Advance Financial Management

Graduate Business Administration 645

CRN: 13301
Building 163 Room 2004
Winter Quarter 2016
Monday: 6:00-9:50

Paul Sarmas
www.csupomona.edu/~psarmas

CATALOG DESCRIPTION:

A seminar course in finance utilizing comprehensive cases to simulate the role of the financial manager. 3
seminar-discussion. Prerequisite: GBA 546, all required 500-level courses, and microcomputer
proficiency. Unconditional standing requirement.

EXPANDED DESCRIPTION OF THE COURSE AND INSTRUCTIONAL METHODS:

A. Expanded Description of the Course:

This course reinforces the basic concepts of financial management. The course provides an in-
depth discussion of key topics that are critical to financial management: (1) the goals of the firms,
(2) financial statement analysis, planning, and forecasting, (3) working capital policy and
management, (4) capital budgeting techniques without and with risk, (5) capital structure theory
and application, (5) the cost of capital estimation, and (6) long-term financing decisions. In
addition, the course examines issues such as lease financing, merger and acquisition, and
international financial management.

B. Instructional Methods:
The delivery system throughout this course will be a combination of class discussion and case
analysis. The case analysis will be both in a written format and oral presentation. The amount of
lecture will be limited to detailed coverage of concepts pertaining to each individual case.

REQUIRED BACKGROUND OR EXPERIENCE:

A. Prerequisites:
Fundamental of Financial Management (GBA 546), all required 500-level courses, and
microcomputer proficiency. If a basic finance course was taken more than three years ago,
students are strongly urged to retake GBA 546 again. Conditional, unclassified, or Open
University students are not eligible to take this class.
B. Prerequisites Justification:
This course is primarily a case analysis course and the lectures will be focused on the assigned
case and, thus, students are expected to have fundamental knowledge of financial management
and economics. All case-problem assignments in this course would require the use of computers
(i.e., word processing and spreadsheet).

C. General Education Contribution:

Students are expected to communicate both orally and in writing. Students also are expected to
possess analytical skills at an intermediate level.

EXPECTED OUTCOMES:

Students would have full understanding of financial management and corporate finance decision making.
They should be able (1) to measure a firm's cost of capital, (2) to create a working capital policy and
management strategy, (3) to utilize different capital budgeting techniques and determine optimal capital
budget, and (4) to evaluate and estimate a firm's optimal capital structure. Graduates would have
sharpened their skills of identifying financial problems, design solutions, and implement the necessary
financial tools.

TEXT AND REFERENCES:

Author: Bruner, Eades, and Schill

Title: Case Studies in Finance: Managing Corporate Value Creation
Publisher: McGraw Hill/Irwin, Seventh Edition, 2014

You can locate and purchase the book online by

following these simple steps:

1. Go to http://create.mheducation.com/shop/
2. Search for and select book by Title, ISBN, Author, or State/School.

ISBN: 9781308661704
Title: Advanced Financial Management

3. Add the book to your cart and pay using a credit card or access code.
Recommended Text: Corporate Finance
Ross, Westerfield and Jaffe
Tenth Edition
Irwin- McGraw Hill, 2013
METHODS OF EVALUATING OUTCOMES:

Grades are determined in the following format:

Presentation ....... 15 percent
Case Study ......... 50 percent
Final ............. 35 percent
Course grade is based on the following scale:

93 ... A 83 ... B 73 ... C 63 ... D

90 ... A- 80 ... B- 70 ... C- 60 ... D-
86 ... B+ 76 ... C+ 66 ... D+ 0 ... F

ACADEMIC INTEGRITY

Violation of academic integrity include, but are not limited to, the following: cheating on an examination,
test or quiz; plagiarism on any paper or report; falsifying data, research or report; representation of forged
documents; misrepresentation of information in oral or written form. Such violations will be dealt with
severely by the instructor, the associate dean and the standard committee."

COURSE ASSISTANCE:

Office Information Office Hours

Location: Building 164-2053 Monday: 4:30 p.m. 5:30 p.m.
Telephone: (909) 869 2405 Tuesday: 9:00 a.m. 11:30 a.m.
Fax: (909) 869 2124 Wednesday: 1:00 p.m. 1:30 p.m.
E-Mail: psarmas@cpp.edu Others: By appointment

COURSE REQUIREMENTS

It is very important for students to meet following requirements:

(1) Recently completed the prerequisite courses.

(2) Understanding of essential concepts of finance.
(2) Knowledge of Excel or other types of spreadsheet.

Discussions related to a case are presented before the case is assigned.

Solution should include both quantitative and subjective analysis.
Students will be divided into groups.
Each group is expected to present an assigned case.
Members of each group may wish to evaluate each other.
Prepare presentation material: handouts, transparency, etc.
If computer is needed for presentation, a two-week advanced notice is needed.
Each Group must prepare one written case per week.
Each case must have: 1. Cover page includes students names and case title.
2. Written analysis of all the assigned cases must be typed.
3. Each report must have an introduction including background information.
4. Each report must have a summary & conclusion section.
5. Each report must have a reference section.

Each student is expected to participate in discussion of the assigned case in a coherent manner and be
able to show all the necessary work (computations) during the presentation.

Your written analysis will be evaluated based on the following criteria:

* Organization and format of the report (10%)

* Comprehension of the main issues of the case (15%)
* Analytical analysis of the issues (40%)
* Logic and clarity of assumptions made in the analysis (15%)
* Alternative solution(s) to the problem (10%)
* Consistency of recommended course(s) of action and conclusion with the analysis (10%).

Cases are DUE ON Monday of each week and at the beginning of the class. Submit your report by
attaching the Word and Excel documents to the assignment section on the Blackboard.

NO MAKE-UP EXAMINATION!
NO LATE CASE-REPORT!
LECTURE SCHEDULE

January 4, 2016
Group Assignment
GBA 646 Paper Assignments
Discussion: Financial Statement Analysis

January 11, 2016

Discussion: Financial Planning and Control
Submit a list of five companies ranked by order of preference.

January 18, 2015

Academic Holiday
January 25, 2016
Discussion: Project Cash Flow Analysis
Case Due: Horniman Horticulture

February 1, 2016
Discussion: Cost of Capital
Case Due: The Body Shop International, PLC

February 8, 2016
Discussion: Capital Structure Theory and Practice
Case Due: Aurora Textile Company

February 15, 2016

Discussion: Lease Valuation
Case Due: Teletech Corporation

February 22, 2016

Discussion: Dividend Policy
Case Due: Wm Wrigley Jr. Company
February 29, 2016
Discussion: Merger & Acquisition
Case Due: American Greetings

March 7, 2016
Discussion: Merger & Acquisition
Case Due: Primus Automation Division, 2002

Final Examination
Monday
March 14, 2016
6:00 8:00 p.m.
Case Profiles
The Body Shop International PLC 2001
Work through the exercises in this case, first using pencil and paper, and then using your
personal computer. Then follow the directions in the case to make the three-year forecast, and
prepare responses to the questions posed at the end of the case.

Horniman Horticulture
1. What is your assessment of the financial performance of Horniman Horticulture?
2. Do you agree with Maggie Browns accounts-payable policy?
3. What explains the erosion of the cash balance?
4. What do you expect the financial position of the business to be in 2006? Extend the financial statements
through 2006, assuming that Bob Brown grows revenue by 30%. Note: To make the balance sheet
balance, define cash as equal to (Curr. liab. + Net worth) (Accounts receivable + Inventory + OCA +
Net fixed assets).

Primus Automation Division, 2002

1. Why is Primus Automation considering the lease of its factory-automation system to Avantjet?
2. How did Tom Baumann analyze the problem of setting the lease-financing terms? How does he
calculate NPV and internal rate of return (IRR) for the lease and borrow-and-buy alternatives?
Please complete case Exhibit 6.
3. How are Faulhaber and Honshu Heavy Industries using their leasing plans?
4. What lease terms should Baumann recommend? How should Primuss sales and leasing divisions
structure the terms of the deal with Avantjet? How would you approach the negotiations with
Avantjet?

Teletech Corporation: 2005

This case complements the seminal extension of mean-variance analysis to corporate finance by Mark E.
Rubinstein, A Mean-Variance Synthesis of Corporate Financial Theory, Journal of Finance, January
1974. It is not necessary, however, that this article be assigned to students as collateral reading with the
case.

1. How does Teletech Corporation currently use the hurdle rate?

2. Please estimate the segment WACCs for Teletech (see the worksheet in case Exhibit 1). As
you do this, carefully note the points of judgment in the calculation.
3. Interpret Rick Phillipss graph (see case Figure 2). How does the choice of constant versus
risk-adjusted hurdle rates affect the evaluation of Teletechs two segments? What are the
implications for Teletechs resource-allocation strategy?
 4. Do you agree that all money is green? What are the implications of that view? What are the
arguments in favor? What are the arguments against it?
5. Is Helen Buono right that management would destroy value if all the firms assets were
redeployed into only the telecommunications business segment? Why or why not? Please prepare
a numerical example to support your view.
6. Has Products and Systems (P+S) destroyed value? What evidence or illustrations can you give
to support your opinion?
7. What should Teletech say in response to Victor Yossarian?

Aurora Textile Company

1. How has Aurora Textile performed over the past four years? Be prepared to provide financial
ratios that present a clear picture of Auroras financial condition.
2. List the factors affecting the textile industry. What do you think is the state of the industry in the
United States? How should you incorporate the state of the textile industry into your analysis?
Why should anyone invest money in the industry?
3. What are the relevant cash flows for the Zinser investment? Using a 10% WACC and assuming a
36% tax rate, what do you get as the NPV for the project? What are the value drivers in your
analysis? What do you estimate as the cost per pound for customer returns under the Zinser
alternative? (Hint: for a replacement decision, analysts often find it helpful to prepare two sets of
cash flows and two NPVsone for the status quo and one for the new machine.)
4. Craft a memo to the board of directors stating your recommendation about investing in the new
Zinser machine. Part of your memo should explain why it is better to invest in the Zinser or to pay
a dividend to the shareholders. Be sure to explain the primary reasons that justify your
recommended course of action.

American Greetings
1. The shares of American Greetings are currently trading at an EBITDA multiple that is at the
bottom of its peer group. Do you think a 3.5 times multiple is appropriate for American
Greetings? If not, what multiple of EBITDA do you think is justified? What is the implied share
price that corresponds to that multiple?

2. Please model cash flows for American Greetings for fiscal years 2012 through 2015. Using a
marginal tax rate of 40% and a market risk premium of 5%, what is your estimate of the
appropriate discount rate for the free cash flow forecast? Based on a discounted cash flow model,
what is your best estimate of the implied enterprise value of American Greetings and the
corresponding share price?

3. What are the key drivers of value in your model?

4. Do you recommend repurchasing shares?

The Wm. Wrigley Jr. Company
1. In the abstract, what is Blanka Dobrynin hoping to accomplish through her active-investor strategy?
2. What will be the effects of issuing $3 billion of new debt and using the proceeds either to pay a
dividend or to repurchase shares on:
a. Wrigleys outstanding shares?
b. Wrigleys book value of equity?
c. The price per share of Wrigley stock?
d. Earnings per share?
e. Debt interest coverage ratios and financial flexibility?
f. Voting control by the Wrigley family?

3. What is Wrigleys current (prerecapitalization) weighted-average cost of capital (WACC)?

4. What would you expect to happen to Wrigleys WACC if it issued $3 billion in debt and used the
proceeds to pay a dividend or to repurchase shares?
5. Should Blanka Dobrynin try to convince Wrigleys directors to undertake the recapitalization?