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Financial Management and Markets 160:266
Dr. A. Frank Thompson Spring 2008
320 Baker Hall E-Mail: actuary1@uni.edu
Office Hours: MWF 10:30-11 AM and 1:30-2:00 PM, Thursday 5-5:30 PM
And by Arrangement E-mail for Appt.
Course Credit Section Time Location
160:266 3 01 5:30-9:00 PM Thursday CBB 131
Meets 2/21-5/8/2008 and includes two additional sessions on Wednesday, 3/5 and 4/16 from
5:30-9:30 PM in CBB 131. No class on 4/17 as per College of Business scheduling.
Last day to drop the course w/o a W is March 1, 2008
Last day to drop the course with a W is April 1, 2008
Required Course Materials:
Ross, Stephen A., Randolph W. Westerfield, and Jeffrey F. Jaffe, Corporate Finance , 8 th Edition, (McGraw-Hill, Irwin: New York, New York, 2008)..
[CF] = Corporate Finance
Wall Street Journal, Dow Jones Publishing.
HP-10B calculator
Bruner, Robert F., Case Studies in Finance: Managing for Corporate Value , 5th Edition, (McGaw-Hill Publishing: New York, New York, 2005). [CFM] = Cases in Financial Management
Frank Partnoy,FIASCO: The Inside Story of Wall Street, (Penguin Press, New, York, NY., 1999). [Partnoy]
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.
Selected Readings in Managerial Finance- Course Handouts
Rod Library Basic Reference for Security Valuation Research: http://www.lib.uni.edu/ris/business/
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 business decision making.
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 and develop a working knowledge of the framework for making ethical decisions.
To understand the multinational and international financial environment.
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
Basic Foundations of Financial Management and Markets
February 21 Introduction to Corporate Finance. [CF] Ch. 1 Concept Questions 1-2, 4,6
Financial Statements & Cash Flow [CF] Ch. 2 Prob. 1,3,8,9,13,17
Financial Statements/EFN [CF] Ch. 3 Prob. 1,4,5,12,13,15
Short-term Finance and Planning [CF] Ch. 26 Prob. 1,5,8,11
Capital Market Structure -Differences in the Sources of Financing to the Firm
MBA Quiz 1 [100 points]
Case/Team Assignments: Groups 1-6 each having between 3 or 4 students.
Readings Library [10], [11], [15]
Financial Analysis Project. Assignment
February 28 Discounted Cash Flow Valuation [CF] Ch. 4 Prob. 1,6,7,12,30,33,38,42,51,69
Valuing Stocks and Bonds [CF] Ch. 5 Prob. 3,11,13,25,28,32
Long-Term Debt Characteristics [CF] Ch. 20 Prob. 1,3,6,9
[Graham] Preface, Chapters 1-2
Readings Library [6], [7], [13]
MBA Quiz 2 [100 points]
March 5 Net Present Value - Cash Flow Valuation [CF] Ch.6 Prob 1,3,7,13,16,26,27
Making Capital Investment Decisions [CF] Ch. 7 Prob. 2,3,8,11,12,20,30,32
Issuing Securities to the Public [CF] Ch. 19 Prob. 1,5,10
Readings Library [1], [3], [5]
Risk Analysis, Real Options and Capital Budgeting [CF] Ch. 8 Prob.5,9,17
[Graham] Chapters 4-5
MBA Quiz 3 [100 points]
March 6 Risk/Return Relationships [CF] Ch. 9 Prob. 6,10,13
CAPM - Risk/Return [CF] Ch. 10 Prob. 2,6,13,17,29,36
Appendix 10A "Is Beta Dead" at www.mhhe.com website
Cost of Capital [CF} Ch. 12 Prob. 2,5,8,12,14,
Readings Library [4],[8]
FIASCO/Allegory Paper Due [100 points]
Theoretical Applications in Corporation Finance
March 13 Market Efficiency vs. Externalities [CF] Ch. 13
Long-term Financing [CF] Ch. 14 Prob. 1,4
Capital Structure -Basic Concepts [CF] Ch. 15 Prob. 1,3,12,18,21,22
Valuing a Business - For What It's Worth
Capital Structure -Debt Financings [CF] Ch. 16 Prob. 1,3,6
Capital Budgeting for the Levered Firm [CF] Ch. 17 Prob. 1,4,8,12
Dividends - Do They Really Matter? [CF] Ch. 18 Prob. 2,3,10,17
[Graham] Chapter 6
MBA Quiz 4 [100 points]
Readings Library [12]
March 17 Through March 20, 2008 Spring Break
March 27 Options in Corporate Finance [CF] Ch. 22 Prob. 2,3,5,6,10
Option Investment Strategies [CF]Ch. 23 Prob.1,3,6
Space-Age Materials, Inc. Case 37 Group 1
Powerline Network Corporation, Case 8, Group 2
Financial Futures/Long-Term Fixed Inc. Instruments
Readings Library [2]
April 3 Duration and Immunization
Financial Futures/Long-Term Fixed Inc. Instruments
Readings Library [2],[14]
Interest Rate Swap Agreements
Maris Distributing Company, Case 14, Group 3
Levinger Organic Snack Company, Case 98, Group 4
Julian Eastheimer and Company, Case 28, Group 5
April 10 Financial Analysis of Financial Institutions
Optimal Capital Structure - Controversy with
Technological Change, and Reinvestment
Powerline Network Coporation, Case 6, Group 2
Aspeon Sparkling Water, Inc. : Capital Structure, Case 10, Group 3
Outside Reading: Paul A. Samuelson, “ Some Aspects of the Pure Theory of Capital,” The Quarterly Journal of Economics, (Mary 1937).
April 16 Northern Forest Products: Cost of Capital, Case 90, Group 4
Harris Publishing, Inc.: Capital Budgeting, Case 62, Group 5
Electro Technology Corporation: Entrepreneurship, Case 93, Group 1
Financial Issues Related to Pension Management
Readings Library [5], [6]
April 24 Financial Derivatives: Their Use, and Misuse in Business
Practical Ways of Evaluating Contingent Claims Risk
Accounting Numbers in Relation to Financial Investing
[Graham] Chapters 8 through 10
Precision Tool Company: Special Topics, Case 28, Group 6
May 1 Working Capital Management [CF] Ch. 27 Prob. 8, 10, 13
Credit Management [CF] Ch. 28 Prob. 1,2,6,8,16
Readings Library [2], [9],
May 8 Final Project: Financial Analysis/Portfolio Case Analysis [100 points]
Grading Information:
All assignments are due on the date designated in the course outline (i.e., no late assignments will be accepted). Total points will be awarded as follows.
Assignment Total Points Possible
Quizzes / Outside Assignments 400
Team Case Presentation 200
Allegory of the Cave Paper 100
Final: Financial Analysis/Portfolio Case 100
Total Points for the Course 800
Grade Line Point Range
A 800-768
A- 767-720
B+ 719-696
B 695-672
B- 671-648
C+ 647-624
C 623-600
C- 599-560
D+ 559-536
D 535-512
D- 511-480
F 479-0
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.
Financial Analysis/Portfolio Managment 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: ADP ADX BBT BMY BRKB BUD CAG CSCO DIS EBAY EMC KO LUV MCD MDT MOT MMM NOK ORCL PAYX PFE PEP QCOM RPM SLE SLB STJ T TXN WAG WMT WFC USB UNP XLNX
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 15 double-spaced typed pages, including bibliography, charts and spreadsheet analysis. You have a portfolio consisting of 10 stocks currently worth $600,000, with each position evenly divided so that there is $60,000 in each stock [e.g. if at the time of your study PFE stock is trading at $22/share you would have $60,000/$22 or 2,727 shares in the position]. With this exercise you are to evaluate the current position of the portfolio in terms of gains and losses. For purposes of this assignment you should consider that the individual is in the 31% tax bracket and is seeking to earn good returns, with presevation of principal and minimization of taxes. In order to do this you need the original purchase prices of each of your portfolio stocks. These prices are as follows: ADP - $39/share, PG - $60/share, GE - $29/share, EMC - $6/share, JNJ - $57/share, MSFT - $25/share, WMT - $40/share, CSCO - $19/share, INTC - $19/share, PFE - $21/share. You have held the positions in this portfolio for over a year, so any gains or losses from selling securities would result in a long-term capital gain or loss in terms of taxes. When evaluating this portfolio you should also consider that annual dividends are being derived from the current positions and are taxable at 15%. The portfolio beta was 1.2 at the beginning of the year, but most likely has changed so you should look at the beta for each holding, as well as, the current portfolio beta. You are to examine your target stock [the one selected for analysis] and determine whether it may be suitable for inclusion in this portfolio. You may find that the analyzed stock is not one that you could recommend. In either case you need to make a reasoned argument on the basis of subjective and objective analysis for your recommendation. However, even if you have recommended the a new stock holding, you would also need to determine which holding should be sold from the portfolio to raise funds to purchase the new stock. In addition, you should also consider whether you might sell portions of several holdings rather than just one to raise funds. Even if you do not recommend your target stock, you must also review the portfolio holdings and make recommendations on whether to retain the existing position or sell all or a portion of it due to risk/reward characteristics and retain the proceeds in cash or a near cash asset . The 10 portfolio stocks are as follows:
ADP PG GE EMC JNJ MSFT WMT CSCO INTC PFE
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. In addition, you should clearly state your investment guidelines and demonstrate how your position is consistent with those directions. 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 24, 2008. 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.