Managerial Finance

MGMT-2020 Fall 2010

Instructor Classroom Communication Teaching Associate : Dr. C. Blent Aybar Sever Hall 306 Monday 5:30-7:30 E-Mail: aybar@fas.harvard.edu Mr. Ed Caito E-mail : erccpa@aol.com

Course Description Objectives The course deals with managing business funds and planning their use to accomplish organizational objectives. It covers the following: techniques of financial analysis and planning such as ratio analysis, pro forma projections and discounted cash flow analysis; domestic and international financial environments; the sources and uses of funds; problems of capital structure; capital budgeting and cost of capital; mergers and approaches to business valuation; international financial management. Prerequisite: Introductory accounting or equivalent.. Methodology I will use lectures, case discussions and overview of topical issues to create a rich learning environment in class. The lectures will be supported by online tools such as MyFinance Lab and various postings on the course website. I will emphasize theory and analytics, but also teach the course from an applied perspective. Course Requirements Students are expected to carefully review the assigned reading materials before each session, diligently work on the assigned problems/questions and cases, and to participate actively in the class discussions. You should be prepared to spend significant time to digest the material, to work on the assignments and case studies. Timely submission of the assigned work is critical. Late submissions will not be accepted. Best Preperation Method: You should invariably read the assigned chapters and supplementary materials before you come to the class and go over the assigned exercises and cases. After the end of each session, you should review handouts, your notes and highlights in your readings. I have created homework assignments for each session in MyFinance Lab. These homework assignments will help you to master the key concepts, and provide you instant help while you work on the exercises. Although I will not grade these assignments, I would strongly recommend you to review them before you work on session quizzes. Session quizzes are also good tools to gauge your learning. The questions in these quizzes are indicative of take home and in class exam questions. Textbook and Resources Principles of Managerial Finance, Gitman 12th Edition, Pearson Prentice Hall, 2009, ISBN: 013-801123-0 Textbook Website: http://wps.aw.com/aw_gitman_pmf_12/85/21793/5579249.cw/index.html

Financial Calculator (If you do not have one, purchase an inexpensive one) For basic calculator tutorials you can use http://www.tvmcalcs.com/calculator_index Coursepack Subscription to WSJ or Financial Times is required Assignments:

1.

Mini Projects (Graded) These are short projects to facilitate hands on learning. Mini projects will require analysis and interpretation of real life data. Each project will include detailed guidelines on deliverables. You are expected to submit three mini projects out of four. Case Analyses (Graded) We will use five HBS case studies in the second half of the class. You are expected to prepare a write up for two out of five cases. However, you should be prepared to discuss all five cases in the class. The case write ups are due on the day we discuss the cases. Case Analysis Guide : Your write up should be analytical rather than descriptive of the contents of the case. Your analysis should be geared towards identification of key questions and problems, evaluation of the situations, and offering alternatives and solutions as well as discussing pros & cons of alternatives suggested. You should choose one alternative as a decision maker, and provide a clear reasoning for your decision. Since most cases used in the class require a composite of careful thinking, conceptualization, quantitative analysis and some form of decision making your analyses will be evaluated based on breadth and depth of your thought process documented in your submitted paper.

2.

Exams: There will be two exams. Exam-I will cover chpaters 1 through 7 and will practically address the issues covered in the first half of the class. Exam-I is a take home exam. The Exam-II will cover the second half of the class and will be administered in class. You will be allowed to use a four page cheat sheet in Exam-II. Both exams will be a mixture of multiple choice and short problems. Make up exams are available only for officially documented cases. Grading: Exam-I Case Write Ups x2 out of 5 Mini Projects x 3 out of 4 Attandance & Participation1 Exam-II Total 95 <
1

25 20 15 10 30 100 C+

65-69

Attandance & Participation refers to consistent, consturctive and creative engagement in the class with the instructor and your peers. You are expected to make non trivial remarks, bring up interesting issues for discussion and offer clarifying comments to enhance your peers understanding during the class discussions. Quality and substance of your contributions will determine your participation grade.

90-95 85-89 75-84 70-74

AB+ B B-

60-64 55-59 54>

C CF

Academic Honesty Policy

Students who enroll in courses for credit are expected to attend all classes, take the midterm and final examinations, and complete all other coursework. If a student is absent from a class meeting for any reason, including registering late, it is the student's responsibility to make up all work from that class. All work submitted to meet course requirements is expected to be the student's own work. A student suspected of academic dishonesty in any form is subject to review and disciplinary action by the Summer School Administrative Board. Disciplinary action may include, but is not limited to, required withdrawal from the course and/or required withdrawal from the Extension School. Extension School regulations regarding academic honesty are discussed in detail in the Extension School student handbook.

TENTATIVE SCHEDULE August 30th Session-1:

Introduction

Required Readings: Gitman Chps 1 and 2 Topics Covered: Introduction to Managerial Finance Key components of the stockholders report: the income statement, balance sheet, statement of retained earnings, and the statement of cash flows. Evaluation of financial statements using ratio analysis. Liquidity, Activity, Debt, Profitability and Market Ratios. DuPont Analysis September 13th

Session-2: Financial Planning

Topics Covered Cash Budget Pro forma income and balance sheet Operating cash flow and Free Cash Flow Depreciation of assets Sources and uses of cash and statement of cash flows Required Readings Gitman Chp 3

September 20th

Session-3: An Integrative Review of Financial Analysis and Planning

Required Readings HBS Case: Drivers of Industry Financial Structure Assessing A Companys Future Financial Health, Kester et.al Assignment Mini Project-1 is Due

September 27th

Session-4: Time Value of Money-1

Topics Covered The PV and FV of a sum The present and future values of an annuity Intra-year compounding, Mixed cash flow streams Mixed cash flows with an embedded annuity, Required Readings Gitman Chp 4

October 4th

Session-5: Time Value of Money-2

Topics Covered Perpetuities, Deposits to accumulate a future sum Loan amortization. Required Readings Gitman Chp 4

October 18th

Session-6: Foundations of Valuation-Introduction to Risk and Return

Topics Covered Risk-Return Nexus Risk Measurement Portfolio Diversification Capital Asset Pricing Model Required Readings: Gitman Chapter 5

October 25th

Session-7: Bond Valuation

Topics Covered Interest rates, yield curves, and required returns. Major types of bonds Bond Valuation Required Readings: Gitman Chapter 6 Assignments: Mini Project-2 is Due

Exam-I will be made available on October 25th and will be due on November 8th
November 1st

Session-8: Stock Valuation

Topics Covered Common Stock Valuation Constant and Variable Growth Models

Dividend Discount Model and Free Cash Flow Models Required Readings: Gitman Chapter 7

November 8th

Session-9: Long Term Investment Decisions-1: Capital Budgeting

Topics Covered: The steps in the capital budgeting process The basics of determining relevant after-tax cash flows of a project Capital Budgeting Techniques Risk and Refinements on Capital Budgeting Required Readings: Gitman Chapters 8, 9 and 10 Assignments: Mini Project-4 is Due

November 15th

Session-10: Long Term Investment Decisions-2: Capital Budgeting

Topics Covered: The steps in the capital budgeting process The basics of determining relevant after-tax cash flows of a project Capital Budgeting Techniques Risk and Refinements on Capital Budgeting Required Readings: HBS Case : Ocean Carriers Assignments: HBS Case Write Up Ocean Carriers

November 22nd

Session-11: Cost of Capital

Topics Covered: Capital Structure WACC Refinements on WACC Required Readings:

Gitman Chapter 11 A Practical Guide to Calculation of Cost of Capital HBS Case: Midland Energy Resources Assignments Case Write up Midland Energy Resources November 29th

Session-11: Leverage and Capital Structure

Topics Covered: Operating & Financial Leverage Optimal Capital Structure Capital Structure in Practice Required Readings: Gitman Chapter 12 How CFOs Make Capital Budgeting and Capital Structure Decisions, JACF Capital Structure Puzzle Revisited, JACF

December 6th

Session-13: Leverage and Capital Structure

Topics Covered: Operating & Financial Leverage Optimal Capital Structure Capital Structure in Practice Required Readings: Gitman Chapter 12 How CFOs Make Capital Budgeting and Capital Structure Decisions, JACF Capital Structure Puzzle Revisited, JACF HBS Case: Blaine Kitchenware Inc.:Capital Structure HBS#4040 Assignments Case Write Up : Blaine Kitchenware Inc.:Capital Structure HBS#4040

December 13th

Session-14: Redistribution Decisions

Topics Covered: Dividend Policy and Firm Value Dividends vs. Stock Repurchases Required Readings: Gitman Chapter 13 HBS Case: Dividend Policy at Linear Technologies HBS# 9-204-066 Assignments: Case Write-up Dividend Policy at Linear Technologies

December 20th

Exam-II (In Class)