F542
Advanced Financial Management
Indiana University Kokomo
Dr. Steven Cox
Spring 2008

Course Goals

This is a study of the aggregation and distribution of financial resources. The course expands upon and extends the topics covered in introductory corporate finance courses. Major topics include capital budgeting, asset valuation, capital structure, and market efficiency.

Course Objectives

·         Understand and use mean/variance analysis to facilitate work in an environment where risk and return are related. Students will demonstrate proficiency with portfolio theory including applications of the Capital Asset Pricing Model.

·         Demonstrate proficiency in the application of discounted cash flows in a capital budgeting setting. Advanced topics in capital budgeting will be addressed including replacement decisions, investments with unequal lives, the impact of inflation, and the limitations of traditional capital budgeting tools.

·         Learn the theory and implications of market efficiency including informational economics, market psychology, portfolio construction, and investment strategy.

·         Understand the structure and function of the capital market. Students will be familiar with issues relating to debt issues, initial public offerings, seasoned offerings, and the role of investment bankers.

·         Apply the theory of capital structure including the weighted average cost of capital, the optimum level of debt, and dividend policy.

·         Use the Black-Scholes model to value and understand options.

·         Understand the use of forward and future contracts to hedge against risk.

·         Comprehend the motivation and consequences of mergers and acquisitions.

·         Be familiar with the special issues in international finance including the relationship among foreign exchange, interest rates, and inflation.

The School of Business Web Page with Mission Statement

 http://www.iuk.edu/~kobus/Mission.shtml

Computer Usage

This syllabus is available on my web site. The answers to the assigned problems are available on Oncourse. The student is also encouraged to contact me via e-mail. IUK also offers a variety of computer resources for course assignments and projects (e.g., word processing, spreadsheets, presentation software, database management, and statistical analysis packages).

Library Usage

The IUK library system offers a large variety of resources for the student to supplement the content of this course. Examples include current newspapers (Wall Street Journal), magazines (Business Week), databases (ABI Inform), and access to the Internet.

Disability Issues

Indiana University Kokomo provides equal access and support services to students with special needs.  Students with documented disabilities should contact the University Division (455-9309) and discuss any necessary support services or accommodation with the instructor. 

Grading

Grading Scale

Exams

Exams will be a combination of problems, multiple choice, and essay questions. The first exam is on March 24^th. The second exam is on April 14^th. The third exam will be in class on April 30^th.   

Paper/Presentation

The purpose of the paper/presentation is to provide an opportunity to consider application of the topics of market risk, the weighted average cost of capital, and valuation. This 100-point paper/presentation will be graded based on content, analysis, discussion, writing, and presentation quality. The assignment is to select one publicly traded company and perform the following:   

1.       Market Risk: Collect stock price and dividend information and calculate monthly rates of return for the equity holders. Compare your return with the market’s return over the same period. Calculate Beta and compare your measure of risk to publicly available measures. Speculate as to the cause of the difference. (20 points)

2.       Weighted Average Cost of Capital: Estimate the cost of capital the company should use for capital budgeting projects that expand capacity in its core business. First you must calculate the relative weights of each form of financing in the firm’s current capital structure. That is, what portion of the firm is financed from debt and equity? Next, you must calculate the approximate required return from each form. (20 points)

3.       Valuation:   Support what you believe is the "fundamental" value of this firm’s stock. How does this price compare to the current price? Comment on your evaluation of the firm’s overall prospects. Would you invest in its stock?  (20 points)

4.       Paper:  The paper should be no more than ten pages including exhibits. Points in this section will be allocated based on the overall look and feel of the paper including writing mechanics. Use a cover page but do not use any type of binder. (20 points)

5.       Presentation:  The presentation (April 21^st) should last no more than 20 minutes. The focus should be on the choices that were made during the analysis and your interpretation of the results. Allow a few minutes for questions from the class. (20 points)

Class Schedule