STERN SCHOOL OF BUSINESS NEW YORK UNIVERSITY UNDERGRADUATE COLLEGE Fall 2000 C15.0007.001 Financial Management Professor Rita Maldonado-Bear MW 11:00AM 12:15PM Office: Tisch Hall 9-03 Room: Tisch Hall LC Office Hrs. MW 2:30 4:00 PM Phone: 998-0360 SYLLABUS BOOKS REQUIRED: Eugene F. Brigham, (1) Fundamentals of Financial Management, Dryden Press, (Eighth Edition, 1998). RECOMMENDED: Study Guide to the text, number (1) above. This supplement outlines the key sections of the text, provides self-test questions for each chapter, and presents a set of problems and solutions similar to those in the text. PC DISKETTE You will need one. HAND CALCULATOR PROFESSIONAL BEHAVIOR COURSE OBJECTIVES A financial calculator is strongly recommended. If you are buying one, make sure it has net present value (NPV) and internal rate of return (IRR) functions. The bond valuation function would also be nice to have, especially if you are a finance major. My personal choice (partly because it follows most texts computational instructions) is the Hewlett Packard 19B II Business Consultant. Regular on time class attendance as well as following professional business behavior, courtesy and etiquette is required and will be taken into account in the overall grade This course is designed to familiarize you with the fundamental concepts and principles underlying the financial management decisions of the firm. Emphasis will be given to (1) evaluating corporate performance via financial statement analysis and forecasting and (2) the decision to acquire real assets; i.e., capital budgeting. Briefer introductions will be given to (3) financing the firm; i.e., capital structure, cost of capital and financing vehicles, (4) 1
PROJECTS/CASES AND PROBLEMS portfolio analysis and security valuation and (5) working capital management. The latter three topics are more fully developed in semesterlength courses of their own. However, one of the project cases will help you to understand the cost of capital computation and the estimation of the price of a security (a share of stock). The course is application oriented, and through assigned cases and problems you will apply some of these fundamental concepts and principles to the planning and decision-making process of financial management. The class will be divided into groups of three to five students. Each group is required to prepare and submit a report on each of the three projects/cases assigned. These reports are due at the beginning of the class in which the case is to be discussed as indicated in the course outline. Reports that are handed in one minute after the class starts will be penalized 10 points. Additional minutes of lateness will be penalized at the rate of one additional point off, per each additional minute of lateness. Specific instructions will be provided in class for each project/case. In addition to the three projects/cases, there are assigned problems. These are indicated in the Course Outline. Although none of the problems are required and will not be collected or graded, it is recommended that these are worked out by the student in order to best understand the reading material assigned and be prepared for class discussion and tests. This is particularly true for the problems that appear in shadow print in the class outline. Students may work with their group to solve all the problems. Some of these problems will be discussed in class or you may discuss them with the class TA during his office hours. Some of these problems will be part of the mid term and final exam. EXAMS AND GRADING There will be one mid term and a final examination. The course grade will be based on: three project/cases 30% midterm & final 20% & 40% (higher % to the higher score) class participation 10% Following departmental guidelines, and also reflecting historical incidence, 2
the grade distribution will be approximately: A 05% C+ & A- 10% C & B + 10% C- & 20 to 25% B & D, F, IP & IF hopefully none B- 40 to 50% OFFICE Office 9-03, Suite 9-190, Tisch Hall (212) 998-0360 Tisch Hall, 40 W 4th St., NYC OFFICE HOURS Mondays Wednesdays 2:30-4:00 2:30-4:00 and by appointment GETTING TO KNOW YOU In order to know you better I would appreciate your providing me with the following: FIRST, fill out the sheet distributed in class, please enter all the information requested and in the back of the sheet information about yourself that will help reveal your individuality (i.e., you are a ballerina, a marathon runner, a piano player in a nightclub band, would like to be president of the US. or of NYU, etc.) SECOND, two small photos of you, that will fit in my classroom map (no larger than 1 x 1.5 ). You can cut out your face from a group photo, or make a photocopy of your student ID. Please, print your name on back of each photo and clip both photos on the student information sheet, before you hand in the m in. THANKS FOR YOUR COOPERATION! 3
COURSE OUTLINE Date/Ses. TOPIC AND ASSIGNMENTS 9/6 1 and 9/11 2 I. INTRODUCTION A. Scope of the course. Project/Cases and their importance. B. The Internal/External Environment of the Firm Including Ethical Issues Ch. 1 Problem (P) St-1 Self Test Problem p. 27 Recommended (R): Bear and Maldonado-Bear, Free Markets, Finance, Ethics and Law, (Prentice Hall, 1994) Chapter One, "A Framework for Ethical Decision Making", PP.1-56. R: Ibid, pp. 202-204 on the Agency Theory in Corporate Finance and legal ramifications and pp. 186-189 on Legal Agency and the Fiduciary Relationship. 9/13 3 and 9/18 4 C. Financial Markets and institutions. Interest Rates. Ch. 4 Problem (P) 4-12 p. 149 Integrative Case (p.151). Home work to be handed in: Plot a yield curve using current yields on US Treasury Securities as quoted in the Wall Street Journal. Hint: see problem (P) 4-13 (p.150) State what theories explain the particular yield curve that you graphed. 4
II. FINANCIAL ANALYSIS AND FORECASTING 9/20 5 A. Evaluating the firm's strengths and weaknesses via: Ratio analysis Statement of Cash Flows Ch. 2 (a review of accounting) and Ch. 3 analysis of financial statements Begin working in Project/case: FINANCIAL ANALYSIS OF THE PUBLICLLY TRADED FIRM OF YOUR CHOICE 9/25 6 B. Ratios and Statement of Cash Flows Revisited Ch. 3 review Problem 3-13. Working this problem by hand will help you to prepare for the midterm. You may also want to add to the solution the Altman's Z score test. To compute the Z score, you may utilize the last two pages of the Multiple Discriminant Analysis write up included to be hander out in class. Continue working in Financial Analysis of the Project/Case every week until due date. 9/27 7 C. Financial Forecasting Ch. 15 P 15-4 (p.604) Continue working in Financial Analysis of the Project/Case every week until due date. 5
III. FUNDAMENTAL CONCEPTS AND VALUATION TOOLS 10/2 8 and A. Time Value of Money 10/4 9 Ch. 6 Problems 6-32 - 6-37 (pp. 245-246) and 6-42, 6-43 & 6-45 (p. 247) 10/9 10 B. Portfolio Management: Measuring Risk via Mean Variance Approach and Review Financial Analysis in the context of your case preparation. Ch. 5 and Appendix 5-A (in pp. 199-203) 10/11 11 1rst PROJECT/CASE DISCUSSION (written paper due at beginning of class) FINANCIAL ANALYSIS OF THE PUBLICLY TRADED COMPANY OF YOUR CHOICE 10/16 12 C. Portfolio Management: Measuring Risk via The Capital Asset Pricing Model Approach "THE CAMP" "THE SML" "THE BETA" "EFFICIENT MARKETS", et.al. P 5-A-1 (p.202) and P 5-A-2 (p.203) 10/18 13 E. Bond Valuation Ch. 7 and skim Appendix A and B Problems 7-6, 7-7, 7-8, 7-11, 7-14 and 7-15 (p. 289-290) 10/23 14 F. Stock Valuation and close Bond Valuation Ch. 8 Self test problems 2, 3 and 4 (p. 342) 6
Problems 8-6, 8-7, 8-8 and 8-12 (p. 343) Begin to prepare the second project/case: Stock Valuation and Cost of Capital for The Publicly Traded Company of Your Choice 10/25 15 G. Stock Valuation Continues Continue to prepare the second project/case: Cost of Capital and Stock Valuation of the Company of Your Choice 10/30 16 MIDTERM IV. THE INVESTMENT IN REAL ASSET DECISION OR CAPITAL BUDGETING 11/1 17 A. Cost of Capital Ch. 9 Questions 9-2 Ps. 9-3, 9-5, 9-6, 9-9 & 9-11 (pp. 378-381) Continue to prepare the second project/case 11/6 18 B. Capital Budgeting Under Perfect Certainty Ch. 10 7
P 10-1 through 10-7, 10-10, 10-12 & 10-15 (pp. 415-417) Continue to prepare the second project/case 11/8 19 C. Cash Flow Estimation and Other Topics Ch. 11, with appendix 11-A Self test problems 2 & 3 (p.442) Problems 11-6, 11-10 & 11-11 (pp. 443-444) Continue to prepare the second project/case 11/13 20 2 nd PROJECT/CASE DISCUSSION (written paper due at beginning of class) Stock Valuation and Cost of Capital of The Publicly Traded Firm Of Your Choice Begin working on third project/case; This case consists of solving capital budgeting problems 11-10 and 11-11 in p. 444 of your text. Make sure that you present your solution in the standard project case solution format, which includes an executive summary at the beginning of the project/case. V. FINANCING THE FIRM 11/15 21 A. Capital Structure Ch. 13 & Appendix 13 A Questions 13-1 - 13-13 (p. 526) Self Test Problems 1 & 2 (p. 527) Problems 13-3 & 13-7 (p. 528) 8
Continue working on third project/case. 11/20 22 B. Dividend Policy and closure of Capital Structure Ch. 14 P. 14-9 (p. 577) Continue working on third project/case. VI. SUMMING UP THE THREE MAJOR DESCISION 11/27 23 The Optimal Capital Budget: Integration of Risk, Capital Structure (Including Dividends) and Capital Budgeting Pages 474-479 in Chapter 13 11/29 24 3 rd Project/Case DISCUSSION (due at the beginning of the class) VII. WORKING CAPITAL MANAGEMENT 12/4 25 A. Managing Short Term Assets Ch. 16 Self Test Problem (p. 648) 12/6 26 B. The Cash Budget and the EOQ Ch. 16 Problem 16-10 (p. 651) 12/11 27 C. Financing Short Term Assets Ch. 17 Self Test Problem 1 (p. 685) 9
Problem 17-6 and 17-8 (p. 686) 12/13 28 SUMMARY OF THE COURSE & REVIEW FOR FINAL EXAM 10