NationalUniversityofSingapore

NUSBusinessSchoolInvestmentFinancialManagementBMA5008

Spring2015

Professor: Dr.EmirHRNJIĆ

Office: MRB#07-80

Phone: 6516– 7824

e-mail:

OfficeHours: Wed5:00pm– 6:00pmandby appointment(viaemail)

COURSEDESCRIPTION

Thiscoursewillprovideastrong conceptualfoundationforfinance.Financetheorywillbeusedto solvepracticalproblemsfacedbyfinancialmanagers.Youwillfinditbeneficialtohavesome basicknowledgeofaccounting,algebra,andstatisticspriortoenrollinginthiscourse.

By theendofthiscourseyoushouldbeableto:

 Understandtheconflictsbetweenshareholdersandmanagers

 Understandthetimevalueof moneyandcalculatepresentvalueoffuturecashflows

 Valuebonds

 Valuestocks

 Estimatecashflowsforaproject

 Calculatethecostofcapital

 Usethenetpresentvalueruleandothermethodstoevaluateaproject

 Measuretheriskofindividualsecuritiesandportfolios

 Evaluatedifferentsourcesandmethodsoffinancing

 Analyzeafirm’scapitalstructure

 Setpayoutpolicyofafirm

COURSESTRUCTURE

Thelectureswillfocusonthemajorpointsintroducedinthetextbook.Thelectureswillprovide generalbackgroundinformationonthetopicscovered.

You are expected to access the course page on IVLE (ivle.nus.edu.sg) for course related informationincludingannouncementsandPowerPointslidesofthelectures.

Priortoclassyoushouldreadtherelevantmaterial inthetextbook, thePowerPointslides,andany additional assignedreadings.Youareexpectedtoattendclassregularlyandtocometoclasson time.Youare encouragedtoask questionsand tobe anactiveparticipantinclass.Afterthe lecture, youshouldreviewyourlecturenotesandworkontheassignments.

ATTENDANCEPOLICY

Classattendanceishighlyencouraged.Youareresponsibleforallmaterialandannouncements madeinclass.AllstudentsshoulddisplaynamesignduringtheclassANDduringthetest.

REQUIREDCOURSEMATERIALS

(1)Textbook:PrinciplesofCorporateFinance,RichardA.Brealey,StewartC.Myers,and

FranklinAllen(11thedition),McGraw-Hill.

(2)Casestudies:

1) Alibaba(NUS/Ivey)

2) EmiratesAirlines:ABillion-DollarSukuk-BondIssue(NUS/Ivey)

3) EastMeetsWest:Rothschild’sInvestmentintheIndonesianMiningSector(NUS/ INSEAD)

4) SIAS(NUS/Ivey)

(3)Calculator:Acalculatorthatdoestwovariablestatisticsisneededforhomeworkandtests.If youdonothaveone,IrecommendtheTexasInstrumentsBAIIplusbusinesscalculator(that’s theoneIuse).Itdoeseverythingyouneedtobeabletodo,isuserfriendly,andisrelatively inexpensive.Youarerequiredtobringcalculatoreveryclass.

RECOMMENDEDREADING (1)TheWallStreetJournal

(2)FinancialTimes

(3)BusinessTimes

COURSEEVALUATION

Theassessmentpolicyforthiscourseisspecifiedinthefollowingparagraphs.Pleasereadit carefully.Thefinalcoursegradewillbecomputedbasedonthefollowingweights:

(1)Classparticipation: 10% (2)Casestudyanalysisandparticipation: 10% (3)Teamproject: 20% (4)Test: 20% (5)Final Exam: 40%

TESTS

Testswillbe acombinationof multiplechoicequestions,show-your-workproblems,andessay questions.Testswillcoverallassignedreadingsandproblemsaswellasmaterialcoveredand discussedinclass.Themultiple-choicequestionswillbeconceptual.Theshow-your-work

problemswillbecomputationbasedandsimilartoassignedproblems.Theessayquestionswillask youtoexplainaconcept.Answerstotheseshouldbeoneortwoparagraphsinlength.Thebest

waytoprepareforthetestsistodothereadingsandtheassignmentsandattendclass.

Youareallowedtohaveacalculatorandformulasheet(andnothingelse)toalltests.You maybring ina 5”8”formulasheet(bothsides)forthetestora8”x11”formulasheet(onesideonly).You areallowedtowriteonlyformulasonaformulasheet(thisshouldbeself-explanatory).Eachformulasheetwillbesubmittedwithyourtestwhenyouturnitin.Ifyouknowthatyouhave

aconflictwithanupcomingtestsuchasajobinterview,youmustnotifymeseveraldaysin advanceandprovidesupportingdocumentationoramake-uptestwillbedenied.Studentson athleticscholarshipshavetoprovidesupportingmaterialinthefirstweekofthesemester.Last minuterequestsforamake-uptestwillbedeniedexceptinthecaseofmedicalemergencies.In thesecases,youmustprovidesupportingdocumentation.

TEAMS

Youwillbeassignedtoa teamof4–6students.Ifyouarenotassignedtoateam,comeandtalkto me.Teamsareresponsibleforthediscussionofcasestudiesandtheclassproject.

PROJECT

Projectisteameffort.TheprojectistobedoneinExcel.Manyrecruiterswanttoseethatyouhave donefinancialmodeling.CalculationsmustbedoneusingExcelformulas.Youwillsubmitthe

hardcopyofthereporttomeandelectroniccopyofthereportandExcelfiletoIVLE.Guidelines willbepostedontheclasswebpagelaterinthecourse.Projectisdueonaspecifieddateatthe beginningoftheclass.Latesubmissionswillbepenalizedattherateof10%forevery12hours (withfirst10%beingdeductedimmediatelyafterthedeadline).

NAMEOFTHEFILEHASTOLOOKLIKEFOLLOWING:

<SECTION#_TEAM#_CASETITLE>.Forexample,<MBA_1_DFA>.Namesofteam members,yoursectionnumber,andteamnumberneedtobeprintedonthecoverpage.

CLASSSCHEDULE:

The followingisalistofsomeofthe topicsthat we will coverin this course.Basedontheprogress oftheclass,minorchanges(additionsordeletions)maybe madetothislist.

Introductiontofinance

Whatisacorporation?

Theobjectivesofafirm

Whatistheroleofafinancialmanager?

Separationofownershipand management

Valuation

Introductiontopresentvalueandtheopportunitycostofcapital

Valuationofstocksandbonds

CapitalBudgeting

MakinginvestmentdecisionswiththeNetPresentValue(NPV)rule

NPVvs.alternativecriteriaformakinginvestmentdecisionssuchastheInternalRateof

ReturnRuleandPaybackPeriodRule

Estimationofcashflowsandvaluingaprojectusingdiscountedcashflows

Risk,Return,andCostofCapital

Thebenefitsofdiversification

Measuresofriskforindividualsecuritiesandportfolios

CapitalAssetPricingModelandalternativepricingmodels

Thecostofequityandtheweightedaveragecostofcapital(WACC)

MarketEfficiency

Efficientmarketstheory

Stockmarketanomaliesandbehavioralfinance

Corporatefinancing

Financingacompanyusingcommonstock,preferredstock,anddebt

Howcorporationsissuesecurities(e.g.IPOs)

VentureCapitalandPrivateEquity

Payoutpolicy

Howdividendsarepaidandhowfirmsrepurchasestock

Thepayoutcontroversy

CapitalStructure

How muchshouldacompanyborrow?

Thetrade-offtheoryofcapitalstructure

Thepeckingorderoffinancialchoices

Special topics

Islamicfinance

Investinginweaklegalenvironments

Shareholderactivism

NON-TEXTBOOKBOOKS

Frequently,studentswillbeinterestedinnon-textbookbooksoninvestinginequitysecurities. Thereisahugerangeinthedifficultylevelandqualityofthesebooks.Followingisalistofbooks thatcomplementwhatyouarelearninginthiscourseandareatanadequatedifficultylevel.They areorganizedby generaltopicarea.

GENERAL

ARandomWalkDownWallStreetby BurtonG.Malkiel

TheIntelligentInvestorbyBenjaminGraham

SecurityAnalysisby BenjaminGrahamandDavidL.Dodd

AppliedEquityAnalysisbyJamesEnglish

BeyondtheRandomWalkby VijaySingal

BEHAVIORALFINANCE

TheNewFinance:TheCaseAgainstEfficientMarketsbyRobertA.Haugen

TheInefficientStockMarket:WhatPaysOffandWhyby RobertA.Haugen

IrrationalExuberancebyRobertJ.Shiller

BeyondGreedandFear:UnderstandingBehavioralFinanceandthePsychologyof

InvestingbyHershShefrin

InefficientMarkets:AnIntroductiontoBehavioralFinanceby AndreiSchleifer

AdvancesinBehavioralFinanceby RichardH.Thaler

BehavioralCorporateFinanceby HershShefrin

AnimalSpirits:HowHumanPsychologyDrivestheEconomy,andWhyIt Mattersfor

GlobalCapitalismby GeorgeA.Akerlof,RobertJ.Shiller

PredictablyIrrationalbyDanAriely

SPECIFICEVENTSORPEOPLE

OneUponWallStreetbyPeterLynchwithJohnRothchild

BeatingtheStreetby PeterLynchwithJohnRothchild

TheWarrenBuffetWaybyRobertG.Hagstrom,Jr.

BuffetologybyMaryBuffetandDavidClark

WinningonWallStreetbyMartinZweig

FreakonomicsbyStephenJ.Dubner,StevenD.Levitt

AccidentalInvestmentBankerby JonathanA.Knee