University of Texas at Dallas

School of Management

Finance 6301 (Section 001) - Financial Management

Spring 2005

Instructor: Kam-Ming Wan

Office: SOM 3.805
Phone: (972) 883-2718
E-mail: kmwan@utdallas.edu
Web-site: www.utdallas.edu/~kmwan/sp2005/fin6301
Office Hours: Mon. 5 – 5:50pm & Wed. 3-3:50pm
Class Time: Wed. 4 - 6:45pm (SOM 1.117)

Course Objectives:

This is an overview course in corporate finance. The main objective of this course is to help students
understand the fundamental concepts of corporate finance. This course also aims to help students to apply
the financial concepts to real-life financing decisions. This course covers many topics and ranges from cash
flow analysis to option pricing analysis. However, the main focuses of the course are on financial statement
analysis, valuation of future cash flows, capital budgeting, asset pricing, capital structure, and option pricing
analysis.

Course Requirements:

If you haven't taken (or waived) the STAT 5311 and ACCT 6305, you shouldn't be here. You should
be reasonably comfortable with accounting and statistics. Accounting knowledge is essential for your
understanding of balance sheets, income statements, and cash flow statements. Knowledge on Statistics is
crucial for your understanding of discounting and compounding, measurement of risk, and portfolio
diversification. I expect that you have good training in statistics and accounting. I also expect you to have
working knowledge of MS-Excel.

Required Text:

Corporate Finance by Ross, Stephen, Randolph Westerfield and Jeffrey Jaffe, 7th edition, Irwin McGraw Hill,
2005

Supplementary Reading:

Newspapers and periodicals: The Wall Street Journal

Grading:

There are two midterm exams scheduled that count 40% of your grade. The final will count 38% of your
grade. No makeup exams will be given. The final grade in this course will be determined according to the
following weighting system:

Class participation 100

Homework 120
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 Midterm I 200
Midterm II 200
Final Examination 380

Homework

There will be three homework assignments during the semester and are due in-class. Each homework
assignment counts 40 points. Late homework will not be accepted.

Class Participation

Constructive comments, questions and participation will be used to enhance your total scores. Up to 100
points will be added to the final score. You are required to read the assigned readings prior to class and
be prepared to answer questions. Each student is requested to hand in an individual sign-up sheet with
picture (student ID photocopy) by Jan. 19. This card counts 20 point and helps me get to know everybody.

Attendance

While not mandatory, I sincerely want you to attend class. If you feel like you are not learning anything in
class, we need to talk about it. Your attendance, questions, and participation contribute an important learning
experience to this class. Be considerate!

Exam Format

The exams will be multiple-choice and short-answer questions. Bring a scantron (Form No. 882-ES) and
a blue book with you for each exam. Exams are closed-book and closed-notes. You can bring a “crib
sheet” which contains formulas only. Students is considered as engaging in scholastic dishonesty if the “crib
sheet” contains any numerical problems and examples. For example, homework problems, textbook
examples, and end-of-the-chapter problems, just to name a few, are considered as numerical problems and
examples.

Honor Code Compliance

Policy on cheating: Students are expected to be above reproach in all scholastic activities. Students who
engage in scholastic dishonesty are subject to disciplinary penalties, including the possibility of failure in the
course and dismissal from the university. "Scholastic dishonesty includes but is not limited to cheating,
plagiarism, collusion, the submission for credit of any work or materials that are attributable in whole or in
part to another person, taking an examination for another person, any act designed to give unfair advantage to
a student or the attempt to commit such acts." Regents' Rules and Regulations, Part One, Chapter VI, Section
3, Subsection 3.2, Subdivision 3.22.

Exam: Your calculators cannot have inputted formulas or text. To maximize compliance with the honor
code during in-class examinations, computer will randomly assign a seat for each student in each exam.
Attempts to circumvent the requirement that students sitting at the designated seat will be treated as a
serious violation of the honor code. In addition, instructor may give students different versions (having a
similar structural content) of the respective midterm and final examinations.

Homework: Is to be done by yourself. On the presumption that you are professionals, you will recognize
that you do not learn much of the analytical process by relying on someone's else's homework.

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 Course Outline and Schedule
Lecture Date Topics Chapter Self-study question Remark

1 Jan. 12 Course Introduction 1

2 Jan. 19 Accounting Statement Analysis 2 Chp. 2: 2, 4, 6, 8

3 Jan. 26 Time Value of Money 4 Chp. 4: 6, 9, 11, 14, 18, 20, 25,
33, 36, 40, 46, 49, 52

4 Feb. 2 Valuation of Bonds and Stocks 5, 14, 20 Chp. 5: 3, 6, 7, 10, 12, 16, 22, HW#1 due
24, 30
Chp. 14: 3, 6
Feb. 9 Midterm I

5 Feb. 16 Alternatives Methods of Capital 6-7 Chp. 6: 2, 5, 10, 15, 18

Budgeting Chp. 7: 5, 12, 29

6 Feb. 23 Risk and Return 8-9 Chp. 8: 2, 11, 12

Chp. 9: 2, 8, 9, 14, 17, 18, 20

7 Mar. 2 Asset Pricing Model 10 Chp. 10: 3, 9, 11, 23, 29, 34, 40

Mar. 9 Spring Break

8 Mar. 16 Capital Budgeting under 12 Chp. 12: 3, 9, 12, 13 HW#2 due

Uncertainty

Mar. 23 Midterm II

9 Mar. 30 Market Efficiency 13 Chp. 13: 10, 13, 21, 23, 24

10 Apr. 6 Capital Structure 15-16 Chp. 15: 4, 14, 17, 19.

Chp. 16: 2, 5, 11, 15

11 Apr. 13 Option Pricing 22 Chp. 22: 10, 18, 22, 23, 26, 27

12 Apr. 20 Valuation of Employee Stock 23 Chp. 23: 1, 2 HW#3 due

Option
Course Review
Apr. 27 Final Exam (Comprehensive)

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 Course Contents
Lecture Topics Subtopics

1 Course Introduction Introduction to Corporate Finance

Principal Agent Analysis
Basic of Corporate Governance
Review of Statistics

2 Accounting Statement Analysis Balance Sheet Statement

Income Statement
Cash Flow Statement
Financial Ratios

3 Time Value of Money Compounding and Discounting

Net Present Value (NPV)
Annuity and Perpetuity

4 Valuation of Bonds and Stocks Bonds Pricing

Models for Common Stock Valuation

5 Alternatives Methods to Capital Budgeting Alternatives to NPV Analysis

Incremental Cash Flow Analysis

6 Risk and Return Equivalent Annual Cost Method

Decision Tree, Sensitivity Analysis, Scenario Analysis
Risk and Return
Portfolio Theory

7 Asset Pricing Model Capital Asset Pricing Model (CAPM)

Systematic Vs. Unsystematic Risk

8 Capital Budgeting under Uncertainty Estimation of Beta

Cost of Capital
Cost of Equity and Debt
Weighted Average Cost of Capital (WACC)

9 Market Efficiency Efficient Market Hypothesis (EMH)

Implications of EMH for Corporate Financing Decision

10 Capital Structure Financial Leverage and Firm Value

MM Theories
Costs of Financial Distress

11 Option Pricing Introduction to options

Valuing Options
Some Applications of Option Theory to Corporate Finance

12 Valuation of Employee Stock Options Executive Compensation Practices

Valuation of Executive Stock Options

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 University of Texas at Dallas
School of Management

Individual Sign-up Sheet

Fin 6301 Prof. Kam-Ming Wan

Section 001 Spring 2005

In order for me to better organize the course, and to adapt the materials to your background,
would you please tell me more about yourself?

Your Name ___________________________

Your Email Address ____________________

Current Employer and Position _____________________________________________________

Your Background

Finance Class _____________________________________________________________

Economics Class __________________________________________________________

Accounting Courses ________________________________________________________

Statistics and Math Courses __________________________________________________

Other related Courses _______________________________________________________

Work Experience

Picture

[Please affix your student ID picture here]