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Suffolk University

Sawyer Business School


FIN 812 AE Capital Budgeting
Spring 2015
Course syllabus
Instructor information:
Professor: Karn Simonyan
E-mail: ksimonyan@suffolk.edu
Phone: (617) 973-5385
Office: Sawyer 825
Office hours: Tuesdays
1:00 pm 2:00 pm & 5:00 pm 6:00 pm
Thursdays

1:00 pm 2:00 pm & 4:00 pm 5:00 pm


or by appointment

Course information:
Meetings: Tuesdays, 7:159:55 pm
Location: Sawyer 132
Catalogue description: Students examine techniques and decision-making rules for the
evaluation and selection of long-term investment projects by corporations and the interaction of
investment and financing decisions.
Prerequisite: FIN 808 (General Theory in Corporate Finance)
Additional course description: This course provides students with the necessary tools,
techniques, and models to address capital budgeting problems in finance. Capital budgeting is
about finding or creating and analyzing long-term investment projects. Students will be exposed
to different project valuation models that are used by financial managers to make effective valuemaximizing decisions. Teaching is oriented towards case studies and discussion of readings. Case
studies should enable students to apply various capital budgeting techniques in a business setting
and readings should provide students with understanding of those techniques and current
developments in the related areas.
Credit hours: 3
This course follows the Federal Governments Credit Hour definition: An amount of work
represented in intended learning outcomes and verified by evidence of student achievement that is
an institutional established equivalence that reasonably approximates no less than: (1) One hour
of classroom or direct faculty instruction and a minimum of two hours of out of class student
work each week for approximately fifteen weeks for one semester or trimester hour of credit, or
ten to twelve weeks for one quarter hour of credit, or the equivalent amount of work over a
different amount of time; or (2) At least an equivalent amount of work as required in paragraph
(1) of this definition for other academic activities as established by the institution including
laboratory work, internships, practica, studio work, and other academic work leading to the award
of credit hours.

Course goals and learning objectives:

Upon successful completion of this course, students


will know/understand:
Know about and understand
various investment
evaluation criteria such as
NPV, IRR, PI, and others.

Upon successful completion


of this course, students will
be able to:
Analyze and evaluate longterm investment projects
using various investment
evaluation criteria.

How the student will be


assessed on these
learning outcomes
Group case analysis and
presentation, class
discussions, midterm and
exam.

Understand the concept of


incremental cash flows and
its importance in capital
budgeting analysis.

Understand the relationship


between risk and return and
how it affects the cost of
various sources of capital.
Understand the interaction
between investment and
financing decisions, and
how it affects project value.
Understand the importance
of risk analysis in capital
budgeting and know about
various risk analysis tools.
Understand the benefits of
leasing and its tax
treatment.
Know about and understand
real options and their impact
on project value.

6
7

Estimate incremental cash


flows and determine the
impact of depreciation,
inflation, exchange rates, and
taxes on such cash flows.
Estimate the cost of debt and
equity capital, and calculate
weighted average cost of
capital (WACC).
Evaluate investment projects
using WACC, Adjusted PV
(APV), Levered Equity, and
Capital Cash Flow methods.
Analyze project risk using
break-even, sensitivity, and
simulation analyses, decision
trees, and other techniques.
Evaluate and analyze lease
proposals.
Identify and value real
options using various option
valuation methodologies.

Group case analysis and


presentation, individual
case analysis, class
discussions, midterm and
final exam.
Group case analysis and
presentation, class
discussions, midterm and
final exam.
Class discussions, final
exam.
Group case analysis and
presentation, individual
case analysis, class
discussions, final exam.
Group case analysis and
presentation, class
discussions, final exam.
Class discussions, final
exam.

Textbook/course materials:
1. Textbook. Capital Budgeting and Long-Term Financing Decisions, by N. Seitz and M.
Ellison, Thomson South Western, 4th edition, 2005. The textbook is available at the
university bookstore.
2. A set of five Harvard Business School and Darden School of Business cases. The casebook
can be purchased at https://create.mheducation.com/shop/. You can search by title (Capital
Budgeting), ISBN (9781308437033), author (Karen Simonyan), or State/School
(Massachusetts/Suffolk University). The casebook has 50 pages and costs $15.96. Click Add
to Cart. Click Checkout (top, right) and then again on the shopping cart review page.
Create an account or sign in (if you already have an account with McGraw/Hill). Enter billing
information, verify order information, and place order. Your receipt and bookshelf will appear
and you can access your eBook.
3. Financial calculator. You will need a financial calculator for this course which calculates
NPV, IRR, YTM, and other concepts in finance. You will need the calculator to work on cases
and for the exam. Suggested brands of calculators are:
a. Texas Instruments BA II Plus
b. Hewlett-Packard HP-10B
c. Sharp EL-733A
You can also use TI-83 or TI-83 Plus scientific calculators which have embedded time value
of money functions. You can read instructions on how to use these (and other) calculators on
the following webpage http://www.tvmcalcs.com/calculators/ti83/ti83_page1.
4. Lecture notes, additional readings and other course material, as well as class announcements,
news, and information to be shared will be posted on the Blackboard before class. Please
print lecture notes out and bring them with you to class so it will be easier for you to follow
the lectures.

Assignments/Exam: Students will be evaluated in the following areas.


Group case studies (5 cases)
Individual case study
Midterm Exam
Final exam
Case presentation
Class participation and discussion

35% (7% each)


10%
20%
25%
5%
5% .
100%
Group case studies: For group case studies you need to form a group of three (preferably) or
less students. The group case studies should be a joint effort by all members of the group.
Each group will submit one written report for each group case assigned and all members of
the group will get the same grade for the report. The cases will be discussed on the day
submitted and each student from a group is expected to be able to discuss or explain any
aspect of the case. Therefore, each group member should be intimately familiar with all
aspects of the case.
Individual case study: In addition to group work, each student needs to prepare and submit
one individual case report. This individual case study is shorter and relatively simpler. This is
expected to be an individual work and designed to evaluate the ability of students to work on
their own. This case will be posted on the Blackboard.
Format of written group and individual case study reports: Students need to prepare a report
on each group and individual case study based on questions that will be distributed
beforehand. Case reports must be done in a professional fashion: paginate it, print it out,
staple, attach any accompanying materials (tables, appendices, graphs, etc.) at the end; tables
should be referred to, ordered, and clearly labeled. All the work is expected to be your own.
Midterm and Final exams. Midterm and final exam will require: i) solving problems similar
to the ones in lecture notes and at the end of the books chapters, and/or ii) multiple choice
questions.
Case presentation: In addition to submitting a written report for each group case study each
group has to do a formal presentation of one of the group cases (if we have more groups than
cases to present, some of the cases will be presented by two groups at the same time).
Presentations will be done on the day the case is due and should take approximately an hour.
Presentations will be semiformal (you may use computer or any other equipment that you
need). Be ready to defend your position and answer the questions asked by me and other
students in the audience.
Class participation: Students are expected to attend all class sessions and actively participate
in discussions (especially during case presentations) to earn the class participation grade.
End of chapter problems: As a part of studying process, after reading the chapters assigned
for a class, students are encouraged to work on the problems from the end of those chapters.
These problems are not due, however students are strongly recommended to work on these
problems. Solutions to these problems will be posted on the Blackboard. These problems will
help students to better grasp the material and also get prepared for case studies and the exams.
Dont simply look at the solutions; try to solve the problems on your own first.

Grading/Evaluation: Letter grades will be assigned at the end of the semester using the
following guideline.
A
95 100
A90 95
B+
85 90
B
80 85
B75 80
C+
70 75
C
65 70
F
<65
There will be no make-up exam 1or extra work for credit. The exam will be closed book and
closed notes.
Please, submit case reports on due dates; late reports will not receive full points. The grades
for late submittals will be reduced by 15% for each day the report is past due.
Your class participation grade will be affected by your attendance. If you miss three or more
classes for no valid reason, your class participation grade will be reduced to zero.

Course policies (IMPORTANT):


1

2
3
4

In the event that the university cancels classes, such as for severe weather, students will be
expected to continue with readings as originally scheduled. Any assignments scheduled
during those missed classes will be due at the next class meeting unless other instructions are
posted on Blackboard.
If you miss a class, it is your responsibility to determine what you have missed (ask your
classmates) including any administrative announcements that may have been made.
You are expected to be present at the indicated time and date for the exams. Please let me
know if you expect to arrive late, leave early, or miss a class.
Please show respect for your fellow classmates by limiting extraneous discussions to outside
of the classroom and turning off cell phones (or muting their ring-tones).

General notes: This is a case based class. Case studies are designed to prepare students for real
life business situations. Many cases are complex and sometimes you will be frustrated with the
lack of information, data, and the lack of your understating of a particular topic. Some cases may
not have right or wrong solution and this ambiguity will add more to your frustration. Sometimes
you will be frustrated with the behavior of your group-mates. These are all problems that you are
likely to encounter in real life situations.
But remember, even the best consultants have to do a lot of research and go through a lot of
frustration when confronted with unfamiliar situations.
Identify the problem first, then decide how the knowledge and analytical tools that you possess
can be used to solve the problem. Next design a plan of action and develop a solution. Sometimes
you have to choose among many alternative solutions, sometimes you have to make many
assumptions. As long as your assumptions and solutions are reasonable and make sense and you
can defend your position and persuade others that you are correct then you will be all set!

The Wall Street Journal: You are encouraged to subscribe to and read the Wall Street Journal.
Reading WSJ will give you an access to financial news and will reinforce the absorption of class
material.

The Center for Learning and Academic Success (CLAS): CLAS offers academic
coaching and tutoring in math, writing and English, and many other CAS and SBS courses.
Students may join study groups, participate in drop-in services, or make appointments with tutors
and academic coaches to reinforce course content, develop writing, and strengthen effective study
habits. For a complete review of free services, workshops and online resources go to
www.suffolk.edu/CLAS, call 617.573.8235, email clas@suffolk.edu or visit CLAS on the 2nd
Level of Sawyer Library at 73 Tremont Street.

Accommodations for Students with Disabilities: If you anticipate issues with the format or
requirements of this course, please meet with meI would like to discuss ways to ensure your
full participation in my classroom. If you determine that you need formal, disability-related
accommodations, it is very important that you register with the Office of Disability Services
(located at 73 Tremont Street, 7th floor, 617.994.6820, disabilityservices@suffolk.edu,
http://www.suffolk.edu/campuslife/1316.php) and notify me of your eligibility for reasonable
accommodations. We can then plan how best to implement your accommodations.

Student Support, Physical/Emotional Health: A range of issues can cause barriers to


learning, such as strained relationships, increased anxiety, health issues, alcohol/drug problems,
feeling down, difficulty concentrating, lack of motivation or feeling ill. These concerns or other
stressful events may lead to diminished academic performance or may reduce your ability to
participate in daily activities. University resources can help you address these and other concerns.
You can learn more about Suffolks broad range of medical and confidential mental health
services at www.suffolk.edu/health

Academic Dishonesty: University policies regarding student conduct as specified in Students


Handbook apply. In particular, please note that you are expected to follow an honor code whereby
class members are invited to study and prepare together for most aspects of the course. However,
where individual effort is expected, it must be unique for each person and the final written
product must be entirely your own work.
Cheating on exams, plagiarism, and/or improper acknowledgment of sources in written reports,
and the use of a single report in more than one course without the permission of the instructor
constitute unacceptable academic conduct. Student work may be checked by plagiarism detection
software.
A student who has been found to have violated these rules after adjudication by the dean of
students is subject to an automatic grade of F in the course and to suspension, enforced
withdrawal, or expulsion from the University, or appropriate lesser penalties if warranted by the
circumstances.

Course Withdrawal Deadlines: February 10 is the last day students can withdraw from a
course without receiving a grade of W. The course will be completely removed from the student's
transcript. Students may do this online via MySuffolk. March 19 is the last day students can
withdraw from a course without receiving a grade of F. They will receive a W on their transcript
instead. Students may do this online via MySuffolk. After March 19, students may not withdraw
from courses unless they have serious extenuating circumstances and documentation. Students
should email the Student Affairs Office to request a late course withdrawal.

Course schedule (tentative), Spring 2015


The schedule, policies, procedures, and assignments in this course are subject to change in the event of extenuating circumstances, by mutual agreement,
and/or to ensure better student learning. L = Lecture, PS = Problem Solving, P&D = Presentation and Discussion, R = Review Session, E = Exam
Week
Date
Topics and readings from the book
Format
End of chapter problems
1
Jan 20
Introduction (lecture), Ch.1
L, PS
Time Value of Money (lecture), Ch.3
2
Jan 27
Class cancelled due to snowstorm
3
Feb 3
Time Value of Money (lecture), Ch.3
L, PS
Ch.3. 12, 14, 16, 20, 21, 23, 24,
Investment Evaluation Criteria (lecture), Ch. 5, 6
25
4
Feb 10
Investment Evaluation Criteria (lecture), Ch. 7, 22
L, PS
Ch.5. 1, 3, 4, 8, 14, 15, 17.
Ch.6. 7, 8, 9, 10, 11, 18
5
Feb 17
Estimating Project Cash Flows (lecture), Ch. 8
L, PS
Ch.7. 4, 5, 7, 14, 20; Ch.22. 1
Ch.8. 1, 3, 12, 15, 18
6
Feb 24
Group case 1 due (presentation & discussion): Investment Analysis and
P&D, L, Ch.9. 2, 3, 11, 18
Lockheed TriStar
PS
Ch.10. 1, 13
Estimating Project Cash Flows (lecture), Ch. 10, 9
7
Mar 3
Estimating Project Cost of Capital (lecture), Ch.14
L, PS
Ch.14. 5, 7, 8, 9, 15
8
Mar 10
Spring Break (no classes)
9
Mar 17
Group case 2 due (presentation & discussion): Aurora Textile Company
P&D, R
Review
10
Mar 24
Midterm Exam
E
11
Mar 31
Estimating Project Cost of Capital (lecture), Ch. 16, 20
L, PS
Ch.16. 1, 2, 4, 10
Risk Analysis in Capital Budgeting (lecture), Ch. 11, 12
Ch.20. 11,14
12
Apr 7
Group case 3 due (presentation & discussion): Marriott Corp: The Cost of
P&D, L, Ch.12. 2, 3, 17, 20, 21
Capital (Abridged)
PS
Risk Analysis in Capital Budgeting (lecture), Ch. 11, 12
13
Apr 14
Risk Analysis in Capital Budgeting (lecture), Ch. 11, 12
L, PS
Ch.11. 19, 20
Lease Analysis (lecture), Ch.21
Ch.10. 20, 21
Individual case due
14
Apr 21
Group case 4 due (presentation & discussion): Merck & Co: Evaluating a
P&D, L, Ch.21. 8, 9, 10, 11, 13, 15, 19
Drug Licensing Opportunity
PS
Lease Analysis (lecture), Ch.21
14
Apr 24
Real Options (lecture), Ch. 15
L, PS
Ch. 15. 10
(FRI)
15
Apr 28
Group case 5 due (presentation & discussion): Primus Automation
P&D, R
Division, 2002
Review
16
May 5
Final Exam
E
(Tuesday)
8:00 pm