Al al- Bayt University Course Syllabus Advanced Financial Management (3.0 cr. 502731) Masters in Business Administration 2015 Assistant Professor: Mari e Banikhaled. Office Phone: 2280 E-mail: mariebk191@gimal.com E-mail: mariebk191@aabu.edu.jo Office Hours: Monday and Wednesday AM 10-12 Required Materials: (1)Principles of Managerial Finance(2013) Gitman, Lawrence J. Edition: 13th ;Publisher(s): Addison Wesley (2) Financial Management: Theory and Practice(2013), 13 th edition, Eugene F. Brigham and Michael C. Ehrhardt (Thomson Southwestern (3) Principles of Corporate Finance, 9 th edition, Richard A. Brealey, Stewart C. Myers, and Franklin Allen (McGraw-Hill, 2008, ISBN: 978-0-07-336869-6). (4)Fundamentals of Contemporary Financial Management(2007) (with Thomson ONE, Business School Edition), 2nd Edition Moyer/McGuigan/Rao ISBN-10: 0-324-40636-3 ISBN-13: 978-0-324-40636-8
Course Objectives: Upon completion of this course, you will be able to: 1. Understand the Scope of Corporate Finance. 2. Evaluate Financial Statements. 3. Understand the time value of money and evaluating projects. 4. Consider the trade off between risk and return. 5. Use techniques for Capital Budgeting. 6. Describe the link between Capital Structure and Capital Budgeting. Consider short and long term decisions for the financial benefit of the corporation. Course Description (MBA) is an advanced course in the financial management of a firm. The goal of the course is to explore the advanced analytical methods and techniques to deal with more sophisticated corporate decisions and issues. The course will develop an understanding of the link between the theory and practice underlying corporate financial decisions. In addition, the course will extend and implement some concepts and techniques derived from real business settings such as financial planning and forecasting, net present value analysis, bond and stock valuation, capital asset pricing model, capital budgeting, cost of capital, capital structure, and dividend policy. Selective in-depth financial problems, case studies, and financial events will be incorporated throughout the course
chapter 1 COURSE OUTLINE An Overview of Financial Management Basic forms of business organization; determinants of k interest rate; business cycle and yield curves; financial markets and institutions; risk and required return; profit versus wealth maximization and types of financial instruments. Striking the Right Balance Putting Things in Perspective Career Opportunities in Finance Financial Management in the New Millennium Global Perspectives Coke Rides the Global Economy Wave Technology Matters etoys Takes on Toys R Us The Financial Staff's Responsibilities Alternative Forms of Business Organization Finance in the Organizational Structure of the Firm The Goals of the Corporation Industry Practice Levi Strauss Tries to Blend Profits with Social Activism Business Ethics Agency Relationships Industry Practice Are CEOs Overpaid? Managerial Actions to Maximize Shareholder Wealth Does it Make Sense to Try to Maximize Earnings Per Share? Organization of the Book Tying It All Together Chapter 2 Analysis of Financial Statements Ratio Analysis Horizontal Analysis Vertical Analysis Liquidity Ratios Box: Corporate Valuation and Analysis of Financial Statements 1î3 Asset Management Ratios Debt Management Ratios Box: International Accounting Differences Create Headaches for Investors 13 1 Profitability Ratios 132 Market Value Ratios Asset Management Ratios Debt Management Ratios Profitability Ratios Global Perspectives International Accounting Differences Create Headaches for Investors
Technology Matters ebay's Financial Statements Trend Analysis Tying the Ratios Together: The Du Pont Chart and Equation Comparative Ratios and "Benchmarking" Uses and Limitations of Ratio Analysis Problems with ROE Industry Practice Calculating EVA Looking Beyond the Numbers Small Business Financial Analysis in the Small Firm Tying It All Together Chapter 3 Working Capital Management? Overview, Working Capital Issues, Financing Current Assets (Short Term and Long Term- Mix), Combining Liability Structures and Current Asset Decisions, Estimation of Working Capital Alternative Current Asset Investment Policies : Working capital policy (conservative policy, moderate, and aggressive policy) The Cash Conversion Cycle, operating cycle Industry Practice Free Cash Flow, EVA, and Working Capital Cash Management The Cash Budget Industry Practice The Great Debate: How Much Cash is Enough? Marketable Securities Inventory Inventory Costs Industry Practice Supply Chain Management Receivables Management Credit Policy Financing Current Assets Alternative Current Asset Financing Policies Advantages and Disadvantages for Short-Term Financing Sources of Short-Term Financing Accruals Technology Matters The Internet Threatens to Transform the Banking Industry Short-Term Bank Loans Commercial Paper Use of Security in Short-Term Financing Tying It All Togethe Chapter 4 Time Value of Money The role of time value in finance; present and future values of single amounts; present and future values of annuities; present value of cash flow streams; loan amortization; perpetuity; growth rate calculations.
Will You Be Able to Retire? Putting Things in Perspective Time Lines Future Value Industry Practice The Power of Compound Interest Present Value Solving for Interest Rate and Time Future Value of an Annuity Present Value of an Annuity Perpetuities Uneven Cash Flow Streams Semiannual and Other Compounding Periods. Technology Matters Using the Internet for Personal Financial Planning Comparison of Different Types of Interest Rates Fractional Time Periods Amortized Loans Tying It All Together Appendix 7A Continuous Compounding and Discounting Chapter 5: The Basics of Capital Budgeting: Evaluating Cash Flows Overview of Capital Budgeting Box: Corporate Valuation and Capital Budgeting Net Present Value (NPV) Internal Rate of Return (IRR) Comparison of the NPV and IRR Methods Multiple IRRs Modified Internal Rate of Return (MIRR) Profitability Index Payback Methods Conclusions on Capital Budgeting Methods Business Practices Special Applications of Cash Flow Evaluation The Optimal Capital Budget Chapter 6 Risk and Rates of Return No Pain No Gain Putting Things in Perspective Investment Returns Stand-Alone Risk Industry Practice The Trade-Off between Risk and Return Risk in a Portfolio Context Global Perspectives The Benefits of Diversifying Overseas Industry Practice Is the Dow Jones Heading to 36,000? The Relationship Between Risk and Rates of Return Industry Practice Estimating the Market Risk Premium
Physical Assets versus Securities Some Concerns about Beta and the CAPM Volatility versus Risk Tying It All Together Appendix 6A Calculating Beta Coefficients chapter 7 The Cost of Capital Creating Value at GE Putting Things in Perspective The Logic of the Weighted Average Cost of Capital Basic Definitions Cost of Debt, kd(1 - T) Cost of Preferred Stock, kp Industry Practice Funny-Named Preferred-Like Securities Cost of Retained Earnings, ks Cost of New Common Stock, ke Technology Matters Trends in Technology: Estimating the Cost of Capital for Internet Companies Industry Practice How Much Does It Cost to Raise External Capital? Composite, or Weighted Average, Cost of Capital, WACC Industry Practice WACC Estimates for Some Large U.S. Corporations Factors that Affect the Composite Cost of Capital Global Perspectives Global Variations in the Cost of Capital Adjusting the Cost of Capital for Risk Estimating Project Risk Using the CAPM to Estimate the Risk-Adjusted Cost of Capital Techniques for Measuring Beta Risk Some Problem Areas in Cost of Capital Small Business The Cost of Equity Capital for Small Firms Tying It All Together Chapter 8 Capital Structure and Leverage Debt: Rocket Booster or Anchor? Putting Things in Perspective The Target Capital Structure Business and Financial Risk Determining the Optimal Capital Structure Industry Practice Yogi Berra on the M&M Proposition Capital Structure Theory Checklist for Capital Structure Decisions Variations in Capital Structures Global Perspectives Taking a Look at Global Capital Structures Tying It All Together
Chapter 9 Portfolio Theory and Other Asset Pricing Models 241 Efficient Portfolios Box: Corporate Valuation and Risk Choosing the Optimal Portfolio The Basic Assumptions of the Capital Asset Pricing Model 249 The Capital Market Line and the Security Market Line 250 Calculating Beta Coefficients Empirical Tests of the CAPM Arbitrage Pricing Theory The Fama-French Three-Factor Model An Alternative Theory of Risk and Return: Behavioral Finance Chapter 10 The Cost of Capital The Weighted Average Cost of Capital Box: Corporate Valuation and the Cost of Capital 3ìï Cost of Debt, rd(1 T) Cost of Preferred Stock, rps Cost of Common Stock, rs The CAPM Approach Dividend-Yield-Plus-Growth-Rate, or Discounted Cash Flow (DCF), Approach 352 Bond-Yield-Plus-Risk-Premium Comparison of the CAPM, DCF, and Bond-Yield-Plus-Risk-Premium Methods 355 Adjusting the Cost of Stock for Flotation Costs Composite, or Weighted Average, Cost of Capital, WACC 358 Box: Global Variations in the Cost of Capital Factors That Affect the Weighted Average Cost of Capital 360 Adjusting the Cost of Capital for Risk Privately Owned Firms and Small Businesses Four Mistakes to Avoid Chapter 11 Bonds, Bond Valuation, and Interest Rates 156 Who Issues Bonds? Box: Corporate Valuation and Risk. Key Characteristics of Bonds Bond Valuation Bond Yields Changes in Bond Values Over Time Box: Drinking Your Coupons Bonds with Semiannual Coupons The Determinants of Market Interest Rates The Real Risk-Free Rate of Interest The Inflation Premium (IP) The Nominal, or Quoted, Risk-Free Rate of Interest' r" The Default Risk Premium (DRP) The Liquidity Premium (LP) The Maturity Risk Premium (MRP)
The Term Structure of Interest Rates Junk Bonds Bankruptcy and Reorganization Summary Chapter 12 Lease Financing Types of Leases Tax Effects Financial Statement Effects Evaluation by the Lessee Evaluation by the Lesser Other Issues in Lease Analysis Summary Chapter 12 Financial Options and Applications in Corporate Finance Financial Options 314 Box: Financial Reporting for Employee Stock Options 319 Introduction to Option Pricing Models: The Binomial Approach 320 The Black-Scholes Option Pricing Model øopm 325 Box: Taxes and Stock Options 329 The Valuation of Put Options 330 Applications of Option Pricing in Corporate Finance 332 Summary 334 Evaluation Participation / Team Presentations 20% Mid-term 20% Final Exam 60%