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Course Syllabus

Course Information
(course number, course title, term, any specific section title)

FIN6301, Financial Management, Summer 2006, Section 521

Professor Contact Information


(Professor’s name, phone number, email, office location, office hours)

Banikanta Mishra, 883-4580, banikanta@hotmail.com, SM 4.231, By Appointment (e-mail okay)

Course Pre-requisites, Co-requisites, and/or Other Restrictions


(including required prior knowledge or skills)

Pre-Req: AIM 6305 or AIM 6201 Co-req: OPRE6301

Course Description

This course revolves around the central theme of finance: valuation. It will start by introducing
you to concepts of valuation and their measurements. You will then use this knowledge to value
the two most basic securities: stock and bond. You would learn that value depends upon two
variables: cash-flows and discount-rate.

This course will familiarize you with the nuances of determination of cash-flows for a project, in
particular the effect of tax-shields, opportunity costs, externalities, and unequal lives. You would
also get a glimpse of "real options", options that arise in capital-budgeting problems.

Discount-rate is typically the more difficult variable to tackle. When valuing stocks and bonds,
you would have initially taken the discount-rate as given. But, later in the course, you will
analyze how these discount-rates are determined. The first thing that you will learn in this
regard is that risk of an instrument influences its discount-rate. Then, you will ferret out the
different sources of risk for a bondholder. In this context, you will learn about the term-
structure-of-interest-rates, which explains why riskless – and even similarly-risky-bonds of
different maturities command different yields. You will go a step further thereafter and, in the
spirit of understanding the global economy, would comprehend why interest-rates on riskless and
similarly-risky bonds denominated in different currencies differ.

Determination of discount-rate for stocks is perforce a more complicated task. This will
necessitate your understanding the risk-return framework in which individuals make their
portfolio choices. You will learn how risk is defined and measured for a stock. That will
introduce you to the concept of “beta”, which measures a stock’s risk. Analyzing the factors that
affect the beta, you will find that capital-structure, typically defined by the debt-equity ratio,
plays a crucial role, as does operating-leverage. You will also find out that a firm’s dividend/pay-
out policy may affect the stock value.

After having gone through the course, you should be able to understand how a financial-manager
values projects and finances it. The "Concepts Covered" sheets tell you what are covered.

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Student Learning Objectives/Outcomes

1. Be able to apply time value of money concepts to various valuation problems.


2. Be able to describe what drives a firm’s cost of capital and how to estimate it.
3. Be able to analyze strategic investments in real and financial assets using various
methodologies.

Required Textbooks and Materials

The text for this course is Corporate Finance by Ross, Westerfield, and Jaffe (Seventh Edition;
McGraw Hill). My handouts and lectures would supplement the book.

Suggested Course Materials

If possible, also read The Wall Street Guide to Understanding Money and Investing by Kenneth
Morrris and Allen Siegel (Lightbulb Press).

Assignments & Academic Calendar


(Topics, Reading Assignments, Due Dates, Exam Dates)

Assignments: There are six optional assignments. You should keep answering questions in an
assignment as we keep covering different topics in class; show your answers in the space
provided after each question. For multiple-choice questions, unless otherwise instructed, you
should choose the correct answer and give a brief explanation/justification; if no explanation is
provided, you would receive 0, even if you choose the correct answer. You should submit the
completed answers to an assignment only on the date specified at the top of the first-page of the
assignment (if you are printing it out, please print multiple pages back-to-back on sheets); I
would go over solutions to the assignment-questions when I hand you back your graded
assignment. You have a right not to submit an assignment (see below).

Practice Questions: Each assignment, except Assignment-6, is accompanied by a PQ (Practice


Questions), which covers the same topics as the assignment does. You should not submit
solutions to a PQ; but, if time permits, you should work on the PQ before submitting its
accompanying assignment. I would handover answers to a PQ on the day mentioned at the top
of the first-page of that PQ.

Assignment-6: Assignment-6 requires you to determine the cost-of-capital of a company whose


name would be chosen by you and approved by me. Please select a company whose shares (and
preferably bonds too) are trading in a stock-exchange and inform me about your choice. In case
another student has already picked the same company, I would request you to choose a different
company.

Indicative Schedule:

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Week Topics Covered Text Pages* Handout Pages
1-2 Cash Flow Valuation: PV and FV 60-105

3 Bond Valuation 106-112


Term Structure 134-142
Interest Rate Parity 854-855
4-5 Equity Valuation 112-127
Risk & Return (and the CAPM) 255-287

6 Mid Term Examination All Above All Above


(first half)
6-7 WACC 318-333
Capital Structure 402-426
Operating Leverage and Beta 327-330
APV (Re)Visited 477-492
8 Dividend Policy 502-513

9-10 Capital Budgeting: NPV vs IRR 144-168


Capital Budgeting: Basics 178-193
Capital Budgeting: Advanced 193-197
Exam Final Examination All Above All Above
Week

* If you are using a different edition of Ross, Westerfield, and Jaffe, page numbers may vary a little.

Grading Policy
(including percentages for assignments, grade scale, etc.)

Total (maximum) weight for the course is 100%, which is spread across six optional assignments
(5% x 6), a midterm exam (30%), a final exam (30%), and participation in the approximately 10
classes (1% x 10). Your performance in the course is determined by your weighted-average-
score in percentage (WASP) in the above. You may choose to skip some or all of the
assignments; you may also submit an assignment and later request for its withdrawal from
consideration, though at a cost. In either case, the weight(s) for the assignment(s) would be
passed on equally to the midterm and final exams. Thus, if you submit five assignments and
withdraw two of them, your midterm and final exams would carry a weight of 37.5% each
(besides 5% for each of the three assignments and 10% for Class Participation). If you request
withdrawal of more than one submitted assignments, there would be a penalty: 2 would be
subtracted from your WASP for each excess withdrawal (beyond one). Thus if you score overall
82% in the course (=> WASP = 82) and you have three excess-withdrawals (that is, total four
withdrawals), your WASP would become 76. Your course-grade would be determined as per the
following rule.

If your WASP is less than 50, you may get an F.


If your WASP is 55 or more OR in the top 90% of class, then you are guaranteed at least a C.
If your WASP is 70 or more OR in the top 55% of class, then you are guaranteed at least a B.
If your WASP is 85 or more OR in the top 20% of class, then you are guaranteed an A.

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Course & Instructor Policies
(make-up exams, extra credit, late work, special assignments, class attendance, classroom citizenship, etc.)

Code of Ethics: You must abide yourself by the (unwritten) Code of Ethics for Students. For
individual assignments/examinations, it is unethical to seek any direct help from others, whether
or not you finally make use of the help. Discussions among individual students (except in the
examination hall or class-room) are, of course, always encouraged. But, the final report or
solution should be totally in the individual’s own style and language; any form of copying from
one another or from any outside source is forbidden. Your basic purpose should be to learn,
without resorting to any unfair means for getting a higher score.

Some Basic Examination Rules: You would be given either a question-cum-answer paper or
a question paper with an attached answer-paper. In the former case, you would be given a
specific amount of space following each question for writing your answer. In the latter, you
would be given a specific total number of pages to write your answers in; you should use both
sides of each sheet and show your answers in ascending order (answer to Q.1 first, followed by
answer to Q2, and so on), leaving half-inch gap between your answers. In all cases, leave half-
inch margin on both left and right sides. Read instructions, if any, on the question/question-
cum-answer book; if an instruction therein conflicts with one given here, then it overrides the
one given here. If not specifically asked to use a pen, you may use either pen or pencil. Write
legibly; if I cannot read what you have written, I will not give you any points for the relevant
portion. Unless merely asked to tick the right answer, explain clearly all your derivations and
answers; if no explanation is given, no credit will be given for merely ticking or jotting down the
correct answer. Be precise; clumsy writing and imprecise or unnecessarily lengthy answers will
be penalized. You are not allowed to seek any clarifications from anyone (not even your
instructor) during examinations; if a question is wrong or unclear, just state why the question is
wrong/unclear and, if possible, make an assumption and answer the question. If you are found
to be justified doing what you did, you will get full points; or else, you would receive less (even
zero).

Examinations: These closed-book examinations would typically have both conceptual questions
and numerical problems (short, medium, long). I would provide you with formulae; you are not
allowed to bring any formula-sheet to the examinations. Examinations would last for around 90-
120 minutes. There will be no make-up examination, unless you miss the regular one due to an
“emergency” (I may demand proof).

Attendance and CP (Class Participation): All students are expected to take an active part in
class discussions. It is not enough for a student to do well in the above-cited
quizzes/examinations and assignments. Class-participation is an integral component of the
learning process. Therefore, I would urge you to come well-prepared to the class, to answer
questions when called upon to do so, and to raise interesting issues for discussion. For each
class, I would give you a score between 0 and 10. If you miss a class or are inactive, you would
get 0 for that class. Each class carries a weight of around 1%; the total weight for CP is 10%.

Field Trip Policies

Not Applicable

Student Conduct & Discipline

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The University of Texas System and The University of Texas at Dallas have rules and regulations
for the orderly and efficient conduct of their business. It is the responsibility of each student and
each student organization to be knowledgeable about the rules and regulations which govern
student conduct and activities. General information on student conduct and discipline is contained
in the UTD publication, A to Z Guide, which is provided to all registered students each academic
year.

The University of Texas at Dallas administers student discipline within the procedures of
recognized and established due process. Procedures are defined and described in the Rules and
Regulations, Board of Regents, The University of Texas System, Part 1, Chapter VI, Section 3, and
in Title V, Rules on Student Services and Activities of the university’s Handbook of Operating
Procedures. Copies of these rules and regulations are available to students in the Office of the
Dean of Students, where staff members are available to assist students in interpreting the rules and
regulations (SU 1.602, 972/883-6391).

A student at the university neither loses the rights nor escapes the responsibilities of citizenship.
He or she is expected to obey federal, state, and local laws as well as the Regents’ Rules,
university regulations, and administrative rules. Students are subject to discipline for violating the
standards of conduct whether such conduct takes place on or off campus, or whether civil or
criminal penalties are also imposed for such conduct.

Academic Integrity

The faculty expects from its students a high level of responsibility and academic honesty. Because
the value of an academic degree depends upon the absolute integrity of the work done by the
student for that degree, it is imperative that a student demonstrate a high standard of individual
honor in his or her scholastic work.

Scholastic dishonesty includes, but is not limited to, statements, acts or omissions related to
applications for enrollment or the award of a degree, and/or the submission as one’s own work or
material that is not one’s own. As a general rule, scholastic dishonesty involves one of the
following acts: cheating, plagiarism, collusion and/or falsifying academic records. Students
suspected of academic dishonesty are subject to disciplinary proceedings.

Plagiarism, especially from the web, from portions of papers for other classes, and from any other
source is unacceptable and will be dealt with under the university’s policy on plagiarism (see
general catalog for details). This course will use the resources of turnitin.com, which searches the
web for possible plagiarism and is over 90% effective.

Email Use

The University of Texas at Dallas recognizes the value and efficiency of communication between
faculty/staff and students through electronic mail. At the same time, email raises some issues
concerning security and the identity of each individual in an email exchange. The university
encourages all official student email correspondence be sent only to a student’s U.T. Dallas email
address and that faculty and staff consider email from students official only if it originates from a
UTD student account. This allows the university to maintain a high degree of confidence in the
identity of all individual corresponding and the security of the transmitted information. UTD
furnishes each student with a free email account that is to be used in all communication with
university personnel. The Department of Information Resources at U.T. Dallas provides a method
for students to have their U.T. Dallas mail forwarded to other accounts.

Withdrawal from Class

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The administration of this institution has set deadlines for withdrawal of any college-level courses.
These dates and times are published in that semester's course catalog. Administration procedures
must be followed. It is the student's responsibility to handle withdrawal requirements from any
class. In other words, I cannot drop or withdraw any student. You must do the proper paperwork
to ensure that you will not receive a final grade of "F" in a course if you choose not to attend the
class once you are enrolled.

Student Grievance Procedures

Procedures for student grievances are found in Title V, Rules on Student Services and Activities,
of the university’s Handbook of Operating Procedures.

In attempting to resolve any student grievance regarding grades, evaluations, or other fulfillments
of academic responsibility, it is the obligation of the student first to make a serious effort to
resolve the matter with the instructor, supervisor, administrator, or committee with whom the
grievance originates (hereafter called “the respondent”). Individual faculty members retain
primary responsibility for assigning grades and evaluations. If the matter cannot be resolved at
that level, the grievance must be submitted in writing to the respondent with a copy of the
respondent’s School Dean. If the matter is not resolved by the written response provided by the
respondent, the student may submit a written appeal to the School Dean. If the grievance is not
resolved by the School Dean’s decision, the student may make a written appeal to the Dean of
Graduate or Undergraduate Education, and the deal will appoint and convene an Academic
Appeals Panel. The decision of the Academic Appeals Panel is final. The results of the academic
appeals process will be distributed to all involved parties.

Copies of these rules and regulations are available to students in the Office of the Dean of
Students, where staff members are available to assist students in interpreting the rules and
regulations.

Incomplete Grade Policy

As per university policy, incomplete grades will be granted only for work unavoidably missed at
the semester’s end and only if 70% of the course work has been completed. An incomplete grade
must be resolved within eight (8) weeks from the first day of the subsequent long semester. If the
required work to complete the course and to remove the incomplete grade is not submitted by the
specified deadline, the incomplete grade is changed automatically to a grade of F.

Disability Services

The goal of Disability Services is to provide students with disabilities educational opportunities
equal to those of their non-disabled peers. Disability Services is located in room 1.610 in the
Student Union. Office hours are Monday and Thursday, 8:30 a.m. to 6:30 p.m.; Tuesday and
Wednesday, 8:30 a.m. to 7:30 p.m.; and Friday, 8:30 a.m. to 5:30 p.m.

The contact information for the Office of Disability Services is:


The University of Texas at Dallas, SU 22
PO Box 830688
Richardson, Texas 75083-0688
(972) 883-2098 (voice or TTY)

Essentially, the law requires that colleges and universities make those reasonable adjustments
necessary to eliminate discrimination on the basis of disability. For example, it may be necessary
to remove classroom prohibitions against tape recorders or animals (in the case of dog guides) for
students who are blind. Occasionally an assignment requirement may be substituted (for example,
a research paper versus an oral presentation for a student who is hearing impaired). Classes

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enrolled students with mobility impairments may have to be rescheduled in accessible facilities.
The college or university may need to provide special services such as registration, note-taking, or
mobility assistance.

It is the student’s responsibility to notify his or her professors of the need for such an
accommodation. Disability Services provides students with letters to present to faculty members
to verify that the student has a disability and needs accommodations. Individuals requiring special
accommodation should contact the professor after class or during office hours.

Religious Holy Days

The University of Texas at Dallas will excuse a student from class or other required activities for
the travel to and observance of a religious holy day for a religion whose places of worship are
exempt from property tax under Section 11.20, Tax Code, Texas Code Annotated.

The student is encouraged to notify the instructor or activity sponsor as soon as possible regarding
the absence, preferably in advance of the assignment. The student, so excused, will be allowed to
take the exam or complete the assignment within a reasonable time after the absence: a period
equal to the length of the absence, up to a maximum of one week. A student who notifies the
instructor and completes any missed exam or assignment may not be penalized for the absence. A
student who fails to complete the exam or assignment within the prescribed period may receive a
failing grade for that exam or assignment.

If a student or an instructor disagrees about the nature of the absence [i.e., for the purpose of
observing a religious holy day] or if there is similar disagreement about whether the student has
been given a reasonable time to complete any missed assignments or examinations, either the
student or the instructor may request a ruling from the chief executive officer of the institution, or
his or her designee. The chief executive officer or designee must take into account the legislative
intent of TEC 51.911(b), and the student and instructor will abide by the decision of the chief
executive officer or designee.

Off-Campus Instruction and Course Activities

Off-campus, out-of-state, and foreign instruction and activities are subject to state law and
University policies and procedures regarding travel and risk-related activities. Information
regarding these rules and regulations may be found at the website address given below.
Additional information is available from the office of the school dean.
(http://www.utdallas.edu/Business Affairs/Travel_Risk_Activities.htm)

These descriptions and timelines are subject to change at the discretion of the Professor.

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