Fall 2020 SM132 Syllabus PDF

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SM132 Measuring Financial Value

BU

Fall 2020

Boston University Questrom School of Business

SM132 Measuring Financial Value Course Syllabus Fall 2020 First day of class for Wednesday sections: September 9 First day of class for Monday sections: September 14 Version: August 30, 2020 Course Coordinator: Professor Nelia Newell All sections in the Fall 2020 semester will be taught remotely on Zoom. You will receive your section Zoom ID from your section professor and it will be posted on QuestromTools. Students are expected to attend with their video turned on when the course meets. Section C5 B2 B3 C2 C3 D2 D3 D4 D5 E2 E3

Day Wednesday Monday Wednesday Monday Wednesday Monday Wednesday Monday Wednesday Monday Wednesday

Begin 8:00am 10:10am 10:10am 12:20am 12:20am 2:30pm 2:30pm 2:30pm 2:30pm 4:30pm 4:30pm

End 9:45am 11:55am 11:55am 2:05pm 2:05pm 4:15pm 4:15pm 4:15pm 4:15pm 6:15pm 6:15pm

Professor Chadwick Chadwick Fox Chadwick Bedard Newell Bedard Griner Fox Newell Newell

TA Samantha Aidan Alec Sam B Andrew Shreya Jakob Julia Mary Michelle Sara

MFL Course ID chadwick31926 chadwick75597

fox68459 chadwick32751

bedard70443 newell49071

bedard28686 griner18956

fox09828 newell14493

newell69038

Office Hours and contact information are posted on the individual section QuestromTools site. Pre-requisites:   

SM131 (may be taken concurrently) Non-Questrom students must have completed at least one semester at BU MA121 or MA123

Key Dates:   

Midterm 1: Wednesday October 7 at 7 PM * Midterm 2: Tuesday November 3 at 7 PM * Final: TBD * * There will be a make-up exam for those who have a course that meets during the exam time or for whom the exam falls between 11 PM – 7 AM. No other make-ups will be permitted.

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Course Materials Textbook: The fifth edition of Fundamentals of Corporate Finance by Berk, DeMarzo and Harford published by Pearson. This is an eText and homework software program that can be purchased online at www.myfinancelab.com when you register for your section MyFinanceLab (MFL) or through the BU bookstore (you will get an access code for the online registration). Once you have registered for MFL, there is a menu option in MFL to purchase a 3-hole printed version of the text for an additional $25. Note for those have taken the course in prior semesters: you do not need repurchase the textbook or MFL. We will give you instructions for registering for MFL. HP 10bII or 10bII+ Calculator

Course Overview SM132 introduces you to the workings of the financial markets and teaches you fundamental financial concepts necessary for success in business and in life. It offers an overview of fundamental financial analysis tools such as time value of money, interest rates, valuation of cash flow streams, and valuation of bonds and stock. This course is also designed to prepare all Questrom students for success in FE323, the Cross Functional Core finance component. SM132 and FE323 together provides every Questrom student the necessary financial background and skills to pursue a finance concentration, or to take advantage of any other concentration within Questrom. This course introduces financial concepts through lectures, cases, problem solving and discussion. We will provide problems and situations where you will use the concepts and tools taught in the course to solve every day financial problems and challenges faced by businesses, families and individuals. Course Objectives and Expectations The course is designed to provide each student with a solid foundation in financial concepts and tools, building towards success in FE323 and beyond. Topics for individual class meetings are listed at the end of the syllabus. The goal of the course is that, on successful completion, you will:     

Understand Cost-Benefit analysis and its role in the financial management of a firm Master Time Value of Money (TVM) calculations and applications Understand how loans work and the different ways that interest rates are quoted Understand the importance of financial markets and the impact on interest rates and valuation Understand basic valuation techniques for bonds and equity securities using TVM concepts

The key to success in this course is practice and application. The learning model in this course begins with your weekly preparation: you are assigned new material in the textbook and problems in MyFinanceLab (MFL) that challenge you to begin the process of understanding the new concepts. We do not expect you to get all of the assigned problems correct, but we do expect you to do them to the best of your ability so that you have a beginning understanding of the material before coming to class. Quality preparation and participation is key for success in this course. Classroom time will be used to reinforce concepts and learn to apply them through practice problems and cases.

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Diversity and Inclusion In developing this course, we have aimed to be thoughtful about how identity and culture impact the course content. We invite you to share your experiences and perspectives during class discussions. If there are topics that you feel would benefit from incorporation of social context or a differing perspective, please share your ideas with us. Our goal is to engage a wide variety of perspectives in our classroom.

Grading Exam grades will constitute 88% of your final grade as follows: Midterm 1 Midterm 2 Final Exam (cumulative)

13% 30% 45%

Homework will constitute the remainder of your grade:

12%

You receive one point for MFL 2 – 12 (the pre-assignment does not count towards your homework) and one point for additional assignments that are due for classes 6 and 11. Absences: 2 point deduction from your final grade. You are expected to attend every class with a reliable internet connection and your video on. Final course grades are the result of a direct calculation based on the formula above. There will be no grade deflation in this course.

Homework, Attendance and Classroom Expectations: We expect you to attend every class, to complete assignments on time and to be fully engaged in all classroom activities. Homework scores and attendance will be updated on the Questrom Tools gradebook after each class. If you believe that there is an error, you must raise it with your section professor within one week of the section meeting in question. Homework: There are 12 homework assignments in total (10 MyFinanceLab homework assignments and 2 additional assignments due for Classes #6 and #11 – note that the pre-assignment does not count towards your homework grade). There is no partial credit for late or partially completed assignments. Assignments are listed in the Course Schedule at the end of the Syllabus. All assignments are due at 11 PM the evening before class unless indicated otherwise on the assignment sheet. Most students get the full 12 homework points, however, you must earn it by meeting the criteria outlined below: 1. In order to get credit for MyFinanceLab (MFL) assignments: a. You must attempt every problem (you are not required to get every problem correct, you are awarded the point based on the effort that you put into it, not on whether or not it is correct) b. For those problems that you do not get correct, your MyFinanceLab profile must show that you have spent 15 minutes on problems that you did not get correct (up to a maximum of 1-1/2 hours on the MFL assignment as long as you have attempted every problem) 2. Complete the additional assignment due for Class #6 and Class #11

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Absences: You are expected to attend every class on Zoom with a reliable internet connection and your video turned on. If you must miss a class or if you are sick, you must do the following in order to avoid the 2 point deduction: 1. If there is a compelling reason that you believe that you must miss class, contact your section professor at least one week in advance in order to request alternate arrangements in order to avoid the 2 point penalty. In most cases, you will be expected to attend a different section meeting. Alternative arrangements must be pre-arranged: simply attending another section or emailing your section professor to say that you will be absent does not satisfy this requirement. If a situation arises less than a week before your absence, contact your section professor immediately and explain your situation. 2. If you are sick, email your section professor within 24 hours to explain your absence. Practices and norms in our remote classroom:      

Join using Zoom, use your computer (or a powerful tablet), not your phone Make sure to have the VIDEO ON Make sure to have the MIC OFF unless you are speaking Only one person can speak at once (otherwise the sound quality becomes really poor) Your video must be turned ON to receive credit for attendance. Students must be available 100% of the time in break out rooms. Break out rooms are not for breaks from class. They are for small group activities.

  

Midterm 1: Wednesday October 7 at 7 PM Midterm 2: Tuesday November 3 at 7 PM Final: TBD

Exams

Make up exams: There will be a make-up exam for those who have a course that meets during the exam time or for whom the exam falls between 11 PM – 7 AM. No other make-ups will be permitted. Exam format: Exams will consist of fill-in-the-blank and multiple choice questions and will be administered on ExamSoft. All exams are cumulative. Practice exams: we will post a practice exam problems for each exam which is based on actual questions from a prior exam. We also post practice exam questions periodically with actual exam questions covering topics that we have just completed. Returning exams: The midterm exams will be available to be viewed in class through the Examplify application after all students have completed the exam. The final exam will not be returned. ExamSoft: All exams will be administered on ExamSoft. Course Logistics This is a 2 credit course which meets once per week for 1 hour and 45 minutes. All sections in the Fall 2020 semester will be taught remotely on Zoom. You will receive your section Zoom ID from your section professor and it will be posted on QuestromTools. Students are expected to attend with their video turned on when the course meets. QuestromTools is the main source of course communications and is used to post supplementary course materials. Online homework assignments will be managed through “My Finance Lab”, an online system designed to complement the course text. Each student must purchase a license to this site which comes with an eText.

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Recording All class sessions will be recorded for the benefit of registered students who are unable to attend live sessions (either in person or remotely) due to illness or other special circumstances. Recorded sessions will be made available to registered students ONLY via their password-protected QuestromTools account. Students may not share such sessions with anyone not registered in the course and may certainly not repost them in a public platform. Students have the right to opt-out of being part of the class recording. Please contact your instructor or teaching assistant to discuss options for attending the course in such cases. Teaching Assistants TAs are an integral part of the course delivery team. They are selected from the top students who have taken the course and will be a significant resource for you in this course. TAs conduct office hours which you are highly encouraged to take advantage of (you may attend office hours for any course TA, not just for the TA assigned to your section). TAs also assist the section professor in administration of homework and in tracking attendance. In short, they are tutor and mentor for the students and “Chief Administration Officer” for the section professor. Even though we select only the strongest students for this position, following their advice does not guarantee a good grade. Take advantage of their knowledge, but you are responsible for your performance. Your professor, not your TA, assigns your grades. Any questions about grades should be made directly to your section professor. Accommodations of Disabilities In keeping with University policy, any student with a disability who needs or thinks they need academic accommodations should contact Disability & Access Services at 617-353-3658 to arrange a confidential appointment with a Disability & Access Services staff member. Accommodation letters must be emailed to Professor Newell in a timely fashion (within two weeks of the date on the letter and at least one week before the exam). Please note that accommodations will not be delivered absent an official letter of accommodation. Academic Conduct Academic integrity is an essential component of your education. We cannot overemphasize the importance of honesty and integrity in your work. Every member of the Questrom School of Business is responsible for creating an ethical environment. Therefore, we urge you to become thoroughly familiar with the University’s academic conduct policy (http://questromworld.bu.edu/acc/ ). By taking the exam, you affirm that you have followed the Academic Conduct Code and the exam protocol guidelines that are communicated in the announcement at the beginning of the exam. Sexual Misconduct/Title IX Policy The Questrom School of Business is committed to fostering a safe learning environment for all members of its community and preventing sexual misconduct. All forms of sexual misconduct, including rape, acquaintance rape, sexual assault, domestic and dating violence, stalking, and sexual harassment are violations of Boston University’s policies, whether they happen on campus or off campus. Title IX of the Education Amendments of 1972 is a federal civil rights law that prohibits sex-based discrimination in federally funded education programs and activities. This law makes it clear that violence and harassment based on sex and gender is a Civil Rights offense subject to the same kinds of accountability and the same kinds of support applied to offenses against other protected categories such as race, national origin, etc. If you or someone you know has been harassed or assaulted, you can find the appropriate resources at http://www.bu.edu/safety/sexual-misconduct.

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Course Schedule and Assignments ** All assignments are due at 11 PM the evening before the listed class ** Class #1: Wednesday September 9 and Monday September 14 Assignment – register for MyFinanceLab (MFL) and complete the pre-Assignment (see pre-read slide #9 for help with the assignment) Read: Class #1 pre-read slides, Textbook Chapter 3.1-3.3 Course Introduction and Organization Cost-Benefit Analysis and Valuation Principle Time Value of Money  Introduction to course tools and organization  Identify the roles of financial managers and competitive markets in decision making  Introduction to Cost-Benefit Analysis  Understand the Valuation Principle and how it can be used to increase value of a firm  Introduction to Time Value of Money: assess the effect of interest rates on today’s value of future cash flows. Class #2: Wednesday September 16 and Monday September 21 Assignment MFL #2 – due 11 PM the night before Class #2 (see the pre-read slides for Class #2 for help with problem #8) Read: Class #2 pre-read slides, Textbook Chapter 3 and 4.1 Time Value of Money: Valuing a Stream of Cash Flows  Calculate the value of distant cash flows in the present and of current cash flows in the future  Introduce the HP10bII Calculator  Find the Present Value of a series of many cash flows. Class #3: Wednesday September 23 and Monday September 28 Assignment MFL #3 – due 11 PM the night before Class #3 (see pre-read slides for Class #3 for help with problem 7). Read: Class #3 pre-read slides, Textbook Chapter 4.5, 8.1-8.2 Time Value of Money: Valuing a Stream of Cash Flows (continued)  Introduce Net Present Value (NPV)  Find the Net Present Value (NPV) of a series of cash flows and the rate that will make the present value of future cash flows equal to the initial investment (IRR)  Compute the number of periods, cash flows, or rate of return of a loan or investment.

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Class #4: Wednesday September 30 and Monday October 5 Assignment MFL #4 – due 11 PM the night before Class #4 Review for exam: practice midterm questions will be posted Monday September 28 at 6:30 PM Review session  There will be a short in-class practice  There will be an in-class practice midterm (1/2 the actual length) during Class #4 o It will be on ExamSoft – bring your laptop with ExamSoft installed o Download the practice exam when you get the email (1-2 days before class). You will receive the password to open the encrypted file at the start of the practice exam.

Midterm 1: Wednesday October 7 at 7 PM Note: Wednesday sections do not meet on October 7 Class #5: Tuesday October 13 (Monday sections meet on Tuesday) and Wednesday October 14 Assignment MFL #5 – due 11 PM the night before Class #5 (there are two perpetuity problems and two annuity problems that will introduce you to these concepts: review the pre-read slides and follow the examples in the slides to do the problems) Read: Class #5 pre-read slides, Textbook Chapter 4.2-4.5 Annuities and Perpetuities  Value a perpetual series of regular cash flows called a perpetuity  Value a common set of regular cash flows called an annuity  Solve for the payment and the number of payments in an annuity  Value Annuities and Perpetuities with constant growth Class #6: Monday October 19 and Wednesday October 21 Assignments – due 11 PM the night before Class #6 MFL 6 Car Loan Research: look up car loan pricing on the Bank of America website. Enter the Interest Rate and number of payments on QuestromTools. Read: Class #6 pre-read slides, Textbook Chapter 4.6 and 5.1 Periodic Interest Rates  Understand the different ways interest rates are quoted  Understand how to calculate interest for different periods of time  Understand the difference between compounded and simple interest Class #7: Monday October 26 and Wednesday October 28 Assignment MFL 7 – due 11 PM the night before Class #7 (use the example in the pre-read slides to calculate the monthly payment for your motorcycle loan in the last problem). Read: Class #6 pre-read slides, Textbook Chapter 5.2 Loans Introduction to loans Use quoted rates to calculate loan payments and balances. Understand the difference between paying interest on a loan and repaying the principal balance on a loan. Practice midterm questions will be posted Wednesday October 28 at 6:30 PM   

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Midterm 2: Tuesday November 3 at 7 PM Note: Monday sections do not meet on November 2

Class #8: Wednesday November 4 and Monday November 9 Assignment – none Review SM131 Accounting notes Read: Class #8 pre-read slides, Textbook Chapter 2.3 and 2.6 Earnings and Capital Structure  Explore factors that impact a firm’s revenues, expenses and earnings  In class case to explore the use of NPV and IRR to make business decisions Class #9: Wednesday November 11 and Monday November 16 Assignment MFL #9 – due 11 PM the night before Class #9 (the last two problems are related to bonds, review the pre-read slides before you do them) Read: Class #9 pre-read slides, Textbook Chapter 5.3-5.4, 6.1-6.3 Financial System, Market Interest Rates, Bonds and Bond Pricing  Unde...