STEPHEN

M. ROSS SCHOOL OF BUSINESS

UNIVERSITY OF MICHIGAN
ANN ARBOR, MI 48109-1234
INTRODUCTION TO FINANCE: VALUATION & INVESTING

SPECIALIZATION GOALS

This specialization is a rigorous introduction to Valuation pitched at motivated individuals
across the entire spectrum of working professionals interested in understanding and
applying valuation skills to their jobs. The modular nature of the specialization, with an
increasing level of rigor, makes it appealing and useful to a wide audience, ranging from
motivated college students to working professionals trying to develop analytical skills and
financial acumen to individuals preparing for an advanced degree (for example, an MBA,
Master in Management, Master in Finance, Applied Economics, Decision Sciences degrees)
at an elite institution.
This specialization will be useful to anyone in understanding and critically evaluating
project and company analyses conducted by experts. It will also help individuals seeking to
analyze companies either for personal investment purposes or as part of their job in the
consulting and financial industries.
FACULTY TEAM

Professors Gautam Kaul and Qin Lei have teamed up to offer this specialization. Dedicated
professionals at the University of Michigan Office of Digital Education & Innovation and at
Coursera support the faculty team. The specialization is based on numerous years of
teaching experience in programs ranging from undergraduate to PhD, and to audiences
ranging from college students to senior executives. It has been motivated in large part by
the enriching experience of leading a MOOC titled An Introduction to Finance with more
than 850,000 students worldwide over the past three years. The first two courses of the
specialization are modeled on this course and are then built upon to introduce the learner
to advanced valuation techniques and frameworks.

SPECIALIZATION DESCRIPTION

This specialization has been developed with the express purpose of enabling the learner to
understand and apply the principles of valuation to any type of project or business. The
process involved in understanding valuation of assets will also lay a foundation for you to
understand the principles of investing. After successful completion of the program,
participants will be equipped to make thoughtful decisions based on a framework built
using multiple advances in modern financial theory over the past several decades.

This specialization is applied in nature and consists of an integrated set of four courses
with a focus on valuation. The specialization concludes with a Capstone Project, accessible
to learners who have obtained Verified Certificates in all four courses. All concepts in the
courses will be introduced using real world examples, and richly designed
assessments/quizzes will enable the learner to test her knowledge and enhance the
learning experience. The nature of the assessments will change over the course of the
specialization from many different types of focused problems to fewer but broader
applications, culminating in the capstone project that will evaluate the learners
understanding and mastery of concepts developed throughout the four courses.

Each of the courses comprising the specialization is six weeks long. This estimate is based
on a learner with no formal background in finance, but who is able to spend between five to
ten hours a week, depending on her background. The strength of finance is that it takes a
very structured approach to decision making, with key building blocks underlying all
decisions. The program begins with two self-contained courses delivering the building
blocks, followed by a more advanced course on valuation methods and then a course with
rich applications of the methodologies to both projects and companies.

Course 1: We will introduce the time value of money (TVM) framework in a carefully
structured way, using relatively simple applications at first and quickly moving to more
advance ones. We will then spend some time on developing an understanding of alternative
decision criteria (NPV, IRR, Profitability, etc.) that are commonly used in the real world.
We will wrap up the course with an exposure to the determination of cash flows using
accounting principles. The main focus in this building block will be on individual/personal
decisions because of two reasons: (a) we learn when we see value to us as individuals and
(b) the beauty of finance is that the building blocks of finance are applicable to any
decision, personal or corporate. The course will last six weeks with time included for
assimilation and a final exam.

Course 2: The follow-on course will last six weeks and will focus on the second main
building block of financial analysis and valuation: risk. The notion of risk and statistics are
intimately related and we will spend a fair amount of time on the development of some
statistical concepts and tools, namely distribution theory and regression analysis. This time
will be well spent because these concepts and tools are also commonly used in many
applications in the real world. The foundational idea of diversification will then be used to
develop a framework for evaluating risk and establishing a relationship between risk and
return. Apart from developing a keen appreciation of risk for making thoughtful decisions
in an institutional context, this course will contain a lot of material and examples that will
enable the learner to make smart personal investing decisions. The course will again have
time included for assimilation and a final exam.

Course 3: This course will integrate the building blocks of finance developed in the first two
courses, and add important features of the real world to expose the learner to advanced
methods of valuation. We will first introduce a simple valuation approach highlighting the
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effects of leverage, again using an example. We will follow this by developing a framework
to understand and internalize the main drivers of valuation. We will then introduce the
effects of taxes and the treatment of leverage to highlight their effects on valuation. We will
conclude with an introduction to more advanced frameworks of valuation necessitated by
the complexities of life, though our main focus will be the tax code and the implications of
potential bankruptcy. The main purpose of this course is to equip the learner to be able to
conduct rigorous project and company-wide valuation. This six-week course will have the
requisite time for assimilation and a final exam built in.

Course 4: This course is an application of the rich and rigorous framework of valuation to
value both projects and companies. The course will first focus on the analyses involved in
making the most common decision confronted by anyone: a choice between alternative
projects. For example, at a personal level you may be confronted with the choice of staying
on in your job or taking time to do an MBA or another degree. You are probably considering
multiple options even within the choice of degrees (for example, different programs at
different universities). At an institutional level, you may need to choose between the launch
of two new products. To enable the learner to make such choices, we will build on the
decision criteria developed in the first course in this specialization and expose the learner
to some classic types of projects we all confront in life. We will use the building blocks of
finance to enable the learner to make thoughtful and smart decisions in an inherently
uncertain world and in contexts you may encounter in life.

The second part of this course will modify the framework introduced above to value
companies, where a company is essentially a complex collection of projects. The final
module will be a mega example of valuation showcasing the application of alternative
methods. One of the main purposes of this rich and complex applied course is to enable the
learner to apply the knowledge gained in the specialization to conduct a deep analysis in
the Capstone Project that follows and is designed to reflect commonly witnessed
complexities of the real world. This course is also six weeks long with more time for
assimilation and completion of richer assignments and a final exam.

In addition to serving as a capstone course for all participants, this course will help
individuals seeking to analyze companies either for personal investment purposes or as
part of their job in the consulting and financial industries.

Capstone Project: The Capstone Project is designed with the specific purpose of showcasing
both the science and the art of financial analysis. It is the natural end to a Specialization
that begins with the building blocks of finance, is followed by a modification of the
framework to incorporate the complexity of regulations and the tax code, and ends with a
capstone-like experience in the last course with rich applications to complex projects and
companies. The Capstone Project is therefore a natural end to the Specialization and will
involve a detailed valuation analysis of a project or a company.


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There is no syllabus for the Capstone Project. It will however require the learner to have a
thorough knowledge of all four courses that form part of the Specialization. In fact, the
project is accessible to only those learners who have obtained Verified Certificates of
completion for all four courses to ensure that they are well prepared to attempt the
Capstone Project. Learners will also be expected to develop the ability to seek out
resources beyond those provided in the Specialization.

Each course that comprises this Specialization is self-contained and comes with a detailed
syllabus.

PEDAGOGY: THE IMPORTANCE OF PROBLEM SOLVING

This is a demanding specialization that will require a lot of hard work, from both you and
me. I have deliberately pitched it at a relatively high level with an emphasis on deep
understanding of what finance is all about, yet with a focus on practical applications. To
achieve these dual objectives, this course is focused on problem solving and consequently,
I will make a conscious attempt to introduce each topic with real-life examples. I strongly
encourage you to attempt every problem in the videos before we do it together. You will
also be required to submit several assignments in each course that will involve multiple
problem-solving exercises. Some of these problems are more complex by design than the
examples we will do in class (the videos) because class time needs to be devoted to
understanding the issues and concepts. In my view, doing problems soon after the relevant
material is covered in class is the best way to learn.

We have carefully coordinated both the content and the pace of the specialization. The
examples and assignments in the first two courses will be specific and focused to enable
you to learn the basic tools and techniques without being distracted with a lot of real world
issues. As the content becomes both more advanced and applied, the nature of examples
and assignments will become richer, with a focus on depth of analysis of fewer complex
situations. The ultimate reflection of this progression in complexity and richness will be the
capstone project in the last course.

PREREQUISITES

This is a tough issue. I do not believe in prerequisites, except for a sense of curiosity and an
attitude. Having said that, exposure to accounting (the language of business), and/or
algebra and statistics (we all need it) will clearly help. It is important to take the courses in
sequence as they build on each other. I always try and cover everything starting with
fundamentals and will highlight when there is a need for you to do some further work in
specific areas. In fact, I hope the class will motivate you to learn more. I believe that
learning usually happens when you are motivated by a curiosity to understand something.

COURSE MATERIALS

VIDEOS

The main resources provided by me for this online specialization are the videos, organized
into four courses, each with multiple modules. The length of each module depends on the
course and the topic, but will vary between 100 and 160 minutes, and will be broken up
into bite size pieces. I have worked with professionals to edit the videos, but I encourage
you to pace yourself according to your style and background. Most importantly, there are
numerous examples/problems in all the videos, and please try and take every opportunity
to attempt an exercise before you see me analyze it. We have tried to create breaks
wherever possible to facilitate this process, but I do not want the videos to become like TV
advertisements: short and exciting but with no real content.

Since the specialization starts with building blocks of finance and is then increasingly
focused on very rich and complex applications that use the buildings blocks in different
ways, the videos become longer and fewer in number per module. This is the same pattern
that will be witnessed in the problems and examples, starting with many focused problems
in the first two courses and then graduating to fewer but richer ones in the third and fourth
courses. The capstone project will involve an in-depth analysis of one real world company
or new venture.

It is important for you to know that I will not provide any notes to accompany the videos
because I want you to create your own notes as you watch and listen to the presentation.
The best part about this online class is that you can pause, rewind, and fast-forward the
videos at will. You can play it at faster speeds whenever needed. But it is also very easy for
you to become a passive participant. I want you to be active listeners and I encourage you
to make your own notes as you go along. This will help you to understand and learn the
material really well, assuming of course that you find me engaging. If you do that, you will
only need textbooks or other materials for additional, more in-depth information. I
encourage you to go beyond the course content, as you get further along in the
specialization.

ADDITIONAL RESOURCES

We will provide you with several additional resources. First, we have prepared some brief
notes that cover some basic content. Most importantly, we have constructed several
assignments/assessments that will be critical to the learning process.

TEXTBOOKS

In addition, I provide below references of several alternative textbooks that are all very
high quality. To help you with your reading, we will provide you chapters from two books
as examples of references in each module of each of the four courses. Please note that the
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videos do not follow any specific book and the book chapters are only references; they do
not perfectly match the material we cover and may sometimes contain material that we
will not cover. My goal is to expose you to the fundamentals of finance, investing and
valuation, not every detail in every textbook.

The list of textbooks is provided below. You are not required to purchase any of these
books, but recognize that one of them is available to read for free on the web. You must
follow the guidelines provided by the author for use of the online material. If you do
choose to buy a book, a relatively recent edition will do, and look for used and/or
paperback versions.

(1) Corporate Finance, 2nd Edition, by Ivo Welch.
This book can be purchased from Amazon or you can read it for free at
http://book.ivo-welch.info/ed3/toc.html

Although reading the text and these chapters is free on this website, the
material is copyrighted, not permitted to be distributed further, and not
permitted to be posted elsewhere.

I have referenced chapters of this book as suggested readings in the detailed class
schedule. This book is referenced as IV. If you cannot access the above URL, just
search the web using the authors name

(2) Corporate Finance, 9th Edition, by Ross, Westerfield & Jaffee.

I have also referenced chapters of this book as suggested readings in the detailed
class schedule. The book is referenced as RWJ.

A couple of other excellent textbooks are:

(3) Corporate Finance, 2nd Edition, by Berk & DeMarzo.

(4) Principles of Corporate Finance, 10th Edition, by Brealey, Myers & Allen.

There are several other books on finance and valuation and I encourage you to browse a
few before settling on one or two as references.

Finally, since many of you may have had limited exposure to Finance, it is important to read
institutional material at your own convenience. Please read business and financial news
regularly. Cruise the web as often as possible not only to uncover the wealth of information
at your disposal, but to also learn how things work. A good web site to begin your search is
http://finance.yahoo.com. Read the Economist magazine as often as you can; it has some
thoughtful pieces. However, recognize that you need to develop the habit of reading
material critically; just because something is published in a reputable outlet does not mean
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that the author knows what he/she is talking about. I guarantee you that there is no one
out there who really understands what our current financial crisis, or even the crisis in the
1930s, were all about.

SPREADSHEETS

The purpose of this specialization is to introduce you to frameworks that are also very
applicable. In every course, I will encourage you to first focus on the setting up of problems,
rather than the calculations. When you get laying out all the information and to the
calculations, you will find that technology just helps you do so much faster and more
reliably. But, you will also realize that spreadsheets and calculators simply calculate stuff
after you tell them what to do; they are a means and not the end! If you set up a problem
incorrectly, you will get an incorrect answer.

I am assuming that if you are taking this class you have access to a computer and the
Internet and, therefore, to spreadsheets. I will use Excel at various points in the videos and
provide a note on spreadsheets. You are responsible for learning how to use spreadsheets.
The assignments are a great way to do so as virtually all questions will require you to do
calculations using either a spreadsheet or an alternative method.

NATURE OF ASSIGNMENTS AND FINAL EXAM

Each course will have multiple assignments and final examinations. Since all grading will be
conducted using technology, all questions will take a True/False, fill in the blank, or
multiple-choice form. The questions will almost always be word problems, like the ones
covered in the videos, but there will be one specific answer to each question. We have set
up the grading process so that you get feedback, regardless of whether you get the answer
right or wrong, that is supposed to make you think in the right way about the issues. We
are constantly working on enriching the grading process to provide you feedback,
hopefully eventually directed at each learner.

VERFIED CERTIFICATE FOR SPECIALIZATION

Your performance in each course will be evaluated using a pass/fail grade. The philosophy
behind our grading is to make sure you gain adequate competency to be granted a
certificate. Each course will have its own evaluation scheme, based typically on your
performance on the assignments and the final exams. In order to receive a specialization
certificate, you will need to get a certificate in each course and a passing grade on the
capstone project.

You may of course attend any course, or all four courses, regardless of your performance
on assignments or the final, but a passing grade is necessary to receive any certificate.

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TEACHING ASSISTANCE

Students from the University of Michigan have graciously helped me with my MOOC
offerings. In addition, past students from my MOOCs help monitor the forums and provide
guidance. This course has now launched on the new platform allowing for autocohorts. It will be very difficult for the teaching assistants to monitor the forums all
the time and respond quickly.

Consistent with our philosophy that you will learn from each other, our hope is that you
will resolve most/all issues on your own by reviewing the videos, doing problems, reading
chapters, and discussing among yourselves. But we will monitor the forums and post
comments if there is an error, especially in an assignment/final or in the evaluation of the
assignment/final.

Contact with TA and Instructors

Given the large number of students in the class, the teaching assistant or instructors should
not be contacted directly with any questions. While we love all of you, responding to
questions will be virtually impossible. But teaching assistants will monitor the forums and
keep the instructors informed on a regular basis. This has worked quite well for the past
three years and I am sure we will do fine in this course as well.

IMPORTANT ISSUES TO CONSIDER

Assignments

The assignments are meant to be challenging, though we have tried hard to increase the
difficulty level gradually within each assignment. More importantly, the assignments reflect
my belief about learning. No one can really make you learn; you have to be willing to work
hard and struggle. The teachers role is to expose us to the fundamental building blocks,
and we need to learn by applying them to challenging problems. The reason I love finance
is its applicability to all types of real world situations.

Solutions to Assignments

This is a seemingly reasonable request but very difficult to accommodate. Creating
questions for the videos and the assignments has been, and continues to be, the most
challenging part of high quality digital education. It has taken us several months, with the
help of advanced graduate students, to create assessments, test them, and then modify
them to fit the grading structure imposed by technology. We believe our assignments are
well thought out and reflect a good balance of conceptual and applied stuff. Due to
copyright issues, we cannot simply give you questions from existing books, and I would not
want to do that anyway. It will therefore be very difficult for us to offer this class multiple
times if we have to keep preparing new sets of questions with multiple versions to allow
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you to attempt each one more than once. Handing out answers will force us to do that. We
have instead chosen to provide a lot of hints about the main issue in each question and you
can always revisit the videos, go back to the questions, work in teams, etc., to learn the
content. Over time, we hope to create richer ways of grading and providing feedback
depending on the type of errors that you may make. Professor Qin Lei and I spend a
significant amount of our time on creating and improving assessments.
Honor Code

While learning from each other is very important, we all recognize the difference between
collaboration and simply copying and pasting work done by others. I strongly encourage
you to work collaboratively using proper judgment. Similarly, please respect all copyright
rules of all materials, including books, articles, etc.

While we ultimately cannot monitor everything, Coursera and my team will monitor the
forums for any activity that violates such codes of conduct and basic civility to each other