University of Puget Sound
School of Business and Public Administration
BPA 315A Introduction to Financial Management Professor Alva Wright Butcher
McIntyre 303 Tues-Thurs 10:00-11:30 Fall Semester 2001
Office: McIntyre 111 I Office Hours:
Phone: 253-879-3349 Mon & Wed 10:30 - 12:00
FAX: 253-879-3156 Tues & Thurs 2:00 - 3:00
Email: and by appointment
Home: 206-285-3990
Required Course Materials:
1. Ross, Westerfield, and Jordan, Essentials of Corporate Finance, Third Edition, McGraw-Hill Irwin, 2001
2. Course packet available in bookstore
Recommended:
Subscription to the Wall Street Journal
References: Please contact me for sources that provide other explanations of the material.
Calculator: A financial calculator is required. 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.
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 Elements of Applied Statistics (Math 271) and in Principles of Financial and Managerial Accounting (BPA 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.
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 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. 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.
Support Materials: The McGraw-Hill/Irwin online learning center provides excellent learning support www.mhhe.com/business/finance/rwj/ess3e/student_index.mhtml . You can download the Student Problem Manual in either MAC or PC format. For each chapter, the Student Problem Manual includes a study guide, concept tests and answers, a problem set, and detailed solutions to the problem set. In addition, the online learning center provides the following for each chapter: web links, an e-learning session that reviews key points (Note that this can be rather slow to download.), and multiple-choice quizzes that are graded online.
Self-test problems and solutions at the end of each chapter also provide excellent review material. Also note that in general, solutions to odd numbered end-of-chapter problems are available in the back of the textbook.
Online Course Management Platform – Blackboard
We will be using an online course management platform this semester. The key benefit is that it provides an excellent means of communication. You can download the syllabus, homework assignments, homework solutions, sample exam problems etc. from the internet at any time. It also provides a platform for threaded discussion. Another feature allows discussion among group members on their group project; access is restricted to members of the group.
You can access this at www.blackboard.com. During your first contact, you will need to enroll for this course (UPS BPA 315) and specify your user-id and password. If you have other courses on Blackboard, I would suggest that you use the same id and password for all classes. During the enrollment process, you will be asked for additional information, such as your name, email address etc. Please begin both your first and last name with a capital letter, and enter the other letters in lower case.
Once you have enrolled in Blackboard, subsequent contacts only require that you open www.blackboard.com and click on “My Blackboard” (at the top of the screen). You will be asked for your id and password.
Homework: Homework assignments are listed on the course outline, and are due on the class date indicated on the outline. 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.
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. The course outline notes two categories of homework: discussion and written. Written homework assignments will be collected at the beginning of class, and a subset of these problems will be selected on a random basis for grading. Solutions to homework assignments will be available after class on the online course management platform, www.blackboard.com (under Assignments).
Late homework assignments will not be accepted.
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 will require a written report. 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. One of these assignments, the Stock Project, will be a team project. Additional details will be available on Blackboard, the online course platform. (www.blackboard.com Check under Assignments)
Each will be discussed in detail during a regular class session. You should be prepared to respond to specific questions, and to the comments of other students. Grades for both written reports and class discussions will be based on content, exposition, and clarity.
Late written reports will not be accepted. Reports are due at the beginning of the class period. Please make an extra copy for your use during the class discussion.
Exams: There will be two midterm exams and a comprehensive final. Exams will be problem oriented, but will also include short essay questions. Exams are closed book, but you may use one side of an 8 by 11 paper for notes and formulae.
As a general policy, makeup exams will not be given.
Extra Credit Quizzes: During the term, there will be unannounced pop quizzes. These will consist of a few multiple choice or true false questions, and will cover material presented in the prior one or two class sessions. As with homework problems, these are designed to reinforce the material, and to identify problem areas. By keeping current with the material, these quizzes also provide you with a means of earning extra credit points.
Grades:
Grades will be based on the following weights:
Two Midterm Exams 42%
Comprehensive Final Exam 26%
Projects and Case Analyses 22%
Stock Project (9%)
Case of the Unidentified Industries (5%)
Investment Analysis (2%)
(See Investment Analysis and Lockheed TriStar
Questions 1 and 2)
Lockheed TriStar and Capital Budgeting (6%)
Homework and Class Discussion 10%
Total 100%
Unannounced Quizzes 5% (extra credit)
Course Outline
Tues. 8/28 Introduction to Course
Chapter 1: Overview of Financial Management
Thurs. 8/30 Chapter 2: Financial Statements, Taxes, and Cash Flow
Chapter 3: Working with Financial Statements
Math Concept: Review of Algebraic Manipulation
Homework
Register on Blackboard, the online course platform.
Discussion Chapter 2: 1, 2, 3
Chapter 3: CT2, CT3
Note: Please bring your financial calculator to class.
Tues. 9/4 Long Term Financial Planning and Growth
Please read material in handout
Homework
Written Chapter 2: 22(a,b,d)
Chapter 3: 2, 34 (Calculate ratios for 2000. Use the year end information.)
Discussion Use the information in Problem 34 of Chapter 3 to prepare a Statement of Changes in Cash Flow for Smolira Golf.
Thurs. 9/6 Chapter 7: The Stock Markets (Section 7.3)
Working with the Wall Street Journal
Please bring a copy of the Wednesday edition, 9/5/01, or today’s edition
Case of the Unidentified Industries- Written Report and Case Discussion
Tues. 9/11 Chapter 4: Introduction to Valuation: The Time Value of Money
Stock Project: Initial Report is due
Homework
Discussion Chapter 4: CT1, CT2, CT3, CT4, CT8
Note: We will be working with your financial calculators.
Thurs. 9/13 Chapter 5: Discounted Cash Flow Valuation
Homework
Written Chapter 4: 6, 12, 14, 24
AWOL Excel Financial Forecast Problem
(Details on this problem can be found on Blackboard under Assignments. Please submit your excel file via Blackboard. Use the Drop Box feature. Your excel file should be named as “yourname AWOL”. A file with a virus will not be accepted, and the grade for this project will be discounted depending on the length of the delay.)
Tues. 9/18 Discounted Cash Flow Valuation continued
Homework
Written Chapter 5: 2, 6, 8
Thurs. 9/20 Discounted Cash Flow Valuation continued
Math Concept: Continuous Compounding
Homework
Written Chapter 5: 14,16,18,20
Tues. 9/25 Chapter 6: Interest Rates and Bond Valuation
Homework
Written Chapter 5: 55
Thurs.9/27 Interest Rates and Bond Valuation continued
Homework
Discussion Chapter 6: CT6, 1, 2
Written Chapter 6: 6, 7, 8
Working with the Wall Street Journal
Please bring a copy of the Wednesday edition, Sept. 26, 2001 or today’s edition
Tues. 10/2 Chapter 7: Stock Valuation (Sections 7.1 and 7.2)
Homework
Discussion Chapter 7: CT1, CT2, CT6
Written Chapter 6: 19, 25
Thurs. 10/4 Stock Valuation continued
Homework
Written Chapter 7: 4,14
Tues. 10/9 Review of chapters 2 – 7.
Homework
Written Chapter 7: 16, 19
Thurs. 10/11 Exam 1: Chapters 2 - 7
Tues. 10/16 Chapter 8: Net Present Value and Other Investment Criteria
(Skip sections 8.3 and 8.5)
Stock Project: Second Report is Due
Thurs. 10/18 Chapter 9: Making Capital Investment Decisions
Homework
Written Chapter 8: 10, 22
Tues. 10/23 Making Capital Investment Decisions continued
Homework
Written Investment Analysis and Lockheed Tri Star
Questions 1 and 2
Chapter 9: 2, 6, 20
Thurs. 10/25 Lockheed Tri Star and Capital Budgeting
Written Report and Case Discussion:
Tues. 10/30 Chapter 10: Some Lessons from Capital Market History (Skip section 10.5)
Math Concept: Sample Mean and Standard Deviation
Thurs. 11/1 Chapter 11: Risk and Return
Homework
Discussion Chapter 11: CT3
Written Chapter 10: 9, 10, 17
Tues. 11/6 Risk and Return continued
Math Concept: Linear Regression and Basic Inferential Statistics
Homework
Written Chapter 11: 4, 16, 19(Assume that CAPM is true)
Thurs. 11/8 Chapter 12: Cost of Capital
Stock Project: Third Report is Due
Tues. 11/13 Cost of Capital continued and Review
Homework
Discussion Chapter 12: CT 8
Written Chapter 12: 3, 6, 15
Thurs.11/15 Exam 2: Chapters 8 - 11
Tues. 11/20 Chapter 10: Capital Market Efficiency (Section 10.5)
Homework
Discussion Chapter 10: CT9, CT10
Thurs.11/22 Thanksgiving Holiday
Tues. 11/27 Chapter 15: Raising Capital
Thurs. 11/29 Stock Project: Final Report and Presentation
Tues. 12/4 Integration and Review
Comprehensive Final Exam
The final exam will be given as scheduled by the University
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BPA 315A Fall 2001 Professor Alva Butcher