Afm272 syllabus PDF

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University of Waterloo School of Accounting and Finance AFM 272 - Corporate Finance 1 Course Syllabus - Fall 2018 Course Instructor: Andrew Ecclestone Sections: Office: Office hours: Email: Telephone:

001, 002 HH 3122 Monday and Wednesday 10:30 a.m. to 11:20 a.m. or by appointment aecclestone-at-uwaterloo.ca 519 888 4567 ext. 31373

Course Description: This is the first of a two course sequence introducing students to managerial finance. The subject of managerial finance concentrates on the application of financial principles and concepts to the corporate setting. Although our focus will be on the corporate context, many of the ideas presented in this course can be applied to other areas involving finance such as banking, insurance, government, personal investments, etc. The fundamental concepts covered in this course are arbitrage and the law of one price, the time value of money, investment decision criteria, risk, and the cost of capital. Most of the important decisions made by financial management in corporations are related in some way to capital budgeting, capital structure, working capital management, or payout policy. Although we will cover capital budgeting in some detail, most of the time in this course is spent developing the conceptual found ation and tools needed to address these decisions. Applications to capital structure, payout policy, etc. will be covered in the second course of the sequence (AFM 372). Prerequisite: One of MATH 128/138/148; MATH 136 or 146; Accounting and Financial Management, Computing and Financial Management, Mathematics/Chartered Professional Accountancy or Biotechnology/Chartered Professional Accountancy students only Corequisite: STAT 231 or 241 Antirequisite: AFM 273, ACTSC 371, ECON 371 Cross-listing: ACTSC 291

Lecture Schedule: Section

Days

Time

Room

001 002

Monday & Wednesday Monday & Wednesday

2:30 p.m. to 3:50 p.m. 4:00 p.m. to 5:20 p.m.

HH 1106 HH 2104

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Course Learning Objectives: This course will cover basic financial concepts and principles, building a foundation for applications in various contexts in future courses. By the end of the term, you should be able to: • Use the law of one price to value basic securities such as a variety of perpetuities and annuities, as well as more complex securities such as bonds. • Apply different models to value equities. • Explain the advantages and disadvantages of different investment decision rules. • Know how to build a financial model for capital budgeting. • Distinguish between systematic and diversifiable risk, and describe the implications of each of them. • Apply the capital asset pricing model to estimate expected returns for securities. • Estimate the cost of equity capital and the weighted average cost of capital.

Course Resources: • Web page: Access via UW Learn • Required textbook: J. Berk, P. DeMarzo and D. Stangeland, Corporate Finance (Fourth Canadian Edition), Pearson Canada, Toronto 2019 – 2 copies of this book have been placed on 3 hour reserve in the Dana Porter Library – the book can be purchased in various forms (hard cover, loose leaf, e-text); check with the UW Bookstore for detailed pricing information – the same textbook is expected to be used in the second course of the sequence • Supplementary textbook resource: MyFinanceLab • Online discussions: Piazza for AFM 272/273 Note: AFM 273 is a course covering the same content that is primarily taken by students in the Accounting and Financial Management and Biotechnology/Chartered Professional Accountancy programs. The Piazza online discussion forum will be shared between AFM 272 and AFM 273 this term. In addition, the timing of all assessments will be synchronized between these two courses.

Course Evaluation Component

Date

Weight

Midterm #1 Midterm #2 Final exam

October 19, 4:30 p.m. to 6:00 p.m. November 16, 4:30 p.m. to 6:00 p.m. To be scheduled by Registar’s Office

25% 25% 50%

Notes on Overall Course Evaluation: • There are no other marks available in this course. • At the end of the term, marks on all components of the course grade (both midterm exams and the final exam) will be adjusted so that the course median grade is the same for each of them. • Some students may obtain a preliminary overall grade in excess of 100 after mark adjustments. If this happens, further adjustments will be required since no marks over 100 can be awarded. In particular, students with preliminary overall grades above 100 will have their marks reduced in a rank-preserving

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way to marks of at most 100. For consistency, students who have preliminary overall grades in the 90s may find their marks reduced as well (again, in a rank-preserving way), and so on. Notes on Midterm Exams: • Requests for re-grading a midterm exam must be made in writing to the instructor within one week after the day that marks for the exam have been made available. The written request must clearly document the reasons why you think that your exam was improperly graded. The instructor reserves the right to re-grade the entire exam and raise or lower the grades that were originally assigned on any question. Notes on Final Exam: The final exam will be scheduled by the Registrar’s Office. It will take place during the Fall term examination period (Dec. 6 - Dec. 21). It will be 2.5 hours in duration and comprehensive, covering all material covered in the course throughout the term. Faculty of Arts policy provides that students who wish to review their final exam papers informally may do so without instituting a formal appeal procedure. Such a review will take place under supervised access only, and will be arranged in a way that is mutually convenient for the instructor and the student. Note that if the final exam cannot be held at its originally scheduled time (e.g. due to weather), it will be re-scheduled for the same time and location on the next available day (including Sunday) on which exams have not been scheduled. The university does not consider student travel commitments to be an acceptable reason to miss an exam, so plan accordingly.

Other Notes: • Examinations in AFM 272 will require the use of a calculator. All students must write course examinations with a calculator that is non-programmable and non-communicating. A financial calculator is not required, but it is essential that the student’s calculator be able to handle exponents (a “pink-tie” calculator is acceptable). The ability to store the results of calculations in the calculator’s memory is highly desirable. • Assigned readings from the textbook will reinforce the material covered in class. The most difficult and important topics will be covered in class, but time constraints may not permit coverage of all topics at the same level of detail. However, you are responsible for all assigned readings regardless of whether or not the material has been covered in class. Note that some topics may be covered either in more detail or at a more advanced level in class than in the textbook. The specific assigned readings for each chapter of the text are listed on the tentative course schedule below. Any corrections or updates will be posted on the course web page. Unless specifically told otherwise, online supplements referred to in the textbook are not required reading. • Practice problem sets will be distributed throughout the term. They will include questions from the required text as well as other sources such as previous exams in the course. These problem sets will not be graded but your success in the course will depend on your ability to do questions similar to those assigned. Note that doing the questions from these practice problem sets at your own pace while consulting your course notes may not constitute good preparation for doing similar questions under the time pressure of an exam. • Additional practice questions and educational materials are available through MyFinanceLab. • The primary way to ask questions regarding course content is through the course page on Piazza, available at Piazza for AFM 272/273. Questions related to course content should be posted to Piazza rather than being sent by email to an instructor. Posts on Piazza are visible to all students in the course, so they should not contain anything of a personal nature. Note that you have the option of posting anonymously on Piazza, but this really means that your post is anonymous to fellow students: 3

authors of all posts are visible to the course instructors. Piazza will only be used as a discussion forum: course materials such as lecture slides, practice problem sets, and announcements will be posted to the course web page at UW Learn.

University and School Policies: Details regarding University of Waterloo (UW) and School of Accounting and Finance (SAF) policies can be found at My SAF Community. The Learn module is entitled “SAF Course Syllabus - Policies for Students”. Note that these policies are an integral part of this course syllabus. They have been posted on the SAF Learn site because they are not specific to any individual course, but instead are common for all SAF program courses. Please ensure that each term you are informed regarding these policies. They include: SAF Policies: • • • • •

Accommodations for Missed Assessments Documentation Requirements Supporting Requests for Accommodation Recording of Lectures Textbooks and Intellectual Property Rights Attendance at the Registered Section

UW Policies: • • • • • • •

Academic Integrity Grievance Discipline Appeals Academic Offenses and Implications Violation of Standards by Another Student Note for Students with Disabilities

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Tentative Course Schedule: Date

Topic

Text Reference

Sept. 10

Course Introduction

Sept. 12, 17 Sept. 19, 24

Arbitrage and Financial Decision Making Time Value of Money

Sept. 26, Oct. 1 Oct. 3, 12

Interest Rates Valuing Bonds

Chs. 1, 2 (excl. Section 2.7) Ch. 3 Ch. 4 (excl. Section 4.6 and Appendix) Ch. 5 Ch. 6 (excl. Appendix)

Oct. Oct. Oct. Oct. Oct. Oct. Oct.

8 9, 10 15, 22 17 19 24, 29 31, Nov. 5, 7

Thanksgiving Holiday Fall Break Valuing Stocks Review for Midterm Exam #1 Midterm Exam #1 Investment Decision Rules Fundamentals of Capital Budgeting

Nov. Nov. Nov. Nov.

12 14 16 19, 21, 26

Capital Markets and the Pricing of Risk Review for Midterm Exam #2 Midterm Exam #2 Optimal Portfolio Choice and the Capital Asset Pricing Model Estimating the Cost of Capital Final Exam Period

Nov. 28, Dec. 3 Dec. 6 - Dec. 21

Ch. 7

Ch. 8 Ch. 9 (excl. Section 9.3, pp. 309-310 on carryforwards, and Appendix) Ch. 10

Ch. 11 (excl. Section 11.6 and Appendix) Ch. 12

Notes: • The word “tentative” in the heading above applies to the sequence of topics and the number of classes allocated to each of them. It does not apply to the midterm exam dates or the final exam period. If time permits, Investor Behaviour and Capital Market Efficiency (Ch. 13) may also be covered. • Chs. 1-2 will be treated as background material. This means that questions on examinations in the course will not be based primarily on these chapters. The concepts covered in class from these two chapters will be referred to at various points during the term (and in the second course of the sequence), and there will examination questions in this course related to them. For example, part of Ch. 7 will involve the use of price-earnings ratios and enterprise value, part of Ch. 9 will rely on knowing how to convert earnings into cash flows, etc. In other words, the material from Chs. 1-2 that is covered in class is best thought of as some prerequisite material needed for the remainder of the course. The sections listed above under “Text Reference” from these two chapters discuss the concepts covered in class, but they also cover a lot of other things that are not particularly important in this course. Overall, it is best to think of the indicated text reference material for Chs. 1-2 as optional, not mandatory as it is for the other chapters.

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