Winter 2021 - B4500 - Course Outline PDF

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MEMORIAL UNIVERSITY OF NEWFOUNDLAND Faculty of Business Administration

Business 4500 Financial Management Course Information and Schedule for Winter 2021 CONTACT INFORMATION Instructor:

Dr. Ash HOSSAIN

Office:

BN-2036

Office hours:

No office hours since it is virtual class room. However, from time-to-time, I will post my availability via online media. I will post that on course announcements section. Course is online.

Class Meets: Telephone:

864-8510; I will not be able to access MUN office phone for now. Any changes will be notified via course announcements.

E-mail:

[email protected] Please put “BUSI 4500” on the subject line of your email or it will most likely get filtered to the junk folder. I WILL ONLY CHECK MY MUN EMAIL ADDRESS. I WILL NOT CHECK THE BRIGHTSPACE MESSAGES. EMAILING ON MY MUN EMAIL WILL ENSURE FASTEST REPLY.

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PREREQUISITES BUSI 1101; ECON 2010; STAT 2500; COURSE DESCRIPTION 4500 Financial Management I introduces students to theoretical and practical aspects of financial management, including current technology for financial analysis and trading. Topics covered include: the time value of money, pricing of stocks and bonds, risk and return, diversification, the Capital Asset Pricing Model, and capital budgeting. LEARNING OUTCOMES Upon completing this course, students will be expected to meet the following learning outcomes: 1. Apply concepts of time value of money, including present and future values of various forms of cash flows and the role of interest rates. 2. Apply, and interpret determinants of bond and equity pricing, including cash flows to bond holders and equity holders. Understand bond markets, bond quotes, and bond variations, and understand equity markets and stock market quotes. 3. Apply, and interpret the concept of diversification, including measures of asset and portfolio risk and return, asset correlation, components of risk, and the capital market line. Apply, and interpret the fundamentals of the equilibrium asset pricing using the CAPM, including market efficiency, components of risk, diversification, security market line, beta, and disequilibrium. 4. Apply, and interpret the use of WACC as a hurdle rate. Apply, and interpret the inputs to the calculations of WACC, including cost of equity, cost of debt, cost of preferred shares, the market value estimates of equity, debt, and preferred shares, and the impact of taxes. 5. Apply, interpret, and critically evaluate common capital budgeting tools, including, NPV, IRR, profitability index, payback, and discounted payback. Apply NPV analysis to intermediate capital budgeting decisions, for example, cost-cutting proposals, replacement decisions, and setting a bid price for a project. Understand and determine relevant project cash flows, estimate operating cash flows, and understand the impact of taxes.

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COURSE MATERIALS Required Textbook: Ross, Westerfield, Jordan, and Roberts, Fundamentals of Corporate Finance, 10th Canadian edition, McGraw-Hill Ryerson. It is recommended that you pay attention to media (newspaper, radio, television) to see how financial events are reported. There will be no test questions in this course on current events; however, if you plan to take more finance courses and/or aspire to a career in finance then the ability to report, analyze and interpret these events is an essential skill which you must learn to develop CALCULATORS The only electronic device approved for use during an examination is a calculator. Texas Instruments TI BAII PLUS calculator is MANDATORY for this course. It will be almost impossible to do some problems on time without the help of a financial calculator. You can find it online (Amazon, eBay etc.) or at Walmart or Staples or MUN Bookstore etc.

Apart from the financial calculator mentioned above, any other additional calculators must adhere to the following guidelines:    

A A A A

calculator calculator calculator calculator

must must must must

be non-programmable. not have the ability to store text. not have graphing capability. be non-communicating.

If you are unsure if your calculator is admissible, please ask. COURSE FORMAT There will be no classes as this is a virtual course. We will NOT have any final exams for this course. We will have 12 quizzes of which I will drop the highest and lowest quiz grades and take the average of the middle 10 quiz grades. Each quiz will count towards 10% of the final grade for a total of 100%. All quizzes are multiple choice and you have to take it via BRIGHTSPACE. They will be timed to 30 mins each. While some quizzes will be quite easy to finish within the time frame, some will be quite challenging. Normally, the quiz will stay open for 12-hours starting from the day of the quiz at 7 a.m. Newfoundland local time (NT) until 7 p.m. NT. Let say, a quiz has a due date of November 20th. It means that the quiz will stay open from 7 a.m. NT on November 20th until 7 p.m. NT on the same day. I would strongly recommend not to wait till the last moment. I am not sure what happens if -3-

you start before the deadline but while doing the quiz, go over the expiry time. My STRONG SUGGESTION will be to start latest at 5 p.m. NT on the day i.e. at least two hour before time expires. Please check the schedule for quiz dates. You will be allowed only one attempt. There won't be a make-up quiz and will receive a grade of zero if you miss a quiz. If you take 11 quizzes, the missed quiz is your lowest grade; I will drop the highest grade from the 11 you took, and take an average of the 10 that are left. If you take 10 quizzes, I will drop the highest two grades and take the average of the 8 that are left. If you take 9 quizzes, I will drop the highest three grades and take the average of the 6 that are left. If you take 8 or less quizzes, then no exception applies to you. I will consider the missed quizzes as zeros. One of those zeros will be dropped as your lowest grade. I will then drop your highest grade from your attempted quizzes. Then I will take the average of the 10 quizzes, with zeros as entries for missed quizzes for all but one of them (one zero gets dropped as your lowest grade). If you take 8 or less quizzes the maximum grade for the term for you will be 50. While everything is online, it is okay to consider all the quizzes as ‘open book & open notes’, I would expect my students to refrain from using Google or other online means as well as assistance from cohorts/friends/colleagues during these quizzes. I entrust my students with maintaining such honor code. CONSIDERATIONS FOR STUDENTS WITH DISABILITIES If you have a disability that requires special arrangements or consideration, please contact Ruth North at the Glenn Roy Blundon Centre (Office: UC4007; phone: 864-2156; e-mail: [email protected]). During this special times, they may not communicate with me on time to provide extra time for your quizzes. If you have been approved for extra time please email me the proof right away as I have to set up the special extra time for you and not them. Blundon is quite slow at times due to huge amount of applications which makes it too late for you to be set up sometimes. You have to take the initiative yourself. I am here to help. EXPECTATIONS Professionalism Professionalism is essential to success in business. A professional businessperson is competent, knowledgeable, prepared, courteous, and respectful to both peers and customers. A professional atmosphere in the classroom promotes a positive learning environment. Please: -4-



Prepare properly for all classes.



Arrive on time.



Employ basic courtesy at all times and to all class members (including me!!).



If you bring your mobile phone to class, turn it off.



If you bring your computer to class, do not distract others.



Please do not text in class.

Note: Some of this may not be applicable for online courses. Honesty, Integrity, and Academic Dishonesty Members of the university community are expected to adhere to very high standards of honesty. Breaches of these standards cannot be tolerated, as they insult the integrity of each of us. Academic offences include, but are not limited to:



Cheating on examinations, assignments, or any other tests.



Impersonating another student or allowing oneself to be impersonated for purposes of taking an exam or carrying out an assignment.

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Plagiarism.

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Theft of examination papers or other material.

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Use and/or distribution of material that has been improperly obtained.

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Submitting false information.



Submitting work for one course that has been or is being submitted for another course without express permission to do so.

For further information, see General Regulation 5.11 in the 2011-2012 University Calendar. FBA DEFERRED EXAM POLICY Note that we do not have any final exams for this course and hence this policy may not be relevant to our course. I am adding it here as by rule, we are required to put it onto our syllabus. Please note the Faculty of Business Administration Policy with respect to deferred exams. -5-

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A student who is prevented from writing a final examination by illness or bereavement or other acceptable cause, duly authenticated in writing, may apply, with supporting documents, to have the course graded or have the final examination deferred. This application must be made within one week of the original date of the examination to the head of the appropriate academic unit.



All deferred final exams will now be held at the commencement of the semester following the one in which the deferred final exam has been approved.

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Deferred final exams will be written on the first Friday of the semester following the semester in which the deferred exam was granted.



For courses where classes were scheduled to start between 9 am and 5 pm the deferred exam will be on the first Friday afternoon of the following semester. (Note these deferred exams will start at 2 pm.)

For courses where classes were scheduled to start after 5 pm, the deferred exam will take place at 7 pm on the first Friday evening of the following semester.

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SUMMARY OF COURSE SCHEDULE Week

Start

End

1

11-Jan21

Mo n

17-Jan21

Sun

2

18-Jan21

Mo n

24-Jan21

Sun

3

25-Jan21

Mo n

31-Jan21

Sun

4

1-Feb21

Mo n

7-Feb21

5

8-Feb21

Mo n

6

15-Feb21

7

Topic

Quiz No.

Intro to course Time Value of Money I Time Value of Money II

none

Quiz Topic

Quiz Open Time

Quiz Close Time

Jan 22, 2021, Friday, 7 pm Jan 29, 2021, Friday, 7 pm Feb 05, 2021, Friday, 7 pm Feb 12, 2021, Friday, 7 pm Feb 19, 2021, Friday, 7 pm

1

Time Value of Money I

Jan 22, 2021, Friday, 7 am

Bond Pricing

2

Time Value of Money II

Jan 29, 2021, Friday, 7 am

Sun

Stock Pricing

3

Bond Pricing

Feb 05, 2021, Friday, 7 am

14-Feb21

Sun

Capital Budgeting I

4

Stock Pricing - 1

Feb 12, 2021, Friday, 7 am

Mo n

21-Feb21

Sun

Capital Budgeting II

5

Stock Pricing - 2

Feb 19, 2021, Friday, 7 am

22-Feb21 1-Mar21

Mo n Mo n

28-Feb21 7-Mar21

Sun

9

8-Mar21

Mo n

10

15-Mar21

Mo n

8

Break

Sun

Capital Budgeting III

6 7

14-Mar21

Sun

Risk, Return, CAPM -I

8

21-Mar21

Sun

Risk, Return, CAPM - II

9

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Capital Budgeting 1 Capital Budgeting 2 Capital Budgeting 3

Mar 05, 2021, Friday, 7 am

Risk and Return - 1

Mar 19, 2021,

Mar 12, 2021, Friday, 7 am

Mar 05, 2021, Friday, 7 pm Mar 12, 2021, Friday, 7 pm Mar 19, 2021,

Friday, 7 am 11

22-Mar21

Mo n

28-Mar21

Sun

Cost of Capital - I

10

Risk and Return - 2

Mar 26, 2021, Friday, 7 am

12

29-Mar21

Mo n

4-Apr21

Sun

Cost of Capital - II

11 12

Cost of Capital - 1 Cost of Capital - 2

Mar 31, 2021, Wednesday, 7 am

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Friday, 7 pm Mar 26, 2021, Friday, 7 pm Mar 31, 2021, Wednesday , 7 pm

DETAILED COURSE SCHEDULE Week 1 Topic 1. Introduction to the course 2. Time Value of Money (part I) Learning Objectives 1. Introduction to the syllabus, professor and getting to know the online contents. 2. Determine future value of an investment made today. 3. Determine present value of cash to be received at a future date. 4. How to find the return on an investment and the time it takes for an investment to reach a desired value. Sections of the Textbook 5.1, 5.2, 5.3 Problem Solving Problem Set # 1 Assessment this week None. The quizzes will start from Week 2. Week 2 Topic 1. Time Value of Money (part II) Learning Objectives 1. Determine future and present values with multiple cash flows vis-à-vis annuities 2. Determine future and present values of uneven cash flows 3. Be able to calculate compounded rates and determine the effect of compounding 4. Canadian mortgage calculations Sections of the Textbook 6.1, 6.2 (ignore growing annuity), 6.3 (ignore continuous compounding) Problem Solving Problem Set # 2 Assessment this week QUIZ # 1 (Time Value of Money - 1) -9-

Quiz will include problems related to Problem Set # 1 and some concepts from chapter 5.

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Week 3 Topic 1. Bond Pricing Learning Objectives 1. Bond features and different types of bond (concepts) 2. How to calculate bond values (prices) for different types of bonds 3. Concept and valuation of discount bond, premium bond, zero-coupon bonds, semi-annual and annual coupon bonds 4. How to calculate Yield-to-Maturity 5. Bond ratings (concept) Sections of the Textbook 7.1, 7.2, 7.3, 7.4 (only zero coupon bonds) Problem Solving Problem Set # 3 Assessment this week QUIZ # 2 (Time Value of Money - 2) Quiz will include problems related to Problem Set # 2 and some concepts from chapter 6. Week 4 Topic 1. Stock Pricing Learning Objectives 1. Calculate stock prices based on zero dividend, constant dividend, constant growth dividend, non-constant growth dividend, changing growth dividend. 2. Features of common and preferred stocks Sections of the Textbook 8.1 (ignore stock valuation using multiples), 8.2, 8.3, Appendix 8A Problem Solving Problem Set # 4 Assessment this week QUIZ # 3 (Bond Pricing) Quiz will include problems related to Problem Set # 3 and some concepts from chapter 7. -11-

Week 5 Topic 1. Capital Budgeting (part I) Learning Objectives 1. How to compute the Net Present Value (NPV) and why it is the best decision criterion. 2. The payback rule and some of its shortcomings. 3. The discounted payback rule and some of its shortcomings. 4. The internal rate of return (IRR) and its strengths & weaknesses (ignore crossover rates). 5. The profitability index (PI), its strengths & weaknesses, and relationship to NPV. 6. How capital rationing affects the ability of a company to accept projects. Sections of the Textbook 9.1, 9.2, 9.4, 9.5, 9.6, 9.7 Problem Solving Problem Set # 5 Assessment this week QUIZ # 4 (Stock Pricing - 1) Quiz will include problems related to Problem Set # 4 and some concepts from chapter 8. This first of the two stock pricing quizzes will focus more on simpler computations. Week 6 Topic 1. Capital Budgeting (part II) Learning Objectives 1. How to determine relevant cash flows for a proposed project. 2. How to project cash flows and determine if a project is acceptable. 3. How to calculate operating cash flows using alternative methods. Sections of the Textbook 10.1, 10.2, 10.3, 10.5 Problem Solving Problem Set # 6

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Assessment this week QUIZ # 5 (Stock Pricing - 2) Quiz will include problems related to Problem Set # 4 and some concepts from Appendix 8A. This second of the two stock pricing quizzes will focus more on complex computations. Week 7/Break Recharge and rejuvenate. Week 8 Topic 1. Capital Budgeting (part III) Learning Objectives 1. How to calculate the present value of a tax shield on CCA 2. How to evaluate replacement decisions 3. How to evaluate equivalent annual cost of a project Sections of the Textbook 10.4, 10.5, 10.6, 10.7 Problem Solving Problem Set # 6 Assessment this week (two quizzes this week) QUIZ # 6 (Capital Budgeting – 1) Quiz will include problems related to Problem Set # 5 and some concepts from mainly chapter 9 covering Capital Budgeting (Part I). QUIZ # 7 (Capital Budgeting – 2) Quiz will include problems related to Problem Set # 5, 6 related to Capital Budgeting (Part I & II) and some concepts from textbook sections related to Capital Budgeting (Part II). Week 9 Topic 1. Risk, Return, Security Market Line and Diversification (part I) Learning Objectives 1. How to calculate expected returns and standard deviation for individual stocks and portfolios 2. The principles of diversification and the role of correlation -13-

Sections of the Textbook 13.1, 13.2, 13.3 Problem Solving Problem Set # 7 Assessment this week QUIZ # 8 (Capital Budgeting – 3) Quiz will include problems related to Problem Set # 6 related to Capital Budgeting (Part III) and some concepts from textbook sections related to Capital Budgeting (Part III). Week 10 Topic 1. Risk, Return, Security Market Line and Diversification (part II) Learning Objectives 1. Systematic and unsystematic risk 2. Beta as a measure of risk and the security market line Sections of the Textbook 13.4, 13.5, 13.6, 13.7 Problem Solving Problem Set # 7 Assessment this week QUIZ # 9 (Risk and Return - 1) Quiz will include problems related to Problem Set # 7 related to Risk, Return, Security Market Line and Diversification (Part I) and some concepts from textbook sections related to Risk, Return, Security Market Line and Diversification (Part I). Week 11 Topic 1. Cost of Capital (part I) Learning Objectives 1. Revisions of cost of debt and cost of equity from bond pricing and stock pricing, respectively. 2. How to determine Weighted Average Cost of Capital (WACC)

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Sections of the Textbook 14.1, 14.2, 14.3, 14.4 Problem Solving Problem Set # 8 Assessment this week QUIZ # 10 (Risk and Return - 2) Quiz will include problems related to Problem Set # 7 related to Risk, Return, Security Market Line and Diversification (Part II) and some concepts from textbook sections related to Risk, Return, Security Market Line and Diversification (Part II). Week 12 Topic 1. Cost of Capital (part II) Learning Objectives 1. How to determine divisional and project WACC 2. Valuation of a company using WACC Sections of the Textbook 14.5, 14.6 Problem Solving Problem Set # 8 Assessment this week (two quizzes this week and on Wednesday because Friday is Good Friday) QUIZ # 11 (Cost of Capital -...