FNCE101_WangRong

8/13/2019 FNCE101_WangRong

1/4

1

The Lee Kong Chian School of BusinessAcademic Year 2013/14

Term 2

FNCE101 FINANCEInstructor : Professor WANG RongTitle : Assistant Professor of FinanceTel : 6828 0148Email :[email protected] : LKCSB #4042

COURSE DESCRIPTIONThis course serves as an introduction to managerial finance. The aim is to provide students with a strongfoundation in finance. Students will be exposed to key financial concepts and tools commonly used by

managers in making sound financial decisions, which include time value of money, risk-return analysis, assetpricing and cost of capital. The course focuses on basic financial activities undertaken by a firm to create valuefor its shareholders. These activities include financial planning and management, investing and financing.

LEARNING OBJECTIVESBy the end of this course, students will be able to:

Describe important financial management decisions and forms of business organizations; explain the goalof financial management; explain agency problems; and describe the characteristics of a well-functioningsecurities market;

Interpret balance sheets, income statements; compare and contrast cash flows from operating, investing,and financing activities; and conduct ratio analyses to analyse various aspects of a companys financial

health; Calculate and interpret annual percentage rate and effective annual rate; solve time value of money

problems for both single cash flow and multiple cash flow problems (Ordinary annuity, annuity due,growing annuity, and perpetuity); and understand the calculation of fixed-payment amortization;

Calculate and interpret results using each of the following methods to evaluate capital projects: paybackperiod, discounted payback period, net present value (NPV), internal rate of return (IRR) (and thepotential problems with 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;

State various forms of investment returns; calculate and interpret the difference of arithmetic average andgeometric average returns; calculate sample and population mean and standard deviation of returns on asingle asset; explain risk-return tradeoffs across asset classes based on historical evidence;

Calculate mean and standard deviation of returns on portfolios; understand the correlation betweenassets and diversification benefit; differentiate systematic vs. unsystematic risk; explain the capital asset

pricing model (CAMP), security market line (SML), and asset beta, and the effects on asset expectedreturns and risk tradeoff; estimate asset beta using tools such as Excel spreadsheet; explain various formsof efficient market hypotheses and their practical implications;

Estimate the values of common stocks and preferred stocks, using the discount dividend models (DDM),free cash flow valuation models, and market ratio models;

Contrast the theoretical irrelevance of dividend policy with how it is often relevant in practice, includinghigh, low, and residual dividend policies; explain the basic properties stock repurchase and its relation withcash dividend;

Explain contractual properties of bonds, special bond features, and bond quotations; calculate andinterpret various bond yields (current yield, yield-to-maturity, and realized return); explain the steps in thebond valuation process; explain the difference between nominal and real rate and the effect of inflation;explain factors driving the bond yields; and explain the interest rate risk and the term structure of interestrate, and the effects on bond valuation;
mailto:[email protected]:[email protected]:[email protected]:[email protected]


2/4

2

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 interpretflotation costs; explain the pure play approach of estimating WACC for multi-sector companies;

Explain the basic processes for venture capital investment, IPO, SEO, and rights offerings; explainModigliani and Miller (MM) theory of optimal capital structure choice under various tax and bankruptcycosts scenarios; solve problems of firm valuation and cost of capital with and without corporate taxes;

explain the basic concepts of the peck-order theory of capital structure choice; Define European option, American option, and moneyness, and compute and interpret option payoffs;

explain the upper and lower bounds of option prices; value options in a one-period model; explain howfactors such as underlying asset price, strike prices, volatility, time to maturity, interest rate affect optionprices; explain the put-call parity and calculate call (put) prices applying the put-call parity formula; viewthe equity portion of the company as a call option of its total assets.

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 forthis particular course. Do note that if this course has a co-requisite, it means that the course has to be takentogether with another course. Dropping one course during BOSS bidding would result in both courses being

dropped at the same time.

ASSESSMENT METHODClass Participation 10%Project

Oral Presentation 5% Final Report 15%Quizzes 10%Midterm exam 20%Final Exam 40%

ACADEMIC INTEGRITYAll acts of academic dishonesty (including, but not l imited to, plagiarism, cheating, fabrication, facilitation of actsof academic dishonesty by others, unauthorized possession of exam questions, or tampering with the academicwork of other students) are serious offences.

All work (whether oral or written) submitted for purposes of assessment must be the students own work.Penalties for violation of the policy range from zero marks for the component assessment to expulsion,depending on the nature of the offence.

When in doubt, students should consult the course instructor. Details on the SMU Code of AcademicIntegrity may be accessed athttp://www.smuscd.org/resources.html.

Homework Assignments:Suggested practice problems will be posted by the end of each class. Solutions will be posted on Vista. Youdo NOT need to turn in the homework assignments. However, solving problems is the key to master thematerial.

Class Participation:Class participation is strongly encouraged. In each session, I will ask a lot questions. Note that you are notentirely judged on the quality of your answer. Rather, you are judged on earnest and honest attempts to helpthe rest of the class learn the material. If you actively answer questions and solve problems in class, I reservethe right to raise your grade. If you behave badly (e.g. surfing internet, chatting with friends, answering yourcell phone, sending SMS, etc.) in class, I have the right to lower your participation grade. Participation gradesare not awarded based on mere class attendance.


3/4


4/4

4

WEEKLY LESSON PLANS

This schedule is extremely tentative, and subject to change. Any change will be announced in class.

Week No. Topics Readings

1

(6 Jan 12 Jan)

Introduction Financial Statements

Chapters 1,2,3

2

(13 Jan 19 Jan)

Financial Tools Chapters 5, 6

3

(20 Jan 26 Jan)

Capital Budgeting (I) Quiz 1

Chapters 9, 10.6

4

(27 Jan 2 Feb)

Rescheduled to week 7

5

(3 Feb 9 Feb)

Capital Budgeting (II) Chapter 10

6

(10 Feb 16 Feb)

Valuing Bonds Chapter 7

7

(17 Feb 23 Feb)

Valuing Stocks Free Cash Flow Model (not in the book) Midterm Exam

(Feb 21th, Friday, 6pm-7:30pm)

Chapters 8, 17

8

(24 Feb 2 Mar)

Recess

9

(3 Mar 9 Mar)

Risk and Return Chapters 12, 13

10

(10 Mar 16 Mar)

Cost of Capital Long-term financing choice Quiz 2

Chapters 14, 15

11

(17 Mar 23 Mar)

Capital Structure

Option Valuation

Chapter 16

Chapters 24,25

12

(24 Mar 30 Mar)

Student Presentations (Groups 1-5) Report Due

13

(31 Mar 6 Apr)

Student Presentations (Groups 6-9)

14

(7 Apr 13 Apr)

Study Break

15, 16

(14 Apr 24 Apr)

Final Exam

Documents

FNCE101_WangRong