The delivery system throughout this course will be a combination of class discussion and case analysis. The case analysis will be both in a written format and oral presentation. The amount of lecture will be limited to detailed coverage of concepts pertaining to each individual case.

2 REQUIRED BACKGROUND OR EXPERIENCE: A. Prerequisites: Fundamental of Financial Management (GBA 546), all required 500-level courses, and microcomputer proficiency. If a basic finance course was taken more than three years ago, students are strongly urged to retake GBA 546 again. Conditional, unclassified, or Open University students are not eligible to take this class. B. Prerequisites Justification: This course is primarily a case analysis course and the lectures will be focused on the assigned case and, thus, students are expected to have fundamental knowledge of financial management and economics. All case-problem assignments in this course would require the use of computers (i.e., word processing and spreadsheet). C. General Education Contribution: Students are expected to communicate both orally and in writing. Students also are expected to possess analytical skills at an intermediate level. EXPECTED OUTCOMES: Students would have full understanding of financial management and corporate finance decision making. They should be able (1) to measure a firm's cost of capital, (2) to create a working capital policy and management strategy, (3) to utilize different capital budgeting techniques and determine optimal capital budget, and (4) to evaluate and estimate a firm's optimal capital structure. Graduates would have sharpened their skills of identifying financial problems, design solutions, and implement the necessary financial tools. TEXT AND REFERENCES: You can purchase the cases by going to the Harvard Business School Publishing web site: For assistance, you can call (800) You may also get support by visiting Please note, all registration, access, and other technical problems should be resolved by you and Harvard Business School Publishing technical support team. Recommended Text: Corporate Finance Ross, Westerfield and Jaffe Eleventh Edition Irwin- McGraw Hill, 2013

3 METHODS OF EVALUATING OUTCOMES: Grades are determined in the following format: Presentation percent Case Study percent Final: Part percent Part percent Course grade is based on the following scale: A B C D A B C D B C D F ACADEMIC INTEGRITY Violation of academic integrity include, but are not limited to, the following: cheating on an examination, test or quiz; plagiarism on any paper or report; falsifying data, research or report; representation of forged documents; misrepresentation of information in oral or written form. Such violations will be dealt with severely by the instructor, the associate dean and the standard committee." COURSE ASSISTANCE: Office Information Office Hours Location: Building Monday: 3:00 p.m. 5:30 p.m. Telephone: (909) Wednesday: 3:00 p.m. 5:30 p.m. Fax: (909) psarmas@cpp.edu Others: By appointment COURSE REQUIREMENTS It is very important for students to meet following requirements: (1) Recently completed the prerequisite courses. (2) Understanding of essential concepts of finance. (2) Knowledge of Excel or other types of spreadsheet. Discussions related to a case are presented before the case is assigned. Solution should include both quantitative and subjective analysis. Students will be divided into groups. Each group is expected to present an assigned case.

4 Members of each group may wish to evaluate each other. Prepare presentation material: handouts, transparency, etc. If computer is needed for presentation, a two-week advanced notice is needed. Each Group must prepare one written case per week. Each case must have: 1. Cover page includes students names and case title. 2. Written analysis of all the assigned cases must be WORD format and calculation in EXCEL format. 3. Each report must have an introduction including background information. 4. Each report must have a summary & conclusion section. 5. Each report must have a reference section. Each student is expected to participate in discussion of the assigned case in a coherent manner and be able to show all the necessary work (computations) during the presentation. Your written analysis will be evaluated based on the following criteria: * Organization and format of the report (10%) * Comprehension of the main issues of the case (15%) * Analytical analysis of the issues (40%) * Logic and clarity of assumptions made in the analysis (15%) * Alternative solution(s) to the problem (10%) * Consistency of recommended course(s) of action and conclusion with the analysis (10%). Cases are DUE ON Monday of each week and at the beginning of the class. Submit your report by attaching the Word and Excel documents to the assignment section on the Blackboard. NO MAKE-UP EXAMINATION! NO LATE CASE-REPORT! FINAL EXAMINATION The final examination is given in two parts: Part I: Multiple Choice final exam which covers all the topic areas listed on the Blackboard (financial statement analysis, financial forecasting, capital budgeting, capital structure, cost of capital, and lease). Part II: Case Analysis final exam which will based on one or two topics selected from the topic areas listed on the Blackboard (financial statement analysis, financial forecasting, capital budgeting, capital structure, cost of capital, and lease).

5 LECTURE SCHEDULE January 8, 2018 Group Assignment Discussion: Financial Statement Analysis January 17, 2018 Special Date Discussion: Financial Statement Analysis Discussion: Financial Planning and Control January 22, 2018 Discussion: Financial Planning and Control January 29, 2018 Discussion: Project Cash Flow Analysis Case Due: Costco Wholesale Corporation February 5, 2018 Discussion: Cost of Capital Case Due: Home Depot, Inc. February 12, 2018 Discussion: Capital Structure Theory and Practice Case Due: Hola Kola February 19, 2018 Discussion: Lease Valuation Case Due: Nike, Inc. February 26, 2018 Discussion: Dividend Policy Case Due: Teletech Corporation

6 March 5, 2018 Discussion: Merger & Acquisition Case Due: Blain Kitchenware, Inc. Final Examination - Part I Final Examination Part II Monday March 12, :00 8:00 p.m.

7 Case Profiles Costco Wholesale Corporation This case is a financial statement, ratio analysis case involving a high growth retail company. We are essentially trying to answer two questions: (1) has Costco become more or less efficient over time; and (2) how has it finance its growth. Please answer all the questions in the case (if any) and the following questions: 1. Prepare and analyze common size statements. 2. Prepare and analyze financial ratios. 3. Perform Du Pont Analysis. 4. Has Costco become more or less efficient over time? 5. How has it finance its growth? Blain Kitchenware, Inc.: Capital Structure In April 2007, Blaine Kitchenware s CEO was considering whether to recommend a share repurchase to the board of directors. Blaine was mid-size producer of small kitchen appliances sold primarily in North America. You shall apply the static-tradeoff theory of optimal capital structure to evaluate Blaine s current capital structure and to formulate a recommendation for changes. Please answer all the questions in the case (if any) and the following questions: 1. Do you believe Blaine s current capital structure and payout policies are appropriate? Why or why not? 2. Should Dubinski recommend a large share repurchase to Blain s board? What are primary advantages and disadvantages of such a move? 3. Consider the following share repurchase proposal: Blaine will use $209 million of cash from its balance sheet and $50 million in new debt-bearing interest at the rate of 6.75% to repurchase 14 million shares at price of $18.50 per share. How would such a buyback affect Blaine? Consider impact on, among other things, BKI s earnings per share and ROE, its interest coverage and debt ratios, the family ownership interest, and the company s cost of capital. 4. As a member of Blaine s controlling family, would you be in favor of this proposal? Would you be in favor of it as a non-family shareholder?

8 High Mountain Technologies High Mountain Technologies (HMT) is a diversified research and manufacturing company that produces wide array of products based on patented technologies. David Rogers, CMA, a new analyst with HMT s New Products Review Committee (NPRC), has been given the assignment of completing a capital budgeting analysis of two projects-a GPS transmitter and surveillance aircraft. Rogers has been instructed to calculate the net present value (NPV) for each project, including appropriate cost of capital, so that the NPRC can make its final decision. Please answer all the questions in the case (if any) and the following questions: 1. What are the appropriate costs of capital for the GPS transmitter and surveillance aircraft projects? 2. What are the net present value of the two projects 3. Which project would you recommend to the NPRC? Why? Teletech Corporation The chief financial officer of this telecommunications company must create a response to a corporate raider who claims that a major business segment of this company should be sold, because it is not earning a satisfactory rate of return. Please answer all the questions in the case (if any) and the following questions: 1. How does Teletech currently use the hurdle rate? 2. Estimate divisional or segmented WACC for Teletech. For guidance, see the worksheet in case exhibit Interpret Rick Phillip s graph (Figure 2 in the case). How does the choice of constant versus risk-adjusted hurdle rates affect the evaluation of Teletech s two segments? What are the implications for Teletech s resource allocation strategy? 4. Do you agree that all money is green? What are implication of this view? What are the arguments in favor? What are the arguments opposed to it? 5. Has Product and Systems destroyed value? What evidence or illustration can you give to support your opinion? 6. What should Teletech say in response to Victor Yossarian?

9 Home Depot, Inc. The Home Depot case is designed to teach students how to do the analysis of growth strategies using financial statement data. Please answer all the questions in the case (if any) and the following questions: 1. Evaluate the Home Depot s growth strategy. 2. How well did the company implement its strategy? Analyze the Home Depot s financial performance and cash flow during fiscal year How did the company perform in 1985 relative to previous year? How does the Home Depot s performance compare to that of Hechinger? You may use the analysis In Exhibit 3 in the case as guide to begin your analysis. Also, make sure that you use data on store productivity in your analysis. 3. Recommend a plan of action to the Home Depot s management based on your analysis of the company s current performance and future growth plans. Your recommendations should deal with the company s operating performance, growth strategy, and external financing need. Hola-Kola Antonio Ortega, the owner of Bebida Sol, a private-label carbonated soft drink company based in Mexico, was contemplating whether to invest in new zero-calorie soda product line, Hola-Kola. Through a market study, he collected some data about the potential market size and the costs associated with this new product line. Along with these data was also the concern that the new product line might severely erode his existing regular soda sales. He needed to determine if this capital investment was worth making and would create value for his company. Please answer all the questions in the case (if any) and the following questions: 1. What are the relevant cash flows? In the capital budgeting analysis of this low-price, low-calorie soda project, how shall we treat: The consultant s market study cost? The potential rental value of the unoccupied annex? The interest charges? Working capital? 2. Should be consider the erosion of the existing product the regular soda-in the analysis? Why or why not? 3. Calculate the project s payback period, NPV, IRR, MIRR, profitability index. 4. Perform sensitivity analyses on sales volume, direct labor, materials, and energy cost. What do you observe? 5. What are the benefits and risks of undertaking this project? 6. Should Bebida Sol undertake this project?

10 Nike, Inc.: Cost of Capital This case is focused on the calculation of the weighted average cost of capital (WACC) of the firm. The case provides a WACC calculation that contains errors based on conceptual misunderstanding. Please answer all the questions in the case (if any) and the following questions: 1. What is the WACC and why is it important to estimate a firm s cost of capital? Do you agree with Joanna Cohen s WACC calculation? Why or why not? 2. If you do not agree with Cohen s analysis, calculate your own WACC for Nike and be prepared to justify your assumptions. 3. Calculate the costs of equity using CAPM, the dividend discount model, and the earnings capitalization ratio. What are the advantages and disadvantages of each method? 4. What should Kimi Ford recommend regarding an investment in Nike?