Indiana University Kokomo
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Steven R. Cox, Ph.D.

F542
Advanced Financial Management
Indiana University Kokomo
Dr. Steven Cox
Spring 2009

COURSE SYLLABUS  (print friendly version)

Time:

Tuesdays  5:30 – 8:15  

Room:

KO 281

Office Hours:

4:30 – 5:30, Thursdays  (and by appointment or walk-in)

Office:

KO 174J

Work Phone:

(765) 455-9314

Mobile Phone:

(317) 696-0571

E-mail:

scox@iuk.edu 

Web Site:

http://www.iuk.edu/~bussrc/

Required Text:

Ross, Westerfield, and Jaffe, Corporate Finance, 8th Edition

Recommended:

Financial calculator

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

Exam 1

   150 pts

Exam 2

150 pts

Paper/Presentation

100 pts

Total

400 pts

Grading Scale

96% - 100%

A+

90% - 96%

A

89% - 90%

A-

86% - 89%

B+

80% - 86%

B

79% - 80%

B-

76% - 79%

C+

70% - 76%

C

69% - 70%

C-

66% - 69%

D+

60% - 66%

D

59% - 60%

D-

Below 59%

F

 

 

 

 

 

 

Exams
Exams will be a combination of problems, multiple choice, and essay questions. The first exam is on February 24th. The second exam is on May 5th.   

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 7th and 14th) should last no more than 15 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
 

Chapter

Topic

Assigned Problems

Date

1
4

Introduction to Corporate Finance
Discounted Cash Flow Valuation

None
1-6, 12-16, 20, 21, 23, 26, 29, 30, 37, 51, 58, 66


Jan 13

5

How to Value Bonds and Stocks

1-7, 9-12, 14, 16, 17, 20, 21, 25

Jan 20

6

Net Present Value and Other Investment Rules

13, 15, 16, 18

Jan 27

7

Making Capital Investment Decisions
Answers to Cruddy Corp and Steve’s BBQ

3, 6, 10, 11, 35, 40
Handouts

Feb 3

9, 9A
10

Risk and Return: Lessons from Market History
Risk and Return - CAPM

None
2, 7, 11-16, 27, 29, 34, 35

Feb 10

10

Risk and Return – CAPM (continued)

 

Feb 17

 

Midterm Exam

 

Feb 24

22

Options and Corporate Finance

3, 6-11

Mar 3

12

Risk, Cost of Capital, and Capital Budgeting

1, 2, 5, 8, 9, 11, 15

Mar 10

13

Corporate Financing Decisions and Efficient Capital Markets

None

Mar 24

14
15
16

Long-Term Financing: An Introduction
Capital Structure: Basic Concepts
Capital Structure: Limits to the Use of Debt

None
None
None

Mar 31

 

Presentations

 

Apr 7

 

Presentations

 

Apr 14

18
19

Dividends and Other Payouts
Issuing Securities to the Public

1-3, 5-6
1, 4, 5, 6

Apr 21

20

Long-Term Debt

None

April 28

 

Final Exam

 

May 5