Lahore University of Management Sciences

FINN 200 – Intermediate Finance

Fall Semester 2020
Instructor Syed Aun R. Rizvi
Room No. SDSB 4-11
Office Hours By Appointment
Email Aun.Raza@lums.edu.pk
Telephone 042-35608498
Secretary/TA Kashif Saeed
TA Office Hours TBA
Course URL (if any) suraj.lums.edu.pk

COURSE BASICS
Credit Hours 3
Lecture(s) Nbr of Lec(s) Per Week 2 Duration 75 minutes
Recitation/Lab (per week) Nbr of Lec(s) Per Week Duration
Tutorial (per week) Nbr of Lec(s) Per Week Duration

COURSE DISTRIBUTION
Core ACF-Core
Elective
Open for Student Category ACF
Close for Student Category

COURSE DESCRIPTION

Course Description:
This course addresses major decision-making areas of corporate finance within the framework of finance theory and practices. It
complements and supplements concepts covered in Principles of Finance. Some of the concepts previously covered are refreshed
with broader perspective and more rigorous analysis to provide solid grounding in time value of money, project analysis, and
asset pricing. Portfolio theory and risk-return tradeoff implications for corporate finance decisions are examined in-depth. The
course focuses on investment and financing decisions. Capital investments are evaluated under conditions of uncertainty and risk.
Real options embedded in capital projects are also introduced. Financing decisions are examined through cost of capital, capital
structure theory, and dividend policy. Leasing as an alternative to debt and a source of long-term financing is also covered in
financing decisions. Consequently, valuation of securities and firm integrates the impact of both investment and financing
decisions. Other topics covered include introduction of derivative markets and instruments.

Course Modules:
The course is divided into following five modules:

Module 1: Fundamentals and Capital Budgeting

Module 2: Bonds, Stocks, Leasing and Long-Term Financing
Module 3: Risk-Return Tradeoff and Portfolio Theory
Module 4: Financing Decisions, Payout Policy and Firm Valuation
 Lahore University of Management Sciences
COURSE PREREQUISITE(S)

 Principles of Finance (FINN 100)

COURSE LEARNING OUTCOMES (CLO)

Upon successful completion of this course, students should be able to:

1. Acquire the knowledge, skills, and understanding of the fundamental concepts and mainstream theories
and practices in corporate finance.
2. Evaluate investment projects, value assets and securities, explain risk-return trade-offs, and analyze
capital projects under the conditions of risk, uncertainty as well in the presence of real options.
3. Demonstrate understanding of capital structure theories and appreciate their implications for the value
of a firm.
4. Comprehend the rationale behind the payout policies in corporate finance
5. Demonstrate understanding of the derivative markets, their implications for corporate finance; and
estimate the payoff of options, forwards and futures.
6. Discuss and debate the ethical perspective in Finance.
7. Present and discuss their analysis and decision effectively, both in oral and written forms. (General
Learning Goal)

UNDERGRADUATE PROGRAM LEARNING GOALS & OBJECTIVES

General Learning Goals & Objectives
Goal 1 –Effective Written and Oral Communication
Objective: Students will demonstrate effective writing and oral communication skills
Goal 2 –Ethical Understanding and Reasoning
Objective: Students will demonstrate that they are able to identify and address ethical issues in an
organizational context.
Goal 3 – Analytical Thinking and Problem-Solving Skills
Objective: Students will demonstrate that they are able to identify key problems and generate viable
solutions.
Goal 4 – Application of Information Technology
Objective: Students will demonstrate that they are able to use current technologies in business and
management context.
Goal 5 – Teamwork in Diverse and Multicultural Environments
Objective: Students will demonstrate that they are able to work effectively in diverse environments.
Goal 6 – Understanding Organizational Ecosystems
Objective: Students will demonstrate that they have an understanding of Economic, Political,
Regulatory, Legal, Technological, and Social environment of organizations.
Major Specific Learning Goals & Objectives
Goal 7 (a) – Program Specific Knowledge and Understanding
Objective: Students will demonstrate knowledge of key business disciplines and how they interact
including application to real world situations.
Goal 7 (b) – Understanding the “science” behind the decision-making process (for MGS Majors)
Objective: Students will demonstrate ability to analyze a business problem, design and apply
appropriate decision-support tools, interpret results and make meaningful recommendations to
support the decision-maker
 Lahore University of Management Sciences
Indicate below how the course learning objectives specifically relate to any program learning goals and
objectives.

Program Learning Goals and
Objectives
Goal 1 –Effective Written and Oral
Communication
Goal 2 –Ethical Understanding and
Reasoning
Goal 3 – Analytical Thinking and Problem
Solving Skills
Goal 4 – Application of Information
Technology
Goal 5 – Teamwork in Diverse and
Multicultural Environments
Goal 6 – Understanding Organizational
Ecosystems
Goal 7 (a) – Program Specific
Knowledge and Understanding
(Subject knowledge)
Goal 7 (b) – Understanding the
“science” behind the decision-making
process
Course Learning Objectives Course Assessment Item
Students get a number of opportunities Assignments and CP
to demonstrate their ability to
communicate effectively (CLO #7)
Ethical perspectives in course Exams (minor component)
introduction and various mini-cases are
highlighted (CLO # 6)
Major Goal: Analytical thinking and CP, Quizzes, Assignments and Exams
problem-solving skills are essential for
success in this course (CLO #1-5)
Application of information technology in Assignments
preparing for homework and assignments
Students work in groups of 4-5 persons Assignments and In-class practice
each to prepare Assignments. Most in- questions
class practice questions comprise of a
mini-case. These case settings are global
and multicultural.
Students develop understanding of the CP, Quizzes, Assignments and Exams
interaction of a firm with the financial
market, industry and economy (CLO # 2-
5)
Major Goal: Comprehensive coverage of CP, Quizzes, Assignments and Exams
topics in intermediate Financial
Management (CLO #1-6)
NA NA

GRADING BREAKUP AND POLICY

Source % of Total
Assignments 10
Assessments (6 out of 7) 60
Project 1 Portfolio 10
Final Project: 20
Total 100

5% of the grading components can be modified during the course of the semester.

Aggregate of below 50% will qualify for a F grade.

Class Participation and Attendance: Students are expected to attend all classes. You must review the assigned materials in
advance of the class in order to contribute meaningfully to class discussions. A significant portion of the course grade depends on
the quality and level of your involvement and input in class discussions.
 Lahore University of Management Sciences
Assignments:
There will be several graded group-based assignments during the term to reinforce financial concepts and to encourage usage of
spreadsheets such as Excel in performing financial analysis. The format and other requirements will be specified by the instructor.
All assignments must be submitted on the due date. Late submissions will not be accepted.

Assessments: There will be 7 to 8 assessments (Best 6 will be counted) throughout the semester. Each will be weigh 10% of the
grade, summing upto 60% of the grade in the course. It will comprise of open-ended questions/case-like situations.

Project 1: Project 1 will be to create a minimum risk portfolio and a maximum return portfolio of 3 securities. Details will be
provided 2 weeks in advance. It will be due at the end of Week 8.

Project 2: Project 2 will be company valuation of choice of each group. Companies will be assigned on first come first serve basis
with no clashes. It will be due at the end of Week 13.

Calculator Requirement: You will need a financial calculator capable of performing present value/future value functions. For
example, Texas Instrument BA II meets these criteria. Many other brands are equally suitable for this course.

EXAMINATION DETAIL
Yes/No: NO
Combine Separate: N/A
Midterm Duration: N/A
Exam Preferred Date: N/A
Exam Specifications:

Yes/No: NO
Combine Separate: N/A
Final Exam Duration: N/A
Exam Specifications:

COURSE OVERVIEW
WEEK/
RECOMMENDED OBJECTIVES/
LECTURE/ TOPICS
READINGS APPLICATION
MODULE
MODULE 1: FUNDAMENTALS, CAPITAL BUDGETING
 Introduction and course requirements  RWJ Ch 1 Overview of corporate finance,
 Overview of corporate finance financial decisions, and revisiting
Week 1  Time value of money and discounted cash  RWJ Ch 4 time value of money (CLO # 1,6)
flows

 Net Present Value (NPV) and other  RWJ Ch 5 Evaluation of investment projects
investment rules with view to create value for the
 Evaluating capital budgeting projects and  RWJ Ch 6 firm. Also incorporating risk,
analysis uncertainty and real options in
Week 2 & 3
 Risk Analysis, Real Options and Decision  RWJ Ch 7* capital budgeting decision (CLO # 1,
Trees 2, 7)

Assessment 1- Capital Budgeting

MODULE 2: LONG TERM FINANCING
 Lahore University of Management Sciences
 Overview of long-term financing and fixed  RWJ Ch 15 Valuation and analysis of fixed
income securities income securities and introduction to
 Debt: Bond valuation  RWJ Ch 8 bonds market, credit rating and term
Week 4  Bond risk measures, duration and convexity  RB Ch18* (Selective structure of interest rate (CLO # 1,2)
applications Sections)

Assessment 2 – Bonds Valuation

Valuation of stocks and introduction
 Equity: Common stock valuation methods  RWJ Ch 9 to stocks market (primary and
Week 5  Issuing equity to the Public  RWJ Ch 20* secondary) with discussion on
seasoned offering (CLO # 1,2,7)

Understanding leasing as an
 Leasing (An Alternative Long-term  RWJ Ch 21* alternative to debt and learning how
Week 6 Financing) to evaluate lease financially

Assessment 3 - Leasing
MODULE 3: RISK-RETURN TRADEOFF AND PORTFOLIO THEORY
 Capital market history and modern portfolio  RWJ Ch 10* Introduction to various risk and
theory (MPT)and diversification return statistics and overview of
Week 7
capital market history (CLO # 1, 2)

 Risk and Return: The Capital Asset Pricing  RWJ Ch 11* Understanding, EF, CAL, CML, CAPM
Model (CAPM)  RWJ Ch 12* and beta estimation (CLO # 1, 2, 7)
Week 8  Beta estimation and SML Understanding three factors and our
 An introduction of Three-Factor Model factors model of return estimation

 Risk, Cost of Capital and Valuation  RWJ Ch 13 Estimating the discount rate to
Week 9
Assessment 4 - Equities evaluate projects (CLO # 1, 3, 7)
MODULE 4: FINANCING DECISIONS, PAYOUT POLICY AND FIRM VALUATION
 Efficient Capital Markets  RWJ Ch 14* Understanding the role of EMH in the
 Capital structure theories and practices  RWJ Ch 16* choice of debt vs. equity; and
Week 10 acquiring knowledge of different
Assessment 5 - Portfolio capital structure theories and
rationale behind (CLO # 1, 3, 7)
 Capital structure theory – Optimal capital  RWJ Ch 17* Acquiring knowledge of different
Week 11 structure theory and evidence capital structure theories and
rationale behind (CLO # 1, 3, 7)
 Valuation and capital budgeting for the Estimate the value of a levered and
levered firm  RWJ Ch 18* unlevered firm and see the impact of
Week 12
financing decision on firm value (CLO
# 1, 3, 6, 7)
 Dividend policies and other forms of payouts  RWJ Ch 19* Understanding the rationale behind
retaining the cash and reinvesting in
Week 13
Assessment 6 – Dividend Policy the business or paying dividends
instead (CLO # 1, 4, 6, 7)
Presentations/Vivas
Assessment 7 Final Exam Slot
* The chapters in bold green indicate that these topics will either been introduced for the first time or will have increase
depth/coverage.

TEXTBOOK(S)/SUPPLEMENTARY READINGS
 Lahore University of Management Sciences
Required Textbooks:
 Ross, Westerfield and Jaffe, Corporate Finance, 10th Edition, McGraw Hill, 2010. (RWJ)
 Reilly, Frank and Brown, K., Investment Analysis and Portfolio Management, 8th Edition, Thomson South-Western, 2006.
(RB - selected chapters only)
Other Recommended (but not required) Reference Books:
 Brigham, Eugene and Ehrhardt, M., Financial Management: Theory and Practice, 11th Edition, Thomson, South Western,
2005
 Hull, John C., Options, Futures and Other Derivatives, Prentice Hall, 2011.
Supplementary Readings:
 Case studies as announced during the course term.
 Students are encouraged to read financial publications such as The Wall Street Journal, Financial Times; Business
Recorder to stay abreast of developments related to this course.