Business 71a
Introduction to Finance
Fall 2018
Tu/Th 2:00-3:20pm (SECTION 1)
Tu/Th 3:30-4:50pm (SECTION 2)
Room: International Hall, Sachar 116
Associate Professor Daniel Bergstresser.
Office hours on Mondays, 3:30-5:00, or by appointment at
Office location is Sachar 128C
Website:
Twitter:
Teaching Assistants:
SECTION 1: Claudia Vacirca ()
SECTION 2: Ji (Raymond) Lu ()
Prerequisites: Bus 6a or equivalent; Bus 1b is a corequisite. This course may not be taken for credit by students who have previously taken Econ 171a. This course cannot be counted as an elective towards the economics minor or major.
COURSE OBJECTIVES
The primary objective of this course is to develop the financial skills and logical thoughtprocesses necessary to make and implement business decisions in a global environment. Uponsuccessful completion of this course, students will have developed an understanding of keyconcepts of the financial environment within which management must operate, the processes offinancial analysis, the time value of money, methods of stock and bond valuation and therelationship of valuation to risk and return. We will look at several basic questions:
- Whatfunctions do financial markets provide?
- How do firms use and deal with financial markets toraise capital?
- How do investors approach financial decisions?
- How do we value financialsecurities, for example stocks and bonds?
We will analyze how financial managers make decisions withina framework which emphasizes the time value of money and the relationship between expectedreturn and risk. In addition, we will examine the techniques that financial managers use toevaluate feasibility of undertaking new projects (i.e., capital budgeting).
Please note that this syllabusis preliminary and may change somewhat as the course progresses.
Method of Instruction:
Instruction will be done on the basis of a combination of lectures, discussions, and problemsolving. This course is fast paced, reasonably technical in nature, and it requires each student todo considerable out-of-class work. I assign required homework for nearly every class session. Problem solving is very important in this course and Iencourage participation from all my students in this activity throughout the term. Answers tomost assigned questions will be provided to students. You should read the assigned bookchapters prior to coming to class. The material will mean a great deal more to you, and you willunderstand and retain much more of it, especially when you review the class notes and problemsprior to an exam.
COURSE REQUIREMENTS
Course materials
Text:
- Essentials of Corporate Finance, 9th Edition, Ross, Westerfield, Jordan, McGraw-Hill, 2016.
The materials that I will post on LATTE are as important as the required text. Reading current business periodicals, such as the Financial Times or the Wall Street Journalwill also be useful. I will comment on current business happenings, in particular as they may relate to coursecontent. A very important practical benefit of keeping up with current business events is that this knowledgemay be useful for you inbusiness-related and finance-related job interviewers.
Cases and Additional Readings: Will be either handed out in class or electronically distributedvia LATTE or email.
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Homework Problem Sets:You also be provided with homework practiceproblems on various topics throughout the course. You should expect to be assigned homework every class session. These problem sets will be due the following class forgrading and review.
Homework grading is as follows:
- Check plus: flawless/near-flawless
- Check / Check plus: most work done correctly, but 1-2 significant errors
- Check: Student showed effort, but made several significant errors
- Check minus: not turned in, turned in with significant help from another student (e.g., “cheating”) or no meaningful effort made.
- Problem sets may be turned in late, up until the date that the NEXT homework is due. Being late means the homework will be graded down one notch from the grade it would otherwise have received. Solutions will be distributed for the previous homework at approximately the point that the next homework is due; homework may not be turned in for credit after the solutions are distributed.
Problem sets need to be worked out in detail, and the work must be your own. The exam problems are generally modeled on the problems inthese problem sets. There is a high correlation between the grades students receive on their homework assignments and the grades they achieve on exams. The most important and most helpful suggestion I can give you for doingwell in this course is to do all the assigned questions and problems and then review them so thatyou are able to do them on the exam. The surest way to do poorly in this course is to notcarefully work on these homework assignments. If you have any difficulty in solving theproblems, please contact me,the TA or the BUGS tutor for this course.
Success in this four- credit course is based on the expectation that students will spend a minimum of 9 hours of study time per week in preparation for class (readings, papers, discussion sections, preparation for exams, research, etc.).
Class Participation: Class participation is expected of everyone in this course, and class attendance is required. Class participation grade will be on a similar scale to homework grades:
- Check-plus: 2 or more contributions (questions or responses) to a given class session’s discussion
- Check/Check-plus: 1 contribution to a given class session’s discussion
- Check: attendance, but no contribution
- Check minus: unexcused absence. Absence by varsity and club athletes for scheduled competitions are excused if they are arranged in advance. I allow students one unexcused absence per term without penalty. Additional absences will deduct from your class participation score.
To facilitate participation, I will ask all students to place a name card on their desks, and that they sit in the same seat every class. I will assign seats after the first week. It is yourresponsibility to ensure that you take an active role in the class. If this is a problem for you,I urge you to talk to me to discuss ways you can make a contribution.
Grading
- Class Participation15%
- Homework Assignments and Ethics Exercise25%
- Midterm Exam20%
- Final Exam (TBD)40%
The sense in which the weights described above will operate is as follows: performance in each dimension will be assigned a “Z-score”, which will be calculated as the difference between the student’s performance in that subject and the class mean, divided by the standard deviation. For example, performance by a student that is one standard deviation above the mean would get a Z-score of 1. Performance that is at the mean would get a Z-score of 0. If the mean midterm score is 50 out of 100, and the standard deviation is 10, then a raw score of 55 would convert to a Z-score of 0.5 = (55-50)/10. The rationale for using these Z-scores is to try to ensure that each element of the course has an influence on the final grade that is approximately in line with its intended weight. It is also worth remembering that raw number performance on any element (50, 60, 100,000, and so forth) is irrelevant. The standardized Z-score determines the influence of a component on the final grade.
These Z-scores of individual elements are then summed with the weights described above, and the resulting aggregate score is used to create a ranking. This ranking will be used to assign course grades. The course grades will be assigned approximately in line with the general grading curve guidance that instructors receive for BUS courses, which is that 15 percent of grades will be A, 25 percent A-, 30 percent B+, 15 percent B, and up to 15 percent B- and below.
The midterm will be for the full class duration, and the final will be a 3 hourexam. The final exam is comprehensive and cumulative. There will be no makeup exam for the midterm. Students with an excused absence from the midterm will split its weight equally between homework assignments and the final exam. You cannot skip the final exam – if you do you will get zero for the final – the weight from thefinal will not be moved to the other components.
My exams are not open book or open notes. However, you may bring one crib sheet to the midterm exam and one crib sheet to the final exam. A crib sheet is an ordinary (A4 or 8 ½” x 11”) piece of paper, on which you may write,type, print or copy formulas ONLY- no definitions or any other text will be allowed. Writing should be in 10 point font or hand-written equivalent and you may use both sides of the paper. You maynot staple or tape any extensions or booklets onto the crib sheet.
Class Format. Classes will be a mixture of lectures introducing new material and discussions of homework solutions
Ethics Exercise. The class will include a partial session and graded individual exercise focused on ethics and business ethics. This is expected to occur around or on the date of the midterm.
Academic Honesty. You are expected to be honest in all of your academic work. Please consult Brandeis University Rights and Responsibilitiesfor all policies and procedures related to academic integrity. Students may be required to submit work to TurnItIn.com software to verify originality. Allegations of alleged academic dishonesty will be forwarded to the Director of Academic Integrity. Sanctions for academic dishonesty can include failing grades and/or suspension from the university. Citation and research assistance can be found at LTS - Library guides. For any work involving historical cases, under no circumstance may you search the internet (or turn to any other outside source) for any information regarding these cases without my permission. Failure to comply with this directive is cheating.
Special Accommodation. If you are a student with a documented disability on record at Brandeis and wish to have a reasonable accommodation made for you in this class, please see me immediately. Please keep in mind that we are not able to retroactively provide these accommodations.
Use of Laptop Computers and Cell Phones in Class:
Cell phones and PDA.s (i.e., Blackberrys, iPhones, etc.) must be turned off during lectures. Laptops in class will be used at times for class-related work (through shared spreadsheets) but should otherwise be off and put away. I stick quite closely to myslides and what I discuss in class when setting exam questions.
Course Film:
All course sessions will be filmed. The resulting film will be made available to students in the course as a resource. Brandeis IBS may also make the resulting film, edited or unedited, more widely available, without limitation. For example, Brandeis IBS may publicly disseminate film material from class sessions, including student comments and participation.
Communication Through Twitter:
Students are welcome to ask questions via Twitter (#BUS71A). You are welcome to follow me (@dbergstresser), although obviously this is not required, and not all of my Twitter comments relate to this course or to finance.
COURSE OUTLINE
8/30Chapter 1 / Introduction to Financial Management
9/4 and 9/13Chapter 2 / Financial Statements and Cash Flow
9/18 and 9/20Chapter 3 / Working with Financial Statements
9/27Chapter 4 / Time Value of Money
10/2 and 10/4`Chapter 5 / Discounted Cash Flow Valuation
10/9 and 10/11Chapter 6 / Interest Rates and Bond Valuation
10/16Chapter 7 / Equity Markets and Stock Valuation
10/18 and 10/23Chapter 8 / Net Present Value and Other Investment Criteria
10/25MIDTERM EXAM
10/30and 11/1Chapter 9 / Making Capital Investment Decisions
11/6 and 11/8Chapter 10 / Some Lessons from Capital Market History
11/13 and 11/15Chapter 11 / Risk and Return
11/20Chapter 12 / Cost of Capital
[THANKSGIVING]
11/27 and 11/29Chapter 13 / Leverage and Capital Structure
12/4Chapter 14/ Dividends and Dividend Policy
12/6Chapter 15/ Raising Capital
12/11REVIEW AND SUMMARY
(TBD)FINAL EXAM
Note: Schedule is preliminary and subject to change.
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