SMU Classification: Restricted

The Lee Kong Chian School of Business

Academic Year 2022/23
Term 1

FNCE101 FINANCE
Instructor Name : T. Mandy THAM
Title : Assistant Professor of Finance (Education)
Tel : 6828 0498
Email : mandytham@smu.edu.sg
Office : LKCSB #4066
Office Hour : TBA

COURSE DESCRIPTION
The course helps students understand the various financial activities undertaken by a firm to create value for its
shareholders. Students will be taught key financial tools and concepts relevant for managers, investors, and
stakeholders in making sound financial decisions. The topics covered include time value of money, investment
appraisal techniques, working capital management, cost of capital, risk-return tradeoff, diversification, asset
pricing, capital raising, and options. The foundational knowledge acquired here will enable students to understand
finance from the perspective of company managers as well as finance from the perspective of investors.

LEARNING OBJECTIVES
By the end of this course, students will be able to:
• Describe the important role of financial management decisions for business, society, and sustainability
• Interpret financial statements and understand how working capital is managed
• Solve time value of money problems
• Know and use different investment appraisal techniques and understand cost of capital concepts
• Estimate the values of bonds, common stocks, and preferred stocks
• Understand investment returns, diversification, the risk-return tradeoff, and the capital asset pricing model
• Explain the basic processes for capital raising
• Understand fundamentals of the Modigliani and Miller (MM) theory of capital structure
• Define options and understand their pricing and payoffs

PRE-REQUISITE/ CO-REQUISITE/ MUTUALLY EXCLUSIVE COURSE(S)

Please refer to the Course Catalogue on OASIS for the most updated list of pre-requisites / co-requisites for
this particular course.

Do note that if this course has a co-requisite, it means that the course has to be taken together with another
course. Dropping one course during BOSS bidding would result in both courses being dropped at the same time.

ASSESSMENT METHOD
Class Participation: 10%
Assurance of Learning Assessment (AoL) Quiz: 5%
Project: 25%
Midterm Exam: 20%
Final Exam: 40%

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INSTRUCTIONAL METHODS AND EXPECTATIONS

Class Participation
Class participation is strongly encouraged. Note that you are not entirely judged on the quality of your answer.
Rather, you are judged on earnest and honest attempts to help the rest of the class learn the material. If you
actively answer questions and solve problems in class, I reserve the right to raise your grade. Participation grades
are not awarded based on mere class attendance.

Group Project
There will be a group project. The project will be executed in groups of about 5 students each. You are
encouraged to find your own group members, preferably a mix of local and exchange students. Members in a
group by default get same grade for the project. The group-member list should be submitted to the TA no later
than the end of the third week of class. Details will be provided in class.

Assurance of Learning Assessment (AoL) Quiz

The Lee Kong Chian School of Business (LKCSB) is accredited by the Association to Advance Collegiate Schools
of Business (AACSB). To maintain our accreditation, we need to provide evidence that our students have a good
grasp of basic finance concepts. There will be a closed-book quiz at the end of the semester. The quiz accounts
for 5% of your course grade. No make-up quiz will be allowed.

Examinations
There will be two exams (Midterm and Final). Both exams are closed-book & closed-notes exams, mainly
focus on material covered in class and consist of multiple-choice questions and several long questions.
Calculators (any type/model & programmable/non-programmable with no internet connection) are allowed in
each exam. The final exam will be cumulative of all content covered in this course.

The midterm exam time is non-negotiable. If you think you will miss an exam due to a health problem or a
legitimate reason (1) immediately e-mail me prior to the exam time and (2) bring reliable proof of absence. Once
the proof of absence has been approved, the following rule applies: the missing score for the midterm exam will
be estimated based on your final exam score.

Final Examination will be scheduled by the Office of the Registrar.

CONSULTATIONS AND TEACHING ASSISTANTS

TBA

CLASS TIMINGS
This course will be taught in one 3-hour session. I will hold regular office hours on (TBA). If you need to see me at
any other times, please contact me to make appointment. My office and contact information are listed at the top
of this course outline. I am also readily available by emails.

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FINANCIAL CALCULATOR
A financial calculator is needed for various materials covered in class and for the exams. I’ll give a brief instruction
on the operations of Texas Instruments BA II Plus in class. I encourage you to buy or borrow the same model
(many of your seniors have this model). You can use other brands/models, provided that you know how to use
them appropriately.

RECOMMENDED TEXT AND READINGS

Required: Fundamentals of Corporate Finance by Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan, 13th
Edition, McGraw-Hill.

Used copies of the Corporate Finance Fundamentals by Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan,
Joseph Lim, and Ruth Tan, Asia Global Edition, McGraw-Hill or 10th or 11th or 12th edition of Fundamentals of Corporate
Finance by Stephen A. Ross, Randolph Westerfield and Bradford D. Jordan, McGraw-Hill can also be used but do bear
in mind that there could be some variations in contents and assigned problems.

Additional readings will be assigned. Students are expected to keep abreast of current developments in the Asia-
Pacific region by reading leading business dailies/weeklies like the Asian Wall Street Journal, The Economist,
Business Times and Business Week.

UNIVERSITY POLICIES
Academic Integrity
All acts of academic dishonesty (including, but not limited to, plagiarism, cheating, fabrication, facilitation of acts
of academic dishonesty by others, unauthorized possession of exam questions, or tampering with the academic
work of other students) are serious offences.

All work (whether oral or written) submitted for purposes of assessment must be the student’s own work.
Penalties for violation of the policy range from zero marks for the component assessment to expulsion,
depending on the nature of the offense.

When in doubt, students should consult the instructors of the course. Details on the SMU Code of Academic
Integrity may be accessed at https://oasis.smu.edu.sg/Pages/DOS-WKLSWC/UCSC.aspx.

Copyright Notice
Please note that all course materials are meant for personal use only, namely, for the purposes of teaching,
studying and research. You are strictly not permitted to make copies of or print additional copies or distribute
such copies of the course materials or any parts thereof, for commercial gain or exchange.

For the full copyright notice, please visit: https://smu.sg/Copyright-notice or OASIS -> CAMPUS LIFE &
EXCHANGE -> CONDUCT & DISCIPLINE -> UNIVERSITY COUNCIL OF STUDENT DISCIPLINE

Accessibility
SMU strives to make learning experiences accessible for all. If you anticipate or experience physical or
academic barriers due to disability, please let me know immediately. You are also welcome to contact the
university's disability services team if you have questions or concerns about academic provisions:
included@smu.edu.sg. Please be aware that the accessible tables in our seminar room should remain available
for students who require them.

Emergency Preparedness for Teaching and Learning (EPTL)

As part of emergency preparedness, instructors may conduct lessons online via either the Zoom or WebEx
platform during the term, to prepare students for online learning. During an actual emergency, students will be
notified to access the Zoom or WebEx platform for their online lessons. The class schedule will mirror the
current face-to-face class timetable unless otherwise stated.

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WEEKLY LESSON PLANS1

Week Topic Reading

1 Introduction

Overview of Corporate Finance Ch 1

• Describe important financial management decisions and forms of business
organizations; explain the goal of financial management; explain how different
stakeholders impact corporate objectives (e.g., agency problems, ethical and
sustainability concerns); and describe the characteristics of a well-functioning
securities market.
Ch 2, 3
Review of Financial Statement Analysis
• Interpret balance sheet income statement; compare and contrast cash flows from
operating, investing, and financing activities; conduct basic ratio analyses.

2 Review of Financial Statement Analysis (Continues) Ch 18

• Understand how working capital is managed, such as components of the operating
cycle and cash cycle (inventories, account receivable, account payable) and the
cash budget.

Time Value of Money and Its Applications Ch 5, 6

• Solve time value of money problems for single and multiple cash flow with
compounding; understand the calculation of fixed-payment amortization.

3 Time Value of Money and Its Applications (Continues) Ch 5, 6

• Solve time value of money problems for single and multiple cash flow with
compounding; understand the calculation of fixed-payment amortization.

4 Capital Budgeting and Investment Criteria Ch 9, 10, 11

• Know and use the following investment appraisal techniques: payback period,
discounted payback period, net present value (NPV), internal rate of return (IRR),
and profitability index; explain specific investment decisions; and identify sunk
costs, opportunity costs, and other side effects (such as social responsibility,
ethical or environmental costs).

5 Bond Valuation Ch 7
• Explain contractual properties of bonds and bond quotations; calculate and
interpret various types of bond yields; explain the steps in the bond valuation
process; explain the difference between nominal and real rates; explain factors
driving bond yields; explain the interest rate risk and the term structure of interest
rates.

6 Stock Valuation Ch 8
• Estimate the values of common stocks and preferred stocks using the discount
dividend models (DDM); explain free cash flow valuation models.

7 Midterm Exam Week

Midterm Exam (on topics covered in weeks 1-6)

▪ Date: TBA
▪ Venue: TBA

8 Recess

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The schedule is tentative and subject to change. Any change will be announced in advance.

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9 Risk and Return Ch 12, 13

• State the various forms of investment returns; calculate the mean and standard
deviation of returns on a single asset; explain risk-return tradeoffs across asset
classes based on historical evidence.
• Calculate the mean and standard deviation of returns on portfolios; understand
the correlation between assets and diversification benefits; differentiate systematic
vs. unsystematic risk; explain the capital asset pricing model (CAPM) and beta and
their effects on expected returns and risk; explain various forms of the efficient
market hypotheses and their practical implications.

10 The Cost of Capital Ch 14

• Calculate and interpret the cost of equity, cost of debt, and the weighted average
cost of capital (WACC) of a company; explain the effect of tax subsidy on the cost
of debt and WACC; calculate and interpret flotation costs; explain the pure-play
approach of estimating WACC for multi-sector companies.

11 Raising Capital Ch 15
• Explain the basic processes for capital raising, such as venture capital, IPOs, SEOs, (EPTL)
and rights offerings.

Capital Structure Ch 16
• Explain the Modigliani and Miller (MM) theory of optimal capital structure choice (EPTL)
under various tax and bankruptcy costs scenarios; understand capital structure
theories and practical considerations.

12 Derivative Securities: Introduction to Options Ch 24, 25

• Define European options, American options, moneyness, compute and interpret
option payoffs; explain option valuation using at least a one-period model and
factors that influence the price of options; understand the equity portion of the
company as a call option on its total assets.

13 Project Presentations

14 Study Break

15 Final Examination (all topics)

▪ Date: TBA
▪ Venue: TBA

AoL Quiz (Same day as Final Exam)