T A PAI MANAGEMENT INSTITUTE (TAPMI), MANIPAL

FINANCIAL MANAGEMENT - I

Programme: MBA
Batch: 2022-2024
Term: 2
Course Name: Financial Management - I – FIN 5001
Credits: 3 (24 Sessions)
Course Instructors: Prof. Durga Prasad (Core), Prof. Madhu Veeraraghavan (Core) and Prof.
Pradeepta Sethi (Core)

PART 1
Introduction:

The focus of this course is to understand that every decision a business makes has financial
implications. There would be seldom any decisions that a manager makes that do not have financial
implications! In that sense, this course is important for every business manager across various domains.
This course is designed to introduce 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 to 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:
 Explain and apply the fundamental concepts of finance, such as the 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 the 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 relationship 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 Textbook:
Brigham and Ehrhardt, Financial Management Theory and Practice, (15 th Edition) Cengage Learning.

Policy on Plagiarism:
A similarity index score up to 10% in all evaluation components, where applicable, is permitted. Any score
beyond the permitted range will invoke section 8.4 (Academic integrity) of the PGP handbook.

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ASSESSMENT SCHEME AND WEIGHTAGE:

{a} MID TERM & END-TERM

Evaluation Duration Open /

Weightage (%) CLO Tested
(Minutes) Closed Book

Mid Term Exam 20 75 Closed Book CLO 2

End Term Exam 40 120 Closed Book CLO 3

{b} OTHER ASSESSMENTS

Evaluation Unit of
Sl No. Weight Time
Item Evaluation CLO

1 Quiz 1 Individual 10% After 9th Session CLO 1

2 Quiz 2 Individual 10% After 19th Session -

To be submitted after
3 Project Group 20% -
21st Session

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. 4-13)

Future Value and

Compounding
177012 – (HBS
background
2 Time Value of Lecture Present Value and
note) Cash
Money Discounting
flow & time Chapter 4
value of
How to value Perpetuities
Money
(Pg. 139 – 154)

How to value Annuities

Annuity – ordinary annuity

and annuity due

3 Time Value of Lecture Chapter 4 Growing Perpetuity and

Money Annuities

(Pg. 155 - 165)

Nominal interest rate
Effective interest rate
4 Time Value of Lecture Chapter 4 Amortization
Money
(Pg. 166-178)
Who issues Bonds?
Key Characteristics of Bonds
5 Valuing Bonds Lecture Chapter 5
Zero Coupon bonds
Coupon Bonds

(Pg. 194 – 199)

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 Topic/other
Session Pedagogy Case # Readings # Concepts
minor events

Bond Yields
Yield to Maturity
6 Valuing Bonds Lecture Chapter 5 Current Yield

(Pg. 200-204, 208-212)

The term structure of
7 Interest rates - Yield curve
Valuing Bonds Lecture Chapter 5
(Pg. 227)
Types of Common Stocks
Valuing constant Growth
8 Valuation of Lecture Chapter 7 Stocks
stocks
(Pg. 294-305)
Valuing Non constant Growth
Stocks
9 Valuation of Lecture Chapter 7
stocks (Pg. 305-309)
Quiz 1 (WT - 10%)
An Overview of Capital
Budgeting
10 The Basics of Lecture Chapter 10 Net Present Value
Capital Budgeting Profitability Index
Payback Period
(Pg. 413-417, 428-430)

Chapter 10 Internal Rate of Return and

11 The Basics of Lecture Pitfalls
Capital Budgeting
(Pg. 418-427)

12 Cash Flow Identifying Relevant Cash

Estimation Chapter 11 Flows
(Pg. 453 – 458)

Investment returns and risk -

294107 – Why Measuring standalone risk
13 Risk and Return Lecture Manage the Risk in Portfolio context
Risk? (HBS Chapter 6
background (Pg. 240 -255)
note)

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 Topic/other
Session Pedagogy Case # Readings # Concepts
minor events

Correlation and risk for two

stock portfolios
14 Risk and Return Lecture Chapter 6 Diversification & Multi-stock
portfolios
BETA

(Pg. 256 – 264)

Efficient Portfolios
The Two Asset Case
Chapter 25 The Efficient Frontier
15 Risk and Return Lecture The Capital Market Line and
Security Market Line
BETA

(Pg. 978 – 1000)

The Capital Asset Pricing
16 Portfolio theory Model (CAPM)
and Asset Pricing Lecture Chapter 25
Models (Pg. 1004 – 1006)

808N20 - Alex Validity and the Role of the

Portfolio theory Sharpe’s Capital Asset Pricing Model
17 and Capital Asset Portfolio (Case Study)
Pricing Model Spreadsheet
problem
The Weighted Average Cost
of Capital (WACC)
18 The Cost of Lecture Chapter 9 Choosing Weights for the
Capital WACC

(pg. 374 – 393)

Overview of Capital Structure

Business Risk and Operating
Leverage Financial Risk and
19 Capital Structure Lecture Chapter 15 Financial Leverage
Decisions
(Pg. 607 – 613)
Quiz 2 (WT - 10%)
Capital Structure Theory
Modigliani and Miller: No
Taxes
20 Capital Structure Lecture Chapter 15 Modigliani and Miller: The
Decisions Effect of Corporate taxes

(Pg. 614 – 618)

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 Topic/other
Session Pedagogy Case # Readings # Concepts
minor events

Trade-Off Theory
Signalling Theory
Capital Structure Lecture Chapter 15 Pecking Order Hypothesis
21 Decisions
(Pg. 619 – 622)

Estimating the Optimal

Capital Structure

(Pg. 628 – 634)

Project (WT- 20%)

Distributions to An Overview of Cash and

22 Shareholders: Chapter Stock Distributions -
Dividends 14 Procedures for Cash
Distributions

(Pg. 566 – 571)

Distributions to Chapter Dividend Irrelevance Theory

23 Shareholders: 14 – Bird in the Hand Theory,
Dividends Tax Effect Theory – Clientele
effect

(Pg. 572 – 577)

24 REVISION OF THE COURSE

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 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

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

Faculty: Prof. Durga Prasad

Signature & Date: ________________________

Endorsed by: ___________________________
Faculty: Prof. Madhu Veeraraghavan
Signature & Date: ________________________
Signature & Date: ________________________

Faculty: Prof. Pradeepta Sethi

Signature & Date: ________________________

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