Finance - course requirement PDF

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SMU Classification: Restricted

The Lee Kong Chian School of Business Academic Year 2020/21 Term 1

FNCE101

FINANCE

Instructor Name Title Tel Email Office Office Hour

: : : : : :

Dr Chiraphol N. Chiyachantana Assistant Professor of Finance (Education) 6828 0776 [email protected] LKCSB #4047 TBA

COURSE DESCRIPTION The course helps students understand the various financial activities undertaken by a firm to create value for its shareholders. Students will be taught key financial tools and concepts commonly used by managers and investors to make sound financial decisions. The topics covered include time value of money, investment appraisal techniques, working capital management, cost of capital, risk-return tradeoff, diversification, asset pricing, capital raising, and options. The foundational knowledge acquired here will enable students to understand finance from the perspective of company managers as well as finance from the perspective of investors.

LEARNING OBJECTIVES By the end of this course, students will be able to: • Describe important financial management decisions • Interpret financial statements and understand how working capital is managed • Solve time value of money problems • Know and use different investment appraisal techniques and understand cost of capital concepts • Estimate the values of bonds, common stocks, and preferred stocks • Understand investment returns, diversification, the risk-return tradeoff, and the capital asset pricing model • Explain the basic processes for capital raising • Understand fundamentals of the Modigliani and Miller (MM) theory of capital structure § Define options and understand their pricing and payoffs

PRE-REQUISITE/ CO-REQUISITE/ MUTUALLY EXCLUSIVE COURSE(S) Please refer to the Course Catalogue on OASIS for the most updated list of pre-requisites / co-requisites for this particular course. Do note that if this course has a co-requisite, it means that the course has to be taken together with another course. Dropping one course during BOSS bidding would result in both courses being dropped at the same time.

ASSESSMENT METHOD Class Participation: Project: Quizzes: Midterm Exam: Final Exam:

10% 20% 10% 20% 40%

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SMU Classification: Restricted

INSTRUCTIONAL METHODS AND EXPECTATIONS Class Participation Class participation is strongly encouraged. Note that you are not entirely judged on the quality of your answer. Rather, you are judged on earnest and honest attempts to help the rest of the class learn the material. If you actively answer questions and solve problems in class, I reserve the right to raise your grade. Participation grades are not awarded based on mere class attendance. Group Project: There will be a group project on a firm’s financial analysis, emphasizing risk-return tradeoffs and valuation. The project will be executed in groups of about 4-5 students each. Group project will be graded based on a written final report. Members in a group by default get same grade for the project. However, if someone has very little contribution to the project, he/she will receive lower grade than others. Details will be provided in class. Quizzes: There will be two closed-book quizzes. Each quiz contributes 5% of your course grade. The quiz must be taken in the section of which you are registered. If you are unable to take quizzes for a legitimate reason (e.g., a serious health problem), you must bring reliable proof of absence. Once the proof of absence has been approved, the following rules apply: (a) the missing score for the first quiz will be estimated based on your midterm exam score; (b) the missing score for the second quiz will be estimated based on your final exam score. Examinations: There will be two exams (Midterm and Final). Both exams are closed-book & closed-notes exams, mainly focus on material covered in class and consist of multiple-choice questions and several long questions. Calculators are allowed in each exam. The final exam will be cumulative of all content covered in this course. No make-up exams will be allowed without prior permission.

CONSULTATIONS AND TEACHING ASSISTANTS TBA

CLASS TIMINGS This course will be taught in one 3-hour session. I will hold regular office hours on (TBA). If you need to see me at any other times, please contact me to make appointment. My office and contact information are listed at the top of this course outline. I am also readily available by emails.

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SMU Classification: Restricted

FINANCIAL CALCULATOR A financial calculator is needed for various materials covered in class and for the exams. I’ll give a brief instruction on the operations of Texas Instruments BA II Plus in class. I encourage you to buy or borrow the same model (many of your seniors have this model). You can use other brands/models, provided that you know how to use them appropriately.

RECOMMENDED TEXT AND READINGS Required: Fundamentals of Corporate Finance by Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan, 12th Edition, McGraw-Hill. Used copies of the Corporate Finance Fundamentals by Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan, Joseph Lim, and Ruth Tan, Asia Global Edition, McGraw-Hill or 10th or 11th edition of Fundamentals of Corporate Finance by Stephen A. Ross, Randolph Westerfield and Bradford D. Jordan, McGraw-Hill can also be used but do bear in mind that there could be some variations in contents and assigned problems. Additional readings will be assigned. Students are expected to keep abreast of current developments in the Asia-Pacific region by reading leading business dailies/weeklies like the Asian Wall Street Journal, The Economist, Business Times and Business Week.

UNIVERSITY POLICIES Academic Integrity All acts of academic dishonesty (including, but not limited to, plagiarism, cheating, fabrication, facilitation of acts of academic dishonesty by others, unauthorized possession of exam questions, or tampering with the academic work of other students) are serious offences. All work (whether oral or written) submitted for purposes of assessment must be the student’s own work. Penalties for violation of the policy range from zero marks for the component assessment to expulsion, depending on the nature of the offense. When in doubt, students should consult the instructors of the course. Details on the SMU Code of Academic Integrity may be accessed at https://oasis.smu.edu.sg/Pages/DOS-WKLSWC/UCSC.aspx. Copyright Notice Please note that all course materials are meant for personal use only, namely, for the purposes of teaching, studying and research. You are strictly not permitted to make copies of or print additional copies or distribute such copies of the course materials or any parts thereof, for commercial gain or exchange. For the full copyright notice, please visit: https://smu.sg/Copyright-notice or OASIS -> CAMPUS LIFE & EXCHANGE -> CONDUCT & DISCIPLINE -> UNIVERSITY COUNCIL OF STUDENT DISCIPLINE Accessibility SMU strives to make learning experiences accessible for all. If you anticipate or experience physical or academic barriers due to disability, please let me know immediately. You are also welcome to contact the university's disability services team if you have questions or concerns about academic provisions: [email protected]. Please be aware that the accessible tables in our seminar room should remain available for students who require them. Emergency Preparedness for Teaching and Learning (EPTL) As part of emergency preparedness, instructors may conduct lessons online via the WebEx platform during the term, to prepare students for online learning. During an actual emergency, students will be notified to access to the WebEx platform for their online lessons. The class schedule will mirror the current face-to-face class timetable unless otherwise stated.

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SMU Classification: Restricted

WEEKLY LESSON PLANS1 Week 1

Topic Introduction

Reading

Overview of Corporate Finance • Describe important financial management decisions and forms of business organizations; explain the goal of financial management; explain how different stakeholders impact on corporate objectives (agency problems); and describe the characteristics of a well-functioning securities market.

Ch 1

Review of Financial Statement Analysis • Interpret balance sheets, income statements; compare and contrast cash flows from operating, investing, and financing activities; and conduct basic ratio analyses.

Ch 2, 3

Working Capital Management • Understand how working capital is managed, such as components of operating cycle and cash cycle (inventories, account receivable, account payable) and the cash budget.

Ch 18

Time Value of Money and Its Applications • Solve time value of money problems for both single and multiple cash flows; understand the calculation of fixed-payment amortization; and calculate and interpret annual percentage rates and effective annual rates.

Ch 5, 6

Time Value of Money and Its Applications (Continues) • Solve time value of money problems for both single and multiple cash flows; understand the calculation of fixed-payment amortization; and calculate and interpret annual percentage rates and effective annual rates.

Ch 5, 6

Capital Budgeting and Investment Criteria • Know and use the following investment appraisal techniques: payback period, discounted payback period, net present value (NPV), internal rate of return (IRR), and profitability index; identify various types of costs, such as sunk costs, opportunity costs, and side effects; and forecast future cash flows with Pro Forma financial statements; Explain specific investment decisions, such as asset replacement and capital rationing

Ch 9, 10, 11

4

Bond Valuation • Explain contractual properties of bonds, special bond features, and bond quotations; calculate and interpret various types of bond yields; explain the steps in the bond valuation process; explain the difference between nominal and real rates; explain factors driving bond yields; and explain the interest rate risk and the term structure of interest rates.

Ch 7

5

Stock Valuation • Estimate the values of common stocks and preferred stocks using the discount dividend models (DDM), free cash flow valuation models.

Ch 8

6

Stock Valuation (Continues)

Ch 8

Basic Statistics: Expectation, Variance, and Covariance

Ch 12, 13

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3

Quiz 1 (in class at the beginning of class, 30 min, on wk 1-5’s topics)

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The schedule is tentative and subject to change. Any change will be announced in advance. 4

SMU Classification: Restricted

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Midterm Exam Week Midterm Exam (on topics covered in weeks 1-6) § Date: TBA § Venue: TBA

8

Recess

9

Risk and Return I • State the various forms of investment returns; calculate and interpret the difference of arithmetic average and geometric average returns; calculate sample and population mean and standard deviation of returns on a single asset; explain risk-return tradeoffs across asset classes based on historical evidence. • Calculate mean and standard deviation of returns on portfolios; understand the correlation between assets and diversification benefits; differentiate systematic vs. unsystematic risk; explain the capital asset pricing model (CAPM), security market line (SML), and beta, and their effects on expected returns and risk; explain various forms of the efficient market hypotheses and their practical implications.

Ch 12, 13

10

Risk and Return II

Ch 13

The Cost of Capital • Calculate and interpret the cost of equity, cost of debt, and the weighted average cost of capital (WACC) of a company; explain the effect of tax subsidy on cost of debt and WACC; calculate and interpret flotation costs; explain the pure play approach of estimating WACC for multi-sector companies.

Ch 14

Raising Capital • Explain the basic processes for capital raising, such as venture capital, IPOs, SEOs, and rights offerings.

Ch 15

Capital Structure • Explain the Modigliani and Miller (MM) theory of optimal capital structure choice under various tax and bankruptcy costs scenarios; solve problems of firm valuation and cost of capital with and without corporate taxes.

Ch 16

Derivative Securities: Introduction to Options § Define European options, American options, moneyness, and compute and interpret option payoffs; explain the upper and lower bounds of option prices; value options in a one-period model; explain how factors such as the underlying asset price, strike price, volatility, time to maturity, and interest rate affect option prices; understand the Black-Scholes option pricing formula; explain the put-call parity relation; view the equity portion of the company as a call option on its total assets.

Ch 24, 25

11

12

Quiz 2 (in class at the beginning of class, 30 min, on wk 6-11 13

Project Presentations

14

Study Break

15

Final Examination (all topics) § Date: TBA § Venue: TBA

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