T. A.

PAI MANAGEMENT INSTITUTE (TAPMI), MANIPAL

FINANCIAL MANAGEMENT - I

Programme: PGDM
Batch: 2021 - 2023
Term: 2
Course Name: Financial Management - I – FIN 5001
Credits: 3 (30 Hours)
Course Instructor’s: Prof. Madhu Veeraraghavan (Core), Prof. Kavitha Ranganathan (Core) and Prof.
Aditya Mohan Jadhav (Core)

PART 1
Introduction:

The focus of this course is to understand every decision that a business makes that has financial
implications. There would be seldom any decisions that a manager makes that does not have financial
implications! In that sense, this course is important for every business manager across various domains.
This course is designed to give an introduction to the fascinating world of finance, and provides a
foundation for other advanced courses.

The course is divided into five modules: time value of money, valuation of bonds and stocks, capital
budgeting, risk and return, debt policy and dividend policy. The concepts and applications covered by
this course are directly relevant for every management student, irrespective of the area of
specialization. Topics include: the goals of the firm and investors, valuation of equity and debt
instruments, capital budgeting, issues in risk and return, portfolio theory, asset pricing models, issues in
capital structure and the efficiency of capital markets.

Course Objectives:
 The learning goals associated with this course are:
 Explain and apply the fundamental concepts of finance such as time value of money
 Value equity and debt instruments, and understand capital budgeting decisions for a firm
 Understand portfolio theory and how it can be used to price risky assets.
 Estimate the appropriate cost of capital for investment appraisal purposes.
 Analyse issues determining capital structure.
 Analyse issues determining dividend policy

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 Course Learning Outcomes (CLO):
Successful completion of this course will enable the student to:
CLO1: Apply the concepts of time value of money for financial decision making (PLG 1)
CLO2: Understand the concept of investment decision and interpret the implications of classic tools of
investment analysis i.e. net present value, internal rate of return, payback etc. (PLG 2)
CLO3: Understand how risk and return are defined and measured, explain how diversification reduces
risk, explain why systematic risk is important to investors and explain the relation between risk
and return proposed by the Capital Asset Pricing Model.
CLO4: Appreciate the importance of capital structure for the firm and the resulting cost of capital for
the firm.
CLO5: Appreciate the importance of dividend policy for the firm.

Course Content:
 Finance and the Financial Manager
 Present and Future Value calculations
 Valuation of bonds and equities
 Capital Budgeting
 Risk and Return
 Cost of Capital and Capital Structure Decisions
 Dividend policy

Prescribed Text Book:

Brigham and Ehrhardt, Financial Management Theory and Practice, (14 th Edition) Cengage Learning.

Policy on Plagiarism:
All students should be familiar with the Institute’s policy on academic integrity. Plagiarism in any form
will not be tolerated. Student will be penalized with 50% of his / her marks in case it is found that the
student has indulged in plagiarism.

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ASSESSMENT SCHEME AND WEIGHTAGE:

{a} END-TERM

Weightage Duration Open / Closed

CLO Tested
Evaluation (%) (Minutes) Book

End Term Exam 40 120 Closed Book

CLO1, CLO 2

{b} OTHER ASSESSMENTS

Sl Evaluation Unit of
Evaluation Weight Time CLO
No. Item
Time Value of Money - -
1 Quiz 1 Individual 10%
After 5th Session
Valuation of Bonds and -
2 Quiz 2 Individual 15%
Shares-After Session 12
Capital Budgeting and -
3 Quiz 3 Individual 15% Risk and Return-After
Session 21
To be submitted at the -
4 Project Group 20%
end of Session 25

PART 2: SESSION PLAN

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 Topic/other
Session Pedagogy Case # Readings # Concepts
minor events
Why Corporate Finance --
Investment, Financing and
Dividend Decisions.

Role of the Financial

1 Overview of Lecture Chapter 1 Manager.
Financial
Management Profit Maximization
Wealth & Value
Maximization

(Pg. 5-13)
Profit Maximization
Wealth & Value
2 Overview of Lecture Chapter 1 Maximization
Financial
Management (Pg. 5-13)
Future Value and
Compounding

177012 – (HBS Present Value and

background Discounting
3 Time Value of Lecture note) Cash Chapter 4
Money flow & time Opportunity cost of capital
value of
Money How to value Perpetuities

(Pg. 134 – 143)

How to value Annuities

Annuity – ordinary annuity

and annuity due

4 Time Value of Lecture Chapter 4 Growing Perpetuity and

Money Annuities

(Pg. 143 -150) and

(Pg. 150-157)

Session Topic/other Pedagogy Case # Readings # Concepts

minor events

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 Topic/other
Session Pedagogy Case # Readings # Concepts
minor events
Nominal interest rate
Effective interest rate
5 Time Value of Lecture Chapter 4 Amortization
Money
(Pg. 166-173)
Quiz 1 – WT (10%)
Who issues Bonds?
Key Characteristics of Bonds
6 Valuing Bonds Lecture Chapter 5
(Pg. 188 – 194)
Zero Coupon bonds
Coupon Bonds
7 Valuing Bonds Lecture Chapter 5
(Pg. 194 - 203)
Bond Yields
Yield to Maturity
8 Valuing Bonds Lecture Chapter 5 Current Yield

(Pg. 203-206)
The term structure of
9 Interest rates - Yield curve
Valuing Bonds Lecture Chapter 5
(Pg. 221)
Types of Common Stocks
Valuing constant Growth
10 Valuation of Lecture Chapter 7 Stocks
stocks
(Pg. 294-301)
Valuing Non constant Growth
Stocks
11 Valuation of Lecture Chapter 7
stocks (Pg. 301-304)
Valuing Non constant Growth
12 Lecture Chapter 7 Stocks
Valuation of
stocks (Pg. 301-304)
Quiz 2 – WT (15%)

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 Topic/other
Session Pedagogy Case # Readings # Concepts
minor events
13 The Basics of Lecture An Overview of Capital
Capital Budgeting Budgeting
Net Present Value
Profitability Index
Payback Period

(Pg. 398-416)

Session Topic/other Pedagogy Case # Readings # Concepts

minor events

Internal Rate of Return and

Pitfalls
14 The Basics of Lecture Chapter 10
Capital Budgeting (Pg. 404 – 411)
Identifying Relevant Cash
15 Cash Flow Chapter 11 Flows
Estimation (Pg. 438 – 443)
Identifying Relevant Cash
16 Cash Flow Chapter 11 Flows
Estimation (Pg. 438 – 443)
294107 – Why Investment returns and risk -
Manage the Measuring standalone risk
17 Risk and Return Lecture Risk? (HBS Chapter 6 Risk in Portfolio context
background
note) (Pg. 240 -248)

Correlation and risk for two

stock portfolios
18 Risk and Return Lecture Chapter 6 Diversification & Multi-stock
portfolios
BETA
(Pg. 249 – 257)
Efficient Portfolios
The Two Asset Case
Chapter 25 The Efficient Frontier
19 Risk and Return Lecture The Capital Market Line and
Security Market Line

(Pg. 978 – 987)

The Capital Asset Pricing
Model (CAPM)
20 Risk and Return Lecture Chapter 25
(Pg. 987 – 996)

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 Topic/other
Session Pedagogy Case # Readings # Concepts
minor events
Quiz 3 – WT (15%)
The Capital Asset Pricing
Chapter 25 Model (CAPM)
21 Portfolio theory
and Asset Pricing Lecture (Pg. 987 – 996)
Models
Portfolio theory 808N20 - Alex Validity and the Role of the
and Capital Asset Sharpe’s Capital Asset Pricing Model
22 Pricing Model Portfolio (Case Study)
Spreadsheet
problem

Session Topic/other Pedagogy Case # Readings # Concepts

minor events
The Weighted Average Cost
of Capital (WACC)
23 The Cost of Lecture Chapter 9 Choosing Weights for the
Capital WACC (pg. 358 – 372)

Overview of Capital Structure

Business Risk and Operating
Leverage Financial Risk and
24 Capital Structure Lecture Chapter 15 Financial Leverage
Decisions
(Pg. 590 – 595)

Capital Structure Theory

Modigliani and Miller: No
Taxes
25 Capital Structure Lecture Chapter 15 Modigliani and Miller: The
Decisions Effect of Corporate taxes

(Pg. 596 – 599)

Trade-Off Theory
Signalling Theory
Capital Structure Lecture Chapter 15 Pecking Order Hypothesis
26 Decisions
(Pg. 599 – 604)
Estimating the Optimal
Lecture Chapter 15 Capital Structure
27 Capital Structure
Decisions (Pg. 608 – 614)

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 Topic/other
Session Pedagogy Case # Readings # Concepts
minor events
An Overview of Cash and
Distributions to Stock Distributions -
28 Shareholders: Chapter Procedures for Cash
Dividends 14 Distributions

(Pg. 548 – 553)

Dividend Irrelevance Theory
Distributions to Chapter – Bird in the Hand
29 Shareholders: 14 Theory ,Tax Effect Theory –
Dividends Clientele effect

Pg. 554 – 558)

30 REVISION OF THE COURSE

PLG MAPPING FOR THE COURSE

Addressed
PLG# Program Level Learning Goal CLO
by Course?
No.
(Yes / No)
Application of Fundamentals
PLG1 Traits: Demonstrate application of functional / conceptual YES CLO 1
knowledge to business situations
Problem Identification and Solution
PLG2 Traits:Demonstrate ability to identify a problem, critically assess YES CLO 2
various alternatives and suggest appropriate solution
Integrative Thinking
Traits:Demonstrate ability to identify inter-linkages among
PLG3 NO NA
functional areas within an enterprise and assess the impact of
external environment on its performance
Effective Communication
PLG4 Traits:Demonstrate proficiency in Oral and Written NO NA
Communication
Ethical Responsibility
PLG5 Traits:Demonstrate awareness and assess impact of ethical NO NA
behaviour on business
Leadership
PLG6 Traits:Demonstrate capability to take leadership role in a NO NA
business situation

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Suggested Readings:

 Brealey, R., Myers, S. C., Allen, F and Pitabas Mohanty (latest), Principles of Corporate Finance
(11th edition), McGraw Hill.
 I M Pandey, (2011) financial management, Vikas publishing house 11/ed.
 Srivastava, Mishra (2017) Financial Management, Oxford publications 2/ed

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