Earl N. Phillips School of Business s2

Earl N. Phillips School of Business High Point University Fall, 2005, Graduate Course Syllabus

Course: BUA 520, Financial Management

Professor: Jim Wehrley

Email: [email protected] Webpage: http://www.highpoint.edu/~jwehrley Blackboard: http://blackboard.highpoint.edu

Email: [email protected] Webpage: http://www.highpoint.edu/~jwehrley Blackboard: http://blackboard.highpoint.edu Phone: (O) 841-4560 (H) 869-0042 Office: Cooke Hall 103/102 Office Hours: Monday: 1:30 - 2:00 Tuesday: 9:30 - 11:00 Wednesday: 1:30 – 2:00; 6:00 - 6:30 Thursday: 9:30 - 11:00 Friday: 9:30 - 10:30

While these are my official office hours, you are welcome to stop by my office at any time. If I am not immediately available, we can set up an appointment. Of course, you can also e-mail or call me.

General rules or guidelines to help you contact me: 1) During the work week, I try to respond to e-mails or voice mail messages within 1 1/2 hours of receiving them. Of course, I have meetings both on and off campus that will sometimes result in a slower response time. 2) My teaching schedule: M, W: 2:00 - 3:15; W: 6:30-9:30.

Please let me know how I can help!

Catalog Description:

An introductory graduate finance course designed for graduate students that have no undergraduate training in finance or who feel the need for a refresher course. The course of study covers the principles of financing a business enterprise with special reference to the modern corporation. Attention is given to the methods of acquiring long-term capital, administration to earnings, expansion strategies and funding, capital structure, problem of public control, impact of monetary and fiscal policy on corporate financing, and corporate responsibilities affecting the public interest.

Text: Gitman, L. (2006) Principles of Managerial Finance, Pearson/Addison Wesley Course Objectives:

Completion of this course will enable the student to describe and explain financial ratio analysis, cash budgets, stock and bond evaluation, time value of money, and other key financial techniques used by financial managers in the modern business environment. Students must demonstrate knowledge of the material through practical application in the following ways:

1. Understand the organization of the Federal Reserve System and the functioning of the Federal Open Market Committee;

2. Be able to discuss Fiscal Policy and explain how changes in tax law and government spending affect the financial community;

3. Be able to clearly identify the risk free rate, the significance this rate has in the financial community, and how financial officers use this rate when evaluating possible capital acquisitions and security purchases;

4. Identify and explain the phases of the business cycle and how changes in the cycle impact sales forecasts, long and short-term sources of financing, and cash budgets;

5. Be able to interpret financial rations for a company by using cross sectional and time series analysis;

6. Demonstrate the ability to develop a cash budget both manually and with computer spreadsheets;

7. Demonstrate the ability to develop pro forma income statements and balance sheets by using the percentage of sales method and computer modeling;

8. Demonstrate the ability to develop a statement of cash flows (sources and use statement), and interpret future financial needs of a company;

9. Explain and use a hurdle rate (discount rate), NPV, IRR, and payback methods of project evaluation. Students are expected to demonstrate the ability to use manual and computer models;

10. Identify the capital structure of a company and explain the tax considerations in developing a weighted cost of capital;

11. Demonstrate the ability to:

(a) develop the actual growth rate for a company based upon past financial performance;

(b) develop the required rate of return for investing in the company by using the Capital Asset Pricing Model (CAPM); (c) develop the forecast for next period dividend; and

(d) use the information generated above and the Dividend Discount Growth Model to estimate future market value of the company's stock and make recommendations regarding the purchase or sale of the stock. Students must demonstrate the ability to use both manual and computer modeling for this objective.

12. Develop the market value and yield to maturity of a bond.

Honor Code:

HONOR CODE: This class supports/enforces the Honor Code (see Student Handbook).

Course Teaching Methods:

Problems, problems, and more problems. You will not learn finance just by listening to me. You will also have to apply, practice, and use the material. If you are not actively working and applying, you probably are not learning. That is, the approach in this class emphasizes doing rather than passive observation.

Why is this course important?:

This course focuses on what a business person should know about finance. School of Business Advisory Board members have commented on how finance courses have been some of the most useful and important courses for them in the business world. Members have commented on how vital it is to understand cash flow, P&L (Profit and Loss) statements (aka income statements), and balance sheets.

Just like you, companies need money. Companies that operate intelligently from a financial perspective increase the chance of prospering. Well run companies know how to allocate capital (money), analyze risk, raise money, and budget. Companies that are not well run financially tend to have more stress throughout the organization.

Even if you do not expect to own a company, understanding how the company functions financially can help you in your job. Some examples: 1) If you are requesting an increase of 50% in a marketing budget as a marketing manager, can you explain the benefit in financial terms? 2) If you would like to order more inventory, can you justify it from a financial perspective? 3) If you would like a company car as part of your benefits package, do you know the cost to the firm?

With all these decisions, the people involved in approving your request are likely to understand the financial impact. If you have an understanding of their perspective, you can increase the chance of selling your ideas. While this is not a personal finance class, understanding the concepts in this class can help you with your personal finances. Even if you hire a financial advisor, the knowledge in this class should help you understand what the advisor is recommending or communicating to you.

Materials:

A "Business Financial Calculator" is needed for the material that starts with the Time- Value-of-Money and runs through Capital Budgeting. It must have these keys: PV FV PMT I% N A good calculator will start at $20 (Texas Instrument, Hewlett Packard, etc.)

Outside Reading Material:

Recommendations: The Wall Street Journal, Fortune, Forbes, Business Week and other business periodicals.

Grading Scale (in % format):

This is a credit/no credit course—70% or greater = credit; less than 70% no credit

Grading (see handout: Financial Management Contract): Finance Foundation Quiz (Mandatory) 10% Presentation (Mandatory) 10% Discussion Board/Articles (Mandatory) 10% Time Value of Money Quiz 20% Financial Statement Analysis Quiz 20% Final Quiz 20% Project: The Finance Side of a Business Plan 30% Project: Financial Statement Analysis 30% Final Exam - Comprehensive 0-70%* 100%**

* Determined by you (discussed in more detail later in the syllabus) ** You will choose the work you will perform so that the maximum potential total grade will equal 100%. This will be your contract. Changes will be allowed throughout the semester with the approval of the instructor; however, once you hand in work for a grade, it cannot be substituted.

Note: To measure your understanding (or for entertainment purposes), you are allowed to take the quizzes for no grade. That is, the quiz(zes) would not be a part of your contract.

Finance Foundation Quiz (Mandatory) (10%):

It is difficult to fully understand business and finance without having an understanding of general business/accounting concepts. You will either pass (100%) or fail (0%) this portion of the class. To pass this quiz, you must complete the quiz perfectly. You will have three chances to pass this quiz. The quizzes will emphasize understanding a balance sheet, income statement, and how the two are intertwined.

Presentation (Mandatory) (10%):

You must make one presentation related to finance. You could present a project or make a proposal to me to present another finance topic.

Discussion Board/Articles (Mandatory) (10%):

Throughout the semester, we will discuss a variety of articles from the Wall Street Journal, Business Week, and so forth. On my website, there are questions related to the articles. You must answer designated questions on the discussion board (Blackboard) before we discuss the questions in class.

Time Value of Money Quiz (20%):

Many finance decisions are embedded in the concept of time value of money. You must have a good understanding of this concept. Capital Budgeting and valuation of stocks and bonds may be part of this quiz. This will be a problem-based quiz.

Financial Statement Analysis Quiz (20%):

The financial statement analysis quiz will focus on analyzing financial statements which includes ratio analysis.

Final Quiz (20%):

This quiz will focus on all the concepts covered after the time value and financial statement quiz. To do well on this quiz, you must have a good understanding of the prior concepts i.e., time value and financial statement analysis. Leverage/capital structure, budgeting, risk/return, and working capital management may be part of this quiz.

Project: The Finance Side of a Business Plan (30%):

This project will consist of developing the financial side of a business plan, ideally a start-up or new company. Specifically, you will have to develop a plan that determines how much capital is needed, where the capital will be obtained, monthly budgets for the first year, and a three-year projection of the income statement and balance sheet. IMPORTANT: I will spend very little time in class directly discussing this project; however, you will be exposed to the tools needed to complete this project. Furthermore, I am very interested in helping you outside of class. To complete this project, it would benefit you to have an understanding of Excel or be willing to learn Excel.

Project: Financial Statement Analysis (30%):

Subject to my approval, students will choose a domestic firm that is listed on the NYSE or NASDAQ exchange and "spread the financials". Students will analyze the company using these financials. More details will be provided on my website.

Final Exam – Comprehensive (0 - 70%):

This exam will consist of all topics discussed in class. This is the only task where you will be able to “trade-in” a prior grade; however, mandatory work cannot be “traded-in”. You can determine the percentage of the final exam to be factored into your final grade.

Example: Before the final exam, you have completed 70% of the class work. However, you are not satisfied with your grade on 40% of the work. You could request the final exam be worth 70% (40% you are not satisfied with plus 30% that has yet to be completed) of your final grade.

IMPORTANT: You DO NOT get to use the highest grade. Example above: if you dropped the lowest 40% where your grades were all 75%. You ended up with a grade of 70% on the final exam. The 70% would be used in calculating your final grade.

A POOR STRATEGY—not studying all semester long and “cramming” for the final. You may think you can beat the system, but I am confident that this strategy would not work for the vast majority of students.

Important Notes:

1. Work is due at the beginning of the class unless otherwise stated. Missing a class (excused or unexcused) is not a valid excuse for late work.

2. All work must be typed or word processed. All text must be double-spaced.

3. All work is expected to include correct grammar, punctuation, and spelling.

4. Late work will not be accepted for any reason. If you miss a quiz, assignment, etc., you will have to replace it with work that will be assigned later in the semester.

Academic Services Center

 Students who need classroom accommodations due to a diagnosed disability should contact Dr. Kelly Norton, Director of the Academic Services Center, as soon as possible: 841-9037 or [email protected]

 Students with diagnosed disabilities should contact Dr. Kelly Norton, Director of the Academic Services Center, 841-9037. Accommodation arrangements should be made at the beginning of the semester. Accommodations are not retroactive.

Tentative Schedule

Week 1, Aug 22 Chapter 1: The Role and Environment of Managerial Finance Financial Foundation Week 2, Aug 29 Chapter 4: Time Value of Money Chapters 6: Bond Valuation (287-291, 293-305) Chapter 7: Stock Valuation Financial Foundation, Continued Week 3, Sep. 5 Capital Budgeting Chapter 9: Capital Budgeting Techniques (417 – 427) Financial Foundation Quiz (#1) Week 4, Sep. 12 Computer Lab—Spreading Financial Statements Week 5, Sep. 19 Chapter 2: Financial Statements and Analysis (45 – 74) Time Value of Money Quiz Week 6, Sep. 26 Chapter 2 continued Week 7, Oct. 3 Chapter 3: Cash Flow and Financial Planning (114-134) Week 8, Oct. 10 Financial Statement Analysis Quiz Chapter 8, continued OCTOBER 17 FALL BREAK Week 9, Oct. 24 Chapter 11: Cost of Capital (497-508) Chapter 5: Risk and Return (225 – 227, 246-251) and p. 281-285, 291-293 Week 10, Oct. 31 Sources and Forms of Financing Chapter 12: Leverage and Capital Structure Week 11, Nov. 7 Chapter 14: Working Capital & CA (631-632, 641-642, 646-655) Week 12, Nov. 14 Chapter 15: Current Liabilities Management Week 13, Nov. 21 TBA – Thanksgiving Break Week 14, Nov. 28 TBA Week 15, Dec. 5 Review Final Exam Period Final Exam – Comprehensive AND Final Quiz Tuesday, December 13, 2005 @ 1:30 p.m. Wed., December 14, 2005 @ 6:30 p.m. Friday, December 16, 2005 @ 1:30 p.m.

Projects will be due during the final exam period.

I'm glad you registered for BUA520. I hope you enjoy the course!!!! Always remember, Finance is Fun!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!