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Managerial Finance MGMT-2020 SPRING 2015

Instructor Dr. C. Bülent Aybar Web Conference: Monday 7:40-9:40 Communication E-mail: aybar@fas.harvard.edu Teaching Associate : Nicole Hruban nicole.hruban@snhu.edu Course webpage : http://isites.harvard.edu/k108625

Course Description Objectives The objective of the course is to provide the student with the basic analytical tools required to make value creating financial decisions. The student will be provided with an introduction to theoretical foundations and practical applications in financial decision-making. Topics covered in the course include analysis of financial and operating performance, assessment of financial health, financial planning, working capital and growth management, the time value of money, risk- return trade-off, valuation of financial and real assets, investment, funding and distribution decisions in the context of non-financial firms. Methodology I will use lectures, case discussions and overview of topical issues to create a rich learning environment in class. I will emphasize theory and analytics, but also teach the course from an applied perspective. Course Requirements Students are expected to carefully review the assigned reading materials before each session, diligently work on the assigned problems/questions and cases, and to participate actively in the class discussions. You should be prepared to spend significant time to digest the material, to work on the assignments and case studies. Timely submission of the assigned work is critical. Late submissions will not be accepted.

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Best Preparation Method: You should invariably read the assigned chapters and supplementary materials before you come to the class and go over the assigned exercises and cases. After the end of each session, you should review handouts, your notes and highlights in your readings. I would strongly recommend you to review the end of chapter questions on a regular basis. I will provide the solutions for these

questions on the course webpage (http://isites.harvard.edu/k97262)

Textbook and Resources

Managerial Finance1, Pearson Custom Book, ISBN: 13-978-1-256-59219-8 (Required)

Analysis for Financial Management, Robert Higgins 10th Edition McGrawHill (Required)

Financial Calculator (If you do not have one, purchase an inexpensive one) For basic calculator tutorials you can use http://www.tvmcalcs.com/calculator_index

HBS Publishing Online Course pack (Required//See the instructions below)

Subscription to WSJ strongly recommended Assignments:

Case Analyses (Graded) We will use eleven case studies in the class. You are expected to prepare a write up for two out of the following three cases.

Ocean Carriers

Midland Energy

Blain’s Kitchenware However, you should be prepared to discuss all the assigned cases in the class. The case write ups are usually due on the day we discuss the cases. In some cases the discussion of the case facts will start in one session, and comprehensive analysis will ensue in the following session. Under thos circumstances, write ups will be due in the following session. Please check the due dates in the syllabus. Case Analysis Guide : Your write up should be analytical rather than descriptive of the contents of the case. Your analysis should be geared towards identification of key questions and problems, evaluation of the situations, and offering alternatives and solutions as well as discussing pros & cons of alternatives suggested. You should choose one alternative as a decision maker, and provide a clear reasoning for your decision. Since most cases used in the class require a composite of careful thinking, conceptualization, quantitative analysis and some form of decision making your analyses will be evaluated based on breadth and depth of your thought process documented in your submitted paper.A detailed grading rubric is available at the end of the

1 This custom book compiled from Principles of Managerial Finance by Gitman and Zutter 13th Edition.

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syllabus. Please review the grading rubric and structure your analaysis accordingly. I also posted sample case analyses on the course page. Please review them before your first submission.

Problem Sets and End of Chapter Questions (Graded)

You will be assigned weekly short answer/multiple choice problem sets. Solutions to these problems sets will be provided after the submission deadline. You are required to work on and submit solutions to these problem sets. Problems in these sets may also be used for class discussions or addressed in weekly review sessions.

End of Chapter quiestions in both books are great resources to learn. I will provide a list of suggested problems

Class Participation: Class participation accounts for 10% of your grade. Your grade will be determined by the quality of your contributions to the class discusssions. Examplary contributions include thoughtful questions, insightful analysis of pertinent issues, offering perspectives that advance the conversation and show of respect and interest in others’ perspectives. I will use the following rubric to assign your participation grades:

A (9-10 points)

B (6-8 points)

C (5 points)

D/R (<5 points)

Frequency and Quality

Attends class regularly and always contributes to the discussion by raising thoughtful questions, analyzing relevant issues, building on others’ ideas, synthesizing across readings and discussions, expanding the class’ perspective and advancing the conversation, and appropriately challenging assumptions and perspectives; shows interest in and respect for others’ views; participates actively in small groups.

Attends class regularly and sometimes contributes to the discussion in the aforementioned ways.

Attends class regularly but rarely contributes to the discussion in the aforementioned ways.

Misses classes, or attends classes regularly but never contributes to the discussion in the aforementioned ways.

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Exams: There will be two exams. Exam-I (take home) will cover first 6 sessions will practically address the issues covered in the first half of the class. The Exam-II will cover the second half of the class and will be proctored. It will be an open book exam. Both exams will be a mixture of multiple choice and short problems. Make up exams are available only for officially documented cases. Late submissions of take home exam will not be accepted. Grading:

Exam-I (Take Home) 25

Weekly Problem Sets 20

Case Write Up (x2) 15

Attendance & Participation2 10

Exam-II (Proctored) 30

Total 100

95 < A 65-69 C+

90-95 A- 60-64 C

85-89 B+ 55-59 C-

75-84 B 54> F

70-74 B-

Academic Honesty Policy Students who enrol in courses for credit are expected to attend all classes, take the midterm and final examinations, and complete all other coursework. If a student is absent from a class meeting for any reason, including registering late, it is the student's responsibility to make up all work from that class. All work submitted to meet course requirements is expected to be the student's own work. A student suspected of academic dishonesty in any form is subject to review and disciplinary action by the Summer School Administrative Board. Disciplinary action may include, but is not limited to, required withdrawal from the course and/or required withdrawal from the Extension School. Extension School regulations regarding academic honesty are discussed in detail in the Extension School student handbook.

How to purchase the HBS Course pack? Course pack link: https://cb.hbsp.harvard.edu/cbmp/access/32066404

You can purchase the course pack from the above link.

First click on the link and follow the instructions to register on the HBS site. You need to create a user name and password.

2 Attendance & Participation refers to consistent, constructive and creative engagement in the class with the instructor

and your peers. You are expected to make non trivial remarks, bring up interesting issues for discussion and offer

clarifying comments to enhance your peer’s understanding during the class discussions. Quality and substance of your

contributions will determine your participation grade.

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When you are done log out.

After you complete the steps listed above click on the link once more. This time login by using your user name and password.

Follow the instructions to purchase the course pack. Your institution/school is “Harvard Extension School”. The course title is “Managerial Finance Fall 2013”. Instructor name is “Bulent Aybar”.

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The Following is a tentative schedule. Please login to Canvas regularly for announcements.

January 26th

Session-1: Financial Statements and Evaluating Financial Performance Topics Covered

Review of basic financial statements Evaluation of financial statements using ratio analysis: Liquidity, Activity,

Debt, Profitability and Market Ratios DuPont Analysis

Required Readings

Higgins Chp 1

Higgins Chp 2

HBS Note: Assessing A Company’s Future Financial Health

February 2nd

Session-2: Evaluating Financial Performance Topics Covered

Using Financial Statements amd Ration Analysis to Evaluate Financial Health

Required Readings

Higgins Chp 2 (Review)

Assesing Future Financial Health

Stanford GSB Case: Costco Wholesale Corporation Financial Statement Analysis (A)

February 9th

Session-3: Financial Forecasting Topics Covered

Proforma Statements

Sources and uses of cash

Statement of cash flows Required Readings

Higgins Chp 3

HBS Case Drivers of Industry Financial Structure (will be discussed at the begining of the class)

HBS Case Jones Electrical Distribution

February 16th

Session-4: Managing Growth Topics Covered

Sustaianable Growth

Managing Growth When Actual Growth Exceeds Sustainable Growth Required Readings

Higgins Chp 4

Dell’s Working Capital

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February 23rd

Session-5: Time Value of Money Topics Covered

The PV and FV of a sum

The present and future values of an annuity

Intra-year compounding,

Mixed cash flow streams

Mixed cash flows with an embedded annuity

Perpetuities,

Deposits to accumulate a future sum

Loan amortization. Required Readings

Managerial Finance, Chp 1 (Time Value of Money)

March 2nd Session-6: Risk and Return Topics Covered

Risk-Return Nexus

Risk Measurement

Portfolio Diversification

Capital Asset Pricing Model Required Readings:

Managerial Finance Chp 4 (Risk and Return)

Higgins Chp 8 pages 295-303

HBS Note: Financial Leverage, the Capital Asset Pricing Model and Cost of

Equity

HBS Case: State of South Carolina

March 9th Session-7: Bond Valuation Topics Covered

Interest rates, yield curves, and required returns.

Major types of bonds

Bond Valuation Required Readings:

Managerial Finance, Chp 2 (Interest Rates and Bond Valuation)

Higgins Chp 5 pages 153-162

HBS Note Bond Valuation

HBS Case Disney Sleeping Beauty Bonds (Midterm Exam will be released)

March Session-8: Stock Valuation

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23rd Topics Covered

Common Stock Valuation

Constant and Variable Growth Models

Dividend Discount Model and Free Cash Flow Models Required Readings:

Managerial Finance Chp 3 (Stock Valuation)

Higgins Chp 5 pages 162-183

HBS Case Valuing Walmart

March 30th

Session-9: Cost of Capital Topics Covered:

Capital Structure

WACC

Refinements on WACC

Required Readings:

HBS Note: Financial Leverage, the Capital Asset Pricing Model and Cost of

Equity (this note was also assigned in session 6; you should read one more

time very carefully; please pay attention to the discussion on asset betas)

Managerial Finance Chp 5 (The Cost of Capital)

Higgins Chp 8 pages 304-317 and Appendix (pages 334 and 337)

(Midterm Exam is due)

April 6th

Session-10: Cost of Capital Topics Covered:

WACC

Required Readings:

HBS Case: Midland Energy Resources

Assignments: HBS Case Write Up Midland Energy Resourses

Apri 13th Session-10: Capital Budgeting Topics Covered:

The steps in the capital budgeting process

The basics of determining relevant after-tax cash flows of a project

Capital Budgeting Techniques

Risk and Refinements on Capital Budgeting Required Readings:

Managerial Finance Chp 6 (Capital BudgetingTechniques) and Chp 7 (Capital Budgeting Cash Flows)

Higgins Chp 7 (Discounted Cash Flow Techniques)

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April 20th Session-11: Capital Budgeting-2 Topics Covered:

The steps in the capital budgeting process

The basics of determining relevant after-tax cash flows of a project

Capital Budgeting Techniques

Risk and Refinements on Capital Budgeting

Required Readings:

Managerial Finance Chp 8 (Risk and Refinements in Capital Budgeting)

Higgins Chp 8 (assigned earlier, but review once more)

HBS Case : Ocean Carriers

Assignments: HBS Case Write Up Ocean Carriers

April 27th Session-12: Leverage and Capital Structure Topics Covered:

Operating & Financial Leverage

Optimal Capital Structure

Capital Structure in Practice

Required Readings:

Higgins Chp 6 (Financing Decisions)

Managerial Finance Chp 9 (Leverage and Capital Structure)

How CFOs Make Capital Budgeting and Capital Structure Decisions, JACF

(Optional)

Capital Structure Puzzle Revisited, JACF (Optional)

May 4th Session-13: Leverage and Capital Structure Topics Covered:

Capital Structure Changes and Value Implications

Required Readings:

HBS Case: Blaine Kitchenware Inc: Capital Structure HBS#4040 Assignments

Case Write Up : Blaine Kitchenware Inc: Capital Structure

May 11th Exam-II (Proctored)

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Case Analysis Rubric

Criterion

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A-level qualities (90–100)

3

B-level qualities (80–89)

2

C-level qualities (70–79)

1 or 0

D- or F-level qualities (60–69 or below 60)

Score

Completeness Complete in all respects; reflects all requirements

Complete in most respects; reflects most requirements

Incomplete in many respects; reflects few requirements

Incomplete in most respects; does not reflect requirements

Understanding Demonstrates a sophisticated understanding of the topic(s) an dissue(s)

Demonstrates an accomplished understanding of the topic(s) andissue(s)

Demonstrates an acceptable understanding of the topic(s) andissue(s)

Demonstrates an inadequate understanding of the topic(s) andissue(s)

Analysis, evaluation, and recommendations

Presents an insightful and thorough analysis of all issues identified; includes all necessary financial calculations

Presents a thorough analysis of most issues identified; includes most necessary financial calculations

Presents a superficial analysis of some of the issues identified; omits necessary financial calculations

Presents an incomplete analysis of the issues identified

Makes appropriate and powerful connections between the issues identified and the concepts studied in the class; demonstrates complete command of the key concepts and analytical tools studied

Makes appropriate connections between the issues identified and the strategic concepts studied in the reading; demonstrates good command of the strategic concepts and analytical tools studied

Makes appropriate but somewhat vague connections between the issues and concepts studied in the reading; demonstrates limited command of the strategic concepts and analytical tools studied

Makes little or no connection between the issues identified and the strategic concepts studied in the reading

Supports diagnosis and opinions with strong arguments and evidence; presents a balanced and critical view; interpretation is both reasonable and objective

Supports diagnosis and opinions with reasons and evidence; presents a fairly balanced view; interpretation is both reasonable and objective

Supports diagnosis and opinions with limited reasons and evidence; presents a somewhat one-sided argument

Supports diagnosis and opinions with few reasons and little evidence; argument is one-sided and not objective

Presents detailed, realistic, and appropriate recommendations clearly supported by the information presented and concepts pertinent to the topic

Presents specific, realistic, and appropriate recommendations supported by the information presented and concepts pertinent to the topic

Presents realistic or appropriate recommendations supported by the information presented and concepts pertinent to the topic

Presents realistic or appropriate recommendations with little, if any, support from the information presented and concepts pertinent to the topic

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Writing mechanics Writing demonstrates a sophisticated clarity, conciseness, and correctness; includes thorough details and relevant data and information; extremely well-organized

Writing is accomplished in terms of clarity and conciseness and contains only a few errors; includes sufficient details and relevant data and information; well-organized

Writing lacks clarity or conciseness and contains numerous errors; gives insufficient detail and relevant data and information; lacks organization

Writing is unfocused, rambling, or contains serious errors; lacks detail and relevant data and information; poorly organized

Style guidelines Uses a consistent writing style (such as APA) to accurately and consistently cite sources

Uses a consistent writing style (such as APA) with minor violations to cite sources

Reflects incomplete knowledge of style; citations are arbitrary and incoheren

Does not use any style guidelines

Total: