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Financial Management and Markets 160:266
Dr. A. Frank Thompson Spriing 2011
320 Baker Hall E-Mail: actuary1@uni.edu
Office Hours: MWF 10 AM-11 AM, Monday 4:30-5:30 PM
and by Arrangement, please feel free to e-mail to schedule an appointment..
Course Credit Section Time Location
160:266 3 01 5:30-9:00 PM Monday CBB 13
One additional session to make-up for business week activities will be on Saturday, March 26th, 5:30-9:00 PM in CBB 13.
+ additional Sat. make-up session, if needed, on 4/9, 9:00-11:50 AM noon in CBB 13.
Last day to drop the course w/o a W is March 8, 2011.
Required Course Materials:
Brigham, Eugene F., and Michael Ehrhardt, Financial Management, Theory, and Practice, 12th Edition, (The Dryden Press: Fort Worth, TX.,2008), and the Study Guide to Accompany the text. The Study Guide is reference material and should be used to review financial management concepts from an undergraduate course in corporate finance.
[FM] = Fin. Management Theory & Practice [SG] = Study Guide
HP-10B calculator
Brigham, Eugene F., Louis Gapenski, and Linda Klein, Financial Management and Markets: Case Applications in Managerial Finance, Spring 2011, (The Dryden Press: Fort Worth, TX), ISBN 13:978-1-111-22122-5. This text has been specially ordered from the publisher and is only available from the University Book Store. Cases are assigned to individual study groups for presentation and are identified according to their title in the case booklet. [CFM] = Cases in Financial Management
Lawrence A. Cunningham, How to Think Like Benjamin Graham and Invest Like Warren Buffett, (McGraw-Hill Publishing: New York, NY, 2001). [Graham] = How to Think Life Benjamin Graham and Invest Like Warren Buffett.
Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power, (Free Press, New York, NY, 2005)
Frank Partnoy, FIASCO: The Inside Story of a Wall Street Trader, (Penguin Books, New York, NY, 1999) . [Partnoy] = Fiasco
Lowenstein, Roger, When Genius Failed: The Rise and Fall of Long-term Capital Management, (Random House Publishing, New York, NY, 2000). [Lowenstein] = When Genius Failed: The Rise and Fall of Long-term Capital Management
Rod Library Basic Reference for Security Valuation Research: http://www.lib.uni.edu/ris/business/
Recent Research Papers Relating to Managerial Finance: The following are links to my research on topics dealing with contemporary issues in finance:
(2) Current Perspectives on the Actuarial Adequacy of PBGC
(5) Wal-Mart's Industrial Bank as a Clearing Mechanism for Credit Cards
(6) Spring 2007 Midwest Meeting Presentation: SPIC Problems and Prognosis
(7) Fidelity Insurance: Are There Differences in Experience Among Financial Institutions?
(8) Homeowner's Equity: Providing Lifetime Annuities for the Elderly
(9) Immunization of Pension Funds: Sensitivity To Actuarial Assumptions
(10) Auditor Concentration in the S&L Industry
Course Pre-requisites: 160:151 or equivalent; consent of MBA Director
Course Description: In-depth examination of the tools, concepts, theories, and analysis of managerial finance integrated with case applications. Students will be expected to apply concepts from managerial finance in analyzing, presenting and discussing cases at an advanced level.
Course Goals and Objectives:
Gain a thorough understanding of the integration of financial theory and analysis to practical business decisions. .
To understand and appreciate the inter-relationships between finance and the core business disciplines of accounting, economics, mathematical statistics, decision theory, information systems, marketing and management.
To extend student experience and knowledge of financial techniques associated with financial statement analysis, forecasting, securities valuation, hedging, working capital management, portfolio analysis, capital budgeting, capital rationing, and interest rate immunization and duration.
To learn about the ethical issues facing business, develop a working knowledge of the framework for making ethical decisions and appreciate the importance of regulating financial markets to assure safety and soundness..
To understand the multinational and international financial environment as it relates to trade among nations.
Selected Library Readings on Reserve in the Donald O. Rod Library
[1] A. Frank Thompson, Linda Bowyer, and V. Srinivasan, “The Ohio Banking Crisis: A Lesson in Consumer Finance, “ The Journal of Consumer Affairs, Vol. 20, #20 (Spring 1986), pp. 290-299.
[2] A. Frank Thompson, and Linda Bowyer, “Using Financial Futures to Hedge Interest-Rate Risk on Paid-Loss Retrospective Insurance Programs, “ The Journal of Insurance Issues and Practices, Vol. II, No. 2(June 1984), pp. 1-10.
[3] A. Frank Thompson, Roger D. Rutz, and Frederic Stiner, Jr., “Fidelity Insurance: Are there Differences in Experience Among Financial Institutions, “ Federal Home Loan Bank Board Journal, Vol. XVI, No. 2(February 1983), pp. 2-7.
[4] A. Frank Thompson, Linda Bowyer, and A. Bhattacharya, “Theoretical Propositions on the Effect Minimum Net Worth Requirements have on Insolvency and Bankruptcy for Stock S&Ls,” Invited Research Working Paper No. 51, Federal Home Loan Bank Board, Office of Policy and Economic Research, Washington, D.C., (March 1985).
[5] A. Frank Thompson, Anju Ramjee, and B. Ramjee, “Pension Valuation and Unfunded Liability Measurement: Financial Management Implications,” 1984 Proceedings of the Risk Theory Seminar, University of Southern California.
[6] A. Frank Thompson, Yong H. Kim, and Philip W. Glasgo, “Pension Liability Reporting under ERISA,” The International Foundation of Employee Benefits Journal, (March 1983), pp. 2-8.
[7] Philip W. Glasgo, William Landes, and A. Frank Thompson, “Bank Discount, Coupon Equivalent and Compound Yields,” Financial Management, Vol. II, No. 3(Autumn 1982), pp. 80-84.
[8] A. Frank Thompson, “Wraparound RAMS: A New Method for Providing Lifetime Annuities,” Federal Home Loan Bank Board Journal, Vol. XIL, No. 6(June 1981), pp. 17-19.
[9] A. Frank Thompson, “Immunization of Pension Funds and Sensitivity to Actuarial Assumptions: Comment,” Journal of Risk and Insurance, Vol. XLVIII, No. 1(March 1981), pp. 148-153.
[10] R. Yeager, “How Safe is Your Bank,” Reader’s Digest, March 1988.
[11] Nancy L. Ross, “Investors Having Doubts About High-Yield Saving,” The Washington Post, August 15, 1982, Business Section.
[12] A. Frank Thompson and Frederic M. Stiner, Jr. , “The Cyclic Behavior of U.S. Government Bonds Using Stochastic Time Series,” Business Economics, (September 1980), pp. 55-58.
[13] A. Frank Thompson, “Homeowner’s Equity: Providing Lifetime Annuities for the Elderly,” Federal Home Loan Bank Board Journal, Vol. XIII, No. 12(December 1980), pp. 23-28.
[14] A. Frank Thompson, Linda Bowyer, and Don Edwards, “A Cross-Sectional Analysis of Interest-Rate Swap Agreements Among FSLIC-Insured Thrift Institutions,” Research Working Paper No. 132, Federal Home Loan Bank Board, Washington, D.C., July 1987.
[15] A. Frank Thompson, and Frederic M. Stiner, Jr., “An Examination of Auditor Concentration in the S&L Industry,” Federal Home Loan Bank Board Journal, Vol. 17, No. 1(1984), pp. 10-15.
Tentative Course Schedule of Learning Activities
Date/Day Material Reading/Research Problem Assignment
Foundations of Financial Management and Markets
NOTE: Please consult the Web-Extensions for each chapter for updated information and applications related to the chapters being studied in [FM].
February 14 Introduction to Financial Mgt. [FM] Ch. 1 Questions 1-2, 1-5
Valuation of Cash Flows [FM] Ch. 2 Prob. 2-14,2-19,2-20,2-24,2-25
Note with Sample Interest Rate Problems from Chapter 2
Financial Statement Cash Flows and Taxes[FM] Ch. 3 Prob. 3-1,3-2,3-6,3-9,3-10
Chapter 3 Assigned Problem Solutions
Fin. Forecasting [FM] Ch. 14. Prob. 14-1,14-2,14-7
Chapter 14 Assigned Problem Solutions
Market Structure Characteristics of Financial Derivatives: [Partnoy] Ch. 1-4
Case/Team Assignments: Groups 1-5 each having between 2 or 3 students.
UNI Case Rubric for Evaluating Oral and Written Presentations
Readings Library [10], [11], [15]; Web extension: 1B; An Overview of Derivatives
Financial Analysis Project. Assignment
Rob Library Financial Databases Reference Guide by Stan Lyle Business Librarian
MBA Financial Management and Markets Exam 1 Due February 28 2011
February 21 Financial Statement Analysis [FM] Ch. 4 Prob. 4-1,4-2,4-4,4-6,4-8,4-9
Financial Statement Analysis Chapter 4 Problems
Financial Ratios -What Do They Mean? by Deloitte & Touche LLP
Fixed Income Securities [FM] Ch. 5 Prob. 5-1,5-3,5-7 thru 5-9,5-16
Interesting Interest Rate Problems
Basic Elements of Financial Risk[FM] Ch.6 Prob. 6-1,6-3,6-4,6-12,6-13
Derivative Pricing Risk [Partnoy] Ch. 5-9
Market Efficiency - Truth or Fiction?
[Graham] Preface, Chapters 1-2
Canadian Institute of Actuaries Presentation on Techniques for Analyzing Financial Institution Risks
Readings Library [6], [7], [13]; Web extension: 5C Bond Risk and Duration
February 28 Towards a Common Sense Invesment Approach [FM] Ch. 7 & 8
Portfolio Theory: What Makes Sense? [FM] Ch. 7 Prob. 7-1,7-4,7-5
Stock Valuation and Economic Externalities [FM] Ch. 8 Prob. 8-1,8-2,8-7,8-14
Estimating an Appropriate Cost of Capital [FM] Ch.10 Prob. 10-1,10-4,10-5,10-9,10-11 thru 10-13 Readings Library [1], [3], [5]
Difficulties of Relying too much on Mathematical Models: [Lowenstein] Ch. 1-5
[Graham] Chapters 4-5
Spring 2007 Midwest Meeting Presentation: SPIC Problems and Prognosis
Some Perspectives on Pension Valuation and Funding
MBA Exam 2 [100 points] Due at the start of class on March 7th
March 7 Use of Financial Options: A short-term View [FM] Ch. 9 Prob. 9-1,9-3,9-4
Capital Budgeting Basics [FM] Ch. 11 Prob. 11-7 thru 11-9,11-11, 11-13 thru 11-16
Cash Flow Estimation and Project Risk [FM] Ch. 12 Prob. 12-1 thru 12-4, 12-8
Catastrophic Risks in Unregulated Derivatives Market:s [Partnoy] Ch. 10-11 [Lowenstein] Ch. 6-10
Readings Library [4],[8]
Immunization of Pension Funds: Sensitivity To Actuarial Assumptions
MBA Exam 3 [100 points] Due at the start of class on March 21st
Spring Break is from March 11 to March 20, 2010 - you may use this time to review and reflect upon the reading assignments, prepare for the case presentations, develop initial analysis on your stock portfolio, and complete reading the research articles and materials for the Allegory assignment.
Theoretical Applications in Corporation Finance
March 21 Real Options Using Decision Tree Analysis [FM] Ch. 13 Prob. 13-1,13-2,13-4
Corporate Governance Towards Business Value [FM] Ch. 15 Prob. 15-1,15-2,15-6,15-7
Capital Structure [FM] Ch. 16 Prob. 16-7 thru 16-9, 16-10
Dividend Relevancy: Practice vs. Theory [FM] Ch. 18 Prob. 18-1,18-2,18-6,18-7,18-9
Valuing a Business - For What It's Worth
[Graham] Chapter 6
Readings Library [12]
Lecture Note on Efficient Markets
March 26 Investment Banking & IPO Offerings [FM] Ch. 19 Prob. 19-2,19-3
Working Capital Management: Maintaining Solvency [FM] Ch.22 Prob. 22-1,22-2,22-6,22-7,22-9,22-12
Safe Packaging Company - Financial Analysis and Forecasting Case 51, Group 1
Cranfield, Inc. (A) Capital Budgeting, Case 44, Group 2
Issues in the Valuation of a Business - Insurance Agency Application
Readings Library [2]
Problems Involving Rights Offering and Dilution of Ownership with Share Sales
Mach 28 Duration and Immunization
Financial Futures/Long-Term Fixed Inc. Instruments
Readings Library [2],[14]
Problems on the Basics of Options Used in Corporate Finance
Problems Related to Capital Structure and Leverage
Interest Rate Swap Agreements
Cranfield, Inc. (B): Capital Budgeting, Case 45, Group 3
Advanced Fuels Corporation, Financial Analysis and Forecasting, Case 41, Group 4
April 4 Financial Analysis of Financial Institutions
Black Scholes and Binomial Option Pricing Problems in Finance
Optimal Capital Structure - Controversy with
Technological Change, and Reinvestment
Problems in Capital Structure and Debt Limitations in Valuation
Agro-Chem, Inc.: Leasing-Case 49, Group 5
Art Deco Reproductions, Inc.: Special Topics - Case 23, Group 1
Outside Reading: Paul A. Samuelson, “ Some Aspects of the Pure Theory of Capital,” The Quarterly Journal of Economics, (Mary 1937).
April 11 Beatrice Peabody: Working Capital Management, Case 78, Group 2
Atlantic Aquaculture, Inc.: Capital Budgeting, Case 61, Group 4
Financial Issues Related to Pension Management
Readings Library [5], [6]
April 18 Financial Derivatives: Their Use, and Misuse in Business
Accounting Numbers in Relation to Financial Investing
[Graham] Chapters 8 through 10
Johnson Window Company: Capital Structure, Case 8, Group 3
Indian River Citrus Company (A): Capital Budgeting, Case 12, Group 5
April 25 Financial Analysis Project Due - 100 Points
Practical Ways of Evaluating Contingent Claims Risk
The Role of Regulation in Containing Financial Institution Risks
Presentation Materials for the England Clark Conference at University of Nebraska Lincoln
Readings Library [2], [9], [14], [15]
May 2 Final Case Studies: (100 points)
Bessemer Steel Products, Inc.: Divend Policy, Case 20, Groups 1 and 2
Shenandoah Power Company: Long Term Financial Decisions, Case 48, Groups 3, and 4
Armstrong Production Company: Capital Structure, Case 83, Group 5
The Allegory of Cave Paper is Due [100 points]
Grading Information:
All assignments are due on the date designated in the course outline (i.e., no late assignments will be accepted). You will need to bring at least three blue books for the in-class case exam, as well as, the comprehensive final exam. Total points will be awarded as follows.
Assignment Total Points Possible
Quizzes / Outside Assignments 400
Team Case Presentation 200
Financial Analysis Project 100
Allegory of the Cave Paper 100
Final Case Study 100
Total Points for the Course 900
Grade Line Point Range
A 900-837
A- 836-819
B+ 818-783
B 782-765
B- 764-738
C+ 737-711
C 710-675
C- 674-648
D+ 647-621
D 620-594
D- 593-567
F 566-0
General Classroom Policies:
You are expected to come to class prepared to discuss and answer questions relating to all the reading material ,assigned problems, and case materials for the day. Some quizzes may require that you have a blue book available to answer questions over the readings. Please have at least two blue books available for this purpose each day of class. In order to preserve the teaching environment for all students attending class, there will be no consumption of food or talking while someone is presenting a case or lecture.
During in-class exams and quizzes once you begin an exam or quiz you may not leave and then return to the test site.
The rules to the university with respect to academic honesty will be adhered to. Under university policies you are required to refrain from cheating yourself, and to report all incidents of cheating should you witness it on the part of other students. Outside classroom assignments other than team cases are to be completed on your own. The team case assignments are to be developed only with members of your team, and no one else (i.e. the team presentations are to be a product of your own group’s effort).
Team projects are due on the date assigned, as in the business world there is no provision for late assignments.
Grading of written work will be on the basis of a number of factors:
1) Do you present a set of clear, concise, and cogent arguments to develop your position
2) Is the material free of grammatical errors?
3) Is the writing correct on the terms of financial theory?
4) Do you provide reading references to back-up your financial analysis?
5) Is your presentation complete with a reasonable length? Long discourses that add little substance to the issues of a case or question will be downgraded.
6) Does the writing demonstrate creative and critical thinking on the elements of the case of questions?
7) Have you developed a working hypothesis related to the readings or case material not currently addressed in the literature?
8) Have you outlined how your working hypothesis might be tested to determine whether it should be accepted or rejected?
The usual caveats with respect to this class are the same as with any UNI course. Students are expected to be familiar with the rules of the University and College of Business concerning its Academics Ethics Policy. You may obtain a copy of this policy through in room 321B
Special Needs Consideration: UNI is an Affirmative Action Equal Opportunity Institution. The Americans with Disabilities Act of 1990 provides protection from discrimination for qualified individuals with disabilities. Students with a disability, who require assistance, will need to contact the Office of Disability Services (ODS) for coordination of academic accommodations. The ODS is located at 213 Student Services Center. The phone number is (319) 273-2676.
Study Guide Questions and Problems
As you prepare for quizzes and exams in Finance 160:266, I would like you to review the following Study Guide Questions and Problems. By working the assigned text problems and reviewing these study guide materials, you should be well prepared for the exams and quizzes. Required Material: Financial Management Study Guide, 11th Edition, E, Brigham, and Michael Ehrhardt.
Chapter 1: An Overview of Flow Management
Conceptual Questions: 36,37
Self-Test Questions: 1,2,3,6
Chapter 2: Time Value of Money
Self- Test Problems: 1, 2, 4, 5, 10, 11, 12, 13, 14, 17, 21,25
Chapter 3: Financial Statements, Cash Flow, and Taxes
Self Test Questions: 1 ,5,6,20,26
Self Test Problems: 1-4,8,11,12,14
Chapter 14: Long Term Financing Planning
Self Test Questions: 1 to 4, 8,16, 19
Self Test Problems: 1 to 3
End of First Week's Material
Chapter 4: Risk and Return-Basics
Self Test Questions: 3-5,8,16,18,22
Conceptual Questions: 23,25
Self Test Problems 1 to 4,6-7,11
Chapter 5: Risk and Return: Portfolio Theory & Asset Pricing Models
Self Test Questions: 1, 2,8-10,20
Self Test Problems: 1, 2, 5,6
Chapter 13: Analysis of Financial Statements
Self Test Questions: 1-5,8,11,12,15-17
Conceptual Questions: 27
Self Test Problems: 1-11,13,14,18,19
Chapter 6: Bonds and Their Valuation
Self Test Questions: 1-3,7-10,15,21,22
Conceptual Questions: 38
Self Test Problems: 1 to 4, 7
End of 2nd Week's Material
Chapter 7: Stocks and Their Valuation
Self Test Questions: 1-3, 8, 9, 14, 20, 24
Conceptual Questions: 29
Self Test Problems: 1-4
Chapter 8: Financial Options and Their Valuation
Self Test Questions: 1-3,5,7-9
Self Test Problems: 1-3
End of the 3rd Week's Material
Chapter 9: Cost of Capital
Self Test Questions: 1, 4,5, 7,11,12,15,24,25
Conceptual Questions: 28
Self Test Problems 1, 2, 11-12
Chapter 10: Capital Budgeting Basics
Self test Questions: 1-4,7,10-13,17,25
Conceptual Questions: 37, 38
Self Test Problems: 1-5
End of 4th Week's Material
Chapter 11: Cash Flow Estimation
Self Test Questions: 1-3, 7- 9,15
Conceptual Questions: 21, 22
Self Test Problems: 1, 3,8-10
Chapter 16: Capital Structure Decisions: The Basics
Self Test Questions: 1,3,8, 11, 13, 18, 28
Self Test Problems: 1, 4
Chapter 17: Capital Structure Decisions: Extensions
Self Test Questions: 1, 3,7
Self Test Problems: 1, 2
End of 5th Week's Material
Chapter 22: Working Capital Management
Self Test Questions: 2-4, 6, 30-31, 35-36,50-51
Self Test Problems: 1-6, 10
Chapter 23: Derivatives and Risk Management
Self Test Problems: 1-2
Financial Analysis Project
As part of this course, you will develop a detailed analysis of a publicly traded stock. During the first week of class you will select a company from the following list to do your research on.
Symbols of Project Corporations: ABT ADP AMAT BMY BRKB CAT DE DD EMR FAX GLW KO KFT LUV LLY MRK MDT MMM MRO NSC ORCL PEP SMP SYY T TXN WAG WFC UNP
There are several library/reporting service references available to you: Moody’s Online, Research Insight, Valueline, CompuStat, SEC/EDGAR, Standard and Poor’s Reports. You should try to consult each of these sources to determine independently the background on the company you are analyzing. This executive report will be no longer than 7 double-spaced typed pages, including bibliography, charts and spreadsheet analysis. You have $60,000 to invest in your portfolio of $600,000. Currently you own 10 stocks with a market value of $600,000, in a diversified portfolio with a beta of 1.2 (i.e., each of the 10 other stock positions is worth $60,000). You are to give a reasoned argument as to why your particular stock should or should not be included in the portfolio. The nine other stocks are as follows:
USB PG GE DUK JNJ MSFT WMT CSCO PFE INTC
You will be expected to use CAPM, DCF, Bond yield plus risk premium, Black-Scholes and Financial Ratio Analysis to support your claim either way to adding or avoiding your selected company. Please use the University Chicago Manual of Style and Form to report your research findings. Grading will be based on how well you present your results in terms of the integration of both quantitative and qualitative results. This paper will be due the beginning of class on April 19, 2010. As in the business world, there is no provision for presenting a late assignment. Failure to present any assigned material on the date required in the syllabus will result in your receiving an F for that particular part of the course.