FM-Course Outline MBA-BM-2018-20 batch IIM-SBP

COURSE NAME: FINANCIAL MANAGEMENT -1

Credits 3.0
Faculty Name BB Chakrabarti
Program MBA
Academic Year and Term 2018-20 batch
Term -2
 
 
 
  
 

Course Objectives
The basic objective of this course is to introduce students to the principles of Corporate
Finance. There are two broad financial decisions that a Finance Manager has to make:
Investment Decision and Financing Decision. Based on the outcome of these two decisions, the
CEO and the Board take a third decision i.e., dividend decision. A course on Financial
Management (I and II) will introduce students to various factors behind these decisions.
The aim this course (Financial Management I) is to provide grounding in the theory and practice
of Corporate Finance at an introductory level, and a synthesis of the most important current
research in Corporate Finance, with an emphasis on the applications of the principles. Both
normative and positive aspects of the theory are examined, together with supporting
descriptive and empirical evidence.
Specifically this course will cover function of finance, Indian financial system, introduction to
financial markets like bond, equity, forex and money market instruments, time value of money,
valuation of stock and bond, cost of capital, trade-off between risk and return, CAPM, portfolio
theory and raising of long-term capital.

Learning Outcomes
After successful completion of this course, students will possess the basic finance concepts
necessary of every graduate. In particular, they will
 Understand the core principle of Value Maximization and how it influences decisions
within an organization
 Understand the Indian financial system
 Be able to value financial instruments such as Bonds and Equity
 Understand the mechanics of Money and Capital markets
 Understand the implications of capital markets in determining required rates of return
 Be able to understand risk return trade off and use the Capital Asset Pricing Model to
quantify the risk-return tradeoff
 Be able to apprehend the portfolio theory

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 Understand the mechanisms of long-term capital raising

 Understand the working of the forex market

Recommended Text:
“Corporate Finance”, (Special Indian latest Edition) - Ross, Randolph, Jaffe, Jordan & Kakani
Additional Material :
1. Principles of Corporate Finance, by Brealey, Richard A., Stewart C.Myers
2. Financial Management : Theory and Practice, by Brigham, Eugene F, Gapenski, Louis C, Ehrhardt
Michael C.,

Evaluation:
The evaluation process is divided into four components.
i) Quiz (two nos.) :20%
You will be generally informed in advance when a quiz will be held. One quiz will be
held pre mid-term and the other post mid-term.
ii) Midterm: 30%
This will be on the pre mid-term portion of the course (sessions 1-10)
iii) Class participation: 10%
This could be comprised of attendance, response and overall positive demeanor in
class. Your active participation in class is necessary, both for you and for your
classmates. Your participation score will reflect the faculty’s assessment of your
attendance, your contributions to class discussions, and your overall positive
demeanor during class.
iv) End term: 40%
This will be on the post mid-term portion of the course (sessions 11-20)

Grading: (An important note)

You will be generally graded relative to your peers and the grade distribution is expected to be
approximating a normal distribution. This is designed to help you. However, the faculty has the
right to pre-specify a certain cut off score in the course failing which may invite an F grade in the
course.

Academic Integrity:
Students involved in academic dishonesty will receive a ZERO grade on the particular
component in which the violation occurred. Academic dishonesty consists of misrepresentation
by deception or by other fraudulent means such as copying or use of unauthorized aids in tests,
talking during in-class examinations; aiding another student’s dishonesty; and giving false
information for the purpose of gaining credits.

Learning Environment
1) Class starts and ends on time. Students and faculty are expected to be prompt.

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2) Students should remain in attendance for the duration of the class.

3) Students should display their institute name tags.
4) All phones and electronic devices should be turned off.
5) Students should bring calculators to the class. They are expected to solve problems in the
class.
Session Plan:

Session Description Readings / Case

1 Introduction to Corporate Finance Material presented in
 Shareholder value maximization the class by the
 Financial model of business instructor
 Functions of corporate finance
2 Indian Financial System Material presented in
 Institutions the class by the
 Regulatory framework instructor
3 Fixed Income Markets Material presented in
 Features of debt instruments the class by the
 Market conventions instructor
 Yield curve
4 Time Value of Money Chapter 4
 Discounted cash flow valuation
 Interest rate and Present value
 Annuity
 Perpetuity
5 Time Value of Money Chapter 4
 Problem solving
 EMI calculation
6 Money and capital Markets Chapter 8
 Capital market and instruments
 Money market and instruments
7 Valuation of Bonds Chapter 8
 Valuation of fixed rate bonds
8 Valuation of Stocks Chapter 9
 Dividend discount model
 Multiples method
9 Case: Lyons Document Storage Corporation: Bond HBS case no. 3215
Accounting
10 Tutorial I
11 Risk and Return Chapter 10
 Concept of expected return and risk
 Geometric and Arithmetic averages
12 Portfolio Theory and CAPM Chapter11

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 Mean-variance framework
 Capital asset pricing model
13 Case: Beta Management Company HBS case no. 9-292-122
14 Cost of Capital Chapter 13
 Cost of debt
 Cost of equity
 WACC
15 Efficient Capital Markets and Behavioral Challenges Chapter 14
 Different types of efficiency
 Behavioral challenge

16 Case: Encana Corporation IVEY case no. 907N02

17 Long-term Capital Raising Chapter 20
 Raising of equity – domestic and foreign
 Raising of debt – domestic, euro market and foreign

18 Long-term Capital Raising Chapter 20

 Raising of equity – domestic and foreign
 Raising of debt – domestic, euro market and foreign
19 Introduction to Forex Market Chapter 31
 Forex market
 Currency rates
 Purchasing power parity theory
 Interest rate parity theory
20 Tutorial II

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