School of Business and Leadership
University of Puget Sound
School of Business and Leadership
Principles of Financial Management
Professor Alva Wright Butcher
BUS 315A McIntyre 107 Tue-Thurs 11:00-12:20
BUS 315B McIntyre 107 Tue-Thurs 9:30-10:50
Fall Semester 2012
Office: McIntyre 111 I Phone: 253-879-3349 FAX: 253-879-3156
Office Hours: Tues & Thurs 1:30 -2:30
Wed 9:30-10:30
And by appointment
Note that I am always willing to schedule additional office hours by appointment. I check email frequently, so that is probably the best way to communicate. Do not hesitate to call me at home. If you cannot reach me, please leave a number so that I can get back to you.
Email:
Home: 206-285-3990
Required Course Materials:
1. Ross, Westerfield, and Jordan, Essentials of Corporate Finance, Seventh Edition, McGraw-Hill Irwin, 2011
2. Harvard Business School case. It is available from the Harvard Business School webpage. The URL is http://cb.hbsp.harvard.edu/cb/access/14639681
This allows you to obtain discounted student pricing for the case.
§ Jones Electrical Distribution
3. A financial calculator. The calculator must have functions for bond valuation, net present valuation (NPV), internal rate of return (IRR), present value (PV), and future value (FV). One suitable calculator is the HP10-B. It is available in the bookstore for around $30. You may also be able to purchase it at stores such as Office Depot.
Recommended:
Subscription to the Wall Street Journal
We will be working with the Wall Street Journal during several class sessions. As a business student, you should read this publication regularly.
References and Support Materials:
1. Self-test problems and solutions at the end of each chapter provide excellent review material. Note that in general, solutions to odd numbered end-of-chapter problems are available in the back of the textbook.
2. Website supported by the publisher.
www.mhhe.com/rwj
Select the text and then select Student Edition under Learning Center
The site provides access to many sources of financial information as well as material specific to each chapter in the text. This includes:
· online multiple choice quizzes for each chapter,
· Excel templates for selected problems at the end of the chapter,
· Excel Master – tutorials on how to master various excel functions,
· Video clips,
· Power Point presentations on financial industry topics.
4. Please contact me for sources that provide other explanations of the material.
Moodle and Email Communication
Moodle
We will use Moodle as a vehicle for communication. The link is http://moodle.pugetsound.edu
You are automatically enrolled on the Moodle site for this course. The syllabus and instructions for the stock project are posted under the News Forum in the weekly outline on Moodle. Since these documents will be utilized throughout the semester, they are not included in the weekly boxes. Moodle will be used to post assignment instructions, other course documents, articles, etc. for the relevant week. At times I may need to modify assignments as listed on the syllabus in order to reflect the pace at which we are covering the material. If so those changes will be posted on Moodle for the relevant weeks. Please check Moodle frequently.
You will be uploading Excel files to Moodle for several of your assignments. Sometimes students submit an assignment and then wish to submit a revised assignment. This will be allowed on Moodle as long as it is submitted before the deadline. After that, Moodle will not allow a submission.
There may be times that I send mass emails to the entire class. These will be directed to your Cascade email address. You are responsible for checking your Puget Sound email account at least once per day.
I will respond to all emails that you send to me. If you do not receive a response, it means that I did not receive your email.
Course Objectives: The key objective of this course is to develop a conceptual and pragmatic understanding of corporate finance. The topics and assignments are designed to prepare you to apply both theory and techniques in the “real world” of corporate finance. Note that some of these topics, such as the time value of money, are ones that you will also find invaluable in handling your own personal finance. Assignments include end of chapter questions and case analyses. You will create spreadsheets to model financial problems and will prepare professional reports of your analyses.
The course builds upon concepts covered in Applied Statistics (Math 160 or 260) and in Principles of Financial and Managerial Accounting (BUS 205). It is assumed that you are proficient in the use of financial data as reported in financial statements. If you are not comfortable with these concepts, please see me for some review problems. Since the application of financial concepts also requires proficiency in basic algebra and geometry, we will frequently address basic mathematical concepts and techniques.
From time to time throughout the semester we will pause to look at the “big picture” in financial markets. The highlights of the financial crisis of 2008 are so extraordinary that they are stranger than fiction. Rumors about the investment bank, Bear Stearns, hit the market on Monday, March 10th, 2008. At the time the firm had cash reserves of $18 billion. The stock had been trading as high as $171 per share, but had recently dropped to around $60 per share. Within a week, Bear Sterns had failed. J.P. Morgan Chase not only purchased Bear’s stock for the princely price of $2 per share but was also awarded a $30 billion government loan against Bear’s toxic securities. Fannie Mae and Freddie Mac, two of the most powerful financial firms with five trillion dollars in mortgages lost sixty percent of their stock value within a two week period. On September 6, 2008, these two firms were nationalized. One day later, the crisis spread to Lehman Brothers. Within eight days, Lehman Brothers filed for bankruptcy. The failure of Lehman Brothers sent huge ripples throughout world markets. Lehman was interconnected across national and international financial markets. Markets crashed and the credit markets froze. Even the most credit worthy could not get short term loans. The biggest insurance company in the country, AIG, was the next victim. On Tuesday, September 16th, the U.S. government decided that AIG was too big to fail, lent AIG $85 billion, and took an eighty percent ownership position in AIG. On September 18, 2008, Bernanke and Paulson delivered a chilling message to Congress. Unless the government was prepared for a full scale bailout of the nation’s financial system, the system would melt down in a matter of days. Their proposal of less than four pages requested government funding of $700 billion. As the House and Senate debated the bill, Washington Mutual was seized by federal regulators on September 25, 2008 and sold to J.P. Morgan Chase for $1.9 billion. On September 29th, the emergency legislative bill failed in the house. The reaction of the market was enormous. The market dropped about 700 points, the greatest point loss in one day on history. The financial plan was finally approved on October 4, 2008.
The enormity of this financial crisis, all within less than a thirty day period, is incredible. Over nine million in jobs had been lost. The crisis was global. In other nations, banks were being bailed out by governments. It seemed inconceivable that a nation could go bankrupt, but in these strange times, the country of Iceland was bankrupt. It is important that you have a basic understanding of this financial crisis. It will be a dominant force in the markets and in government actions for years to come. Throughout the semester we will utilize several audio visual sources to review the crisis. Each has a slightly different twist on the financial crisis. You will be required to share current articles on financial markets. The process of reflecting upon and discussing the causes and implications of the events during the financial crisis of 2008 will enrich your understanding of current financial market conditions.
After you have successfully completed this course, you will be able to:
Ø Work with financial statements to evaluate financial ratios and their implications regarding the financial strengths of weakness of a firm.
Ø Use historical financial statements and assumptions about future growth to prepare pro-forma financial statements and estimate additional financing needed to support that growth.
Ø Determine the value today of cash flows to be received later.
Ø Evaluate the cost-benefit trade-off of costs incurred today with cash inflows expected in the future.
Ø Understand the effect of compounding periods on interest rates. (What interest rate are you really paying on that loan?)
Ø Understand the basic features of bonds and how they are priced.
Ø Estimate the fundamental price of a common stock, using the two-stage discount model.
Ø Identify the relevant cash flows for a proposed investment, and evaluate a complex proposed investment using Net Present Value, Internal Rate of Return, and Payback Period.
Ø Recognize the impact of diversification and use the Capital Asset Pricing Model to quantify the risk-return tradeoff.
Ø Use financial information to estimate the required rate of return on a proposed investment. This is known as the firm’s weighted average cost of capital.
Ø Have a basic understanding of the Efficient Market Hypothesis and its implications when you are presented with a “hot tip”.
Ø Have a basic understanding of the financial crisis that rocked financial markets around the world in 2008 and its implications for current conditions in financial markets.
Ø Use an essential tool in real world business finance – the application of computer models in financial analysis.
Ø Read financial data as reported in the Wall Street Journal and have a basic understanding of primary versus secondary markets.
Ø Evaluate your “stock pick” and reflect on your “virtual” gains or losses.
Class Preparation and Participation: Preparation for class is extremely important. Prior to class, you are expected to have read the assigned reading material. You are also expected to have analyzed any assigned discussion problems and to be prepared to participate in the class discussion. Discussion questions do not need to be handed in. If for some reason you are not prepared to participate in the discussion please let me know prior to class.
Your presence and contribution to class discussion are important. There are three categories: present, absent with leave, and AWOL.
Homework: Some homework assignments are listed on the course outline. Others will be assigned in class. Please note that at times I will need to modify homework assignments in order to reflect the pace at which we are covering the material. These changes will be announced at the end of the class period. I will always follow up with an email message for assignments announced in class. These assignments are designed to reinforce your familiarity with the material, to train you in the use of your financial calculator and computer spreadsheets, to identify areas in which you may be having difficulty, and to serve as a basis for classroom discussion. Written homework assignments are due at the beginning of class on the date indicated on the outline or in the email message. A subset of these problems will be selected on a random basis for grading. Discussion questions do not need to be handed in. I will periodically post solutions to homework assignments on Moodle.
The end of each chapter includes Critical Thinking and Concepts Review and Questions and Problems. Most homework questions are from the end-of-chapter Questions and Problems. A critical thinking question will have the notation CT3, i.e. question 3 under Critical Thinking and Concepts Review
Homework assignments are due at the beginning of the class period. To receive credit you must clearly show the logic behind your solution. Late homework assignments will not receive full credit.
Case Analyses and Projects: Several case studies and projects will be assigned during the term. These are utilized to enable you to: 1) practice effective communication techniques, both written and oral; 2) engage in an active learning situation; 3) perform data interpretation and analysis; 4) gain experience in decision making under uncertainty. They are also designed to give you an opportunity to use an essential tool in real world business finance - the application of computer models in financial analyses.
Each project will require a written report and/or an Excel spreadsheet. Some of these reports will be short memos; others will require more lengthy exposition. Reports must be typed, with exhibits inserted in the narrative where appropriate, or at the end of the report. Additional details will be provided to you throughout the semester.
Please submit a printed copy of your written report and your Excel spreadsheet at the beginning of class. An online version of your Excel spreadsheet must be submitted prior to the beginning of the class period on Moodle. Submissions after the deadline will not be accepted by Moodle.
The cases will be discussed in detail during a regular class session. You should be prepared to actively contribute to this discussion. Grades for both written reports and class discussions will be based on content, exposition, and clarity.
Late written reports and Excel spreadsheets will not be accepted. These are due at the beginning of the class period. Please make an extra copy for your use during the class discussion or have it available on your laptop.
Academic Integrity
Please carefully read the University policy on academic honesty in The Logger. The following is a quote from The Logger.
“The University of Puget Sound is a community of faculty, students, and staff engaged in the exchange of ideas contributing to intellectual growth and development. Essential to the mission of the academic community is a shared commitment to scholarly values, intellectual integrity, and respect for the ideas and work of others. At Puget Sound, we share an assumption of academic integrity at all levels. Violations of academic integrity are a serious matter because they threaten the atmosphere of trust, fairness, and respect essential to learning and the dissemination of knowledge.”
An interactive online tutorial on Academic Integrity@ Puget Sound is also available on the Collins Library webpage.