Course Outline

Course Title: CORPORATE FINANCE

Instructor: LIONEL ARANHA

E-Mail: profaranha@outlook.com

OBJECTIVES: To give the student the capacity to understand the theory and apply, in real

world situations, the techniques that have been developed in Financial Management..

To give the student the big picture of Corporate Finance so that he/she can understand how things fit together.

To show the student that Financial Management is fun.

METHODOLOGY:

The course is taught with a mixture of lectures, presentations & cases. (The objective of the case method in finance is to use the logic of financial theory to arrive at coherent and defensible conclusions when faced with real world problems presented in cases. One should keep in mind that there is no “right” answer to a case; different assumptions may lead to different solutions and decisions. There are, however, good arguments and weak arguments. Furthermore, there is always a theoretically correct methodology and technique that are proper for the problems encountered in a case.)In every aspect of the course, students are required to adhere to high standards of conduct. Note that some of the cases and homework assignments used in this class may have been used before at other institutions. Students may not use material or solutions from other institutions (e.g. posted on the Internet), unless otherwise instructed in class for a particular assignment.

SESSION PLAN:

Session No. 1 Topic : Corporate Financial Management: Meaning, nature and scope of finance; Financial goal - profit vs. wealth maximization; Finance functions - investment, financing and dividend decisions.

Exercise :

Visit www.ft.com (financial times) – one of the best websites for international business information

Assignment : Visit www.careers-in-business.com and page through the finance positions listed & understand the skills sets or job characteristics required.

Essential Readings

: The scope & objectives of Financial Management

Optional Readings

: Emerging Role of Finance Managers in India

Session No. 2-3

Topic : Time  Value  of  Money-Concepts  of  Present  Value (PV), Future  Value (FV),  Annuities (Ordinary  and  Annuity  Due)  and  Perpetuity;

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Exercise :

Practical applications of the concepts of Time Value of MoneyVisit www.moneychimp.com & try the ‘How Finance Works’ link to learn about many applaications of present & future value mathematicsVisit www.financialplayerscenter.com this site provides helpful tutorials on time value of money

Assignment : Kate Myers Case Quillici Family Case

Essential Readings

: Rationale of ‘Time value of Money’The techniques involved in ‘Time value of Money’

Optional Readings

: Amortisation of loans by banks & financial institutions

Case : Camille Henley Case Session No. 4-5

Topic : Sources of long term funds.

Exercise :

Select a company of your choice and understand the various choice of long term financing that the company has opted for. What could have been the inherent advantages/disadvantages?

Assignment : The KajunKorp Mini CaseEssential Readings

: The basic instruments of Long-term FinancingThe basic choices in Long-term Financing

Optional Readings

: Law & Finance – The importance of corporate governance

Case : Hasbro Case NetJ.com Case

Session No. 6-7 Topic : Cost of capital – basic concepts. Cost of debenture capital, cost of preferential capital, cost of term loans, and cost of equity capital, CAPM model, Cost of retained earnings. Determination of overall cost of capital (Weighted Average Cost of Capital - WACC)

Exercise :

Practical application: From exercises at the end of the chapter in the prescribed text bookVisit www.quicken.com – contains information relevant to calculating the WACC, including Betas, total market value of equity, and debt/equity ratios

Assignment

: Student to select Indian company of his choice, locate the beta of the company, and analyse the position of the company vis-à-vis other companies in the sector & the market.

Essential Readings

: Components of Cost of CapitalWeighted Average Cost of Capital WACC

Optional Readings

: Cost of capital and riskThe Cost of Capital in India

Case : Computrized Business Systems CaseSession No. 8-9 Topic : Operating and Financial Leverage: Measurement

of leverages; Effects of operating and financial leverage on profit; analyzing alternate financial

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plans; Combined financial and operating leverage, Financial Breakeven

Exercise :

Workout the exercises at the end of the chapter in the prescribed textbook for the purpose

Essential Readings

: Different kinds of cost; & the need to identify them as fixed & variable.Effect of Financial Leverage

Optional Readings

: The importance of Operating Leverage

Session No. 10-11

Topic : Capital Structure, Cost of Capital & Valuation, Capital Structure theories, Designing Capital Structure

Exercise : Summarizing the proof for Net Income Approach, Net Operating Income Approach, MM Approach & Traditional Approach

Assignment

: -

Essential Readings

: Corporate Income Taxes & the cost of capital

Optional Readings

: Capital Structure Practices in India

Session No. 12-14

Topic : Capital Budgeting: Nature of investment decisions; Investment evaluation criteria - net present value, internal rate of return, profitability index, payback period, accounting rate of return: NPV and IRR comparison; Modified IRR, Capital rationing.

Exercise :

Workout the exercises at the end of the chapter in the prescribed textbookVisit www.teachmefinance.com – a site for definitions & examples of many finance concepts, including most of the capital budgeting tools discussed in this chapter.

Assignment

: Durango Cereal Company Mini CaseSouthwest Airlines CaseAcclaim Entertainment CasePhilips Morris Case Florida Power & Light Case

Essential Readings

: Capital budgeting – Process & Techniques

Optional Readings

: Cash flow & Capital Budgeting

Session No. 15-18

Topic : Financial analysis and planning – Ratio analysis for performance evaluation and financial health, Application of Ratio Analysis in decision making; Analysis of Cash Flow Statement

Exercise :

Visit www.yahoo.com –contains a link to Yahoo! Finance for retrieval of recent financial statements & a wide variety of financial information for many international firms.

Assignmen : Analysing the financial statement of a company of

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t the student’s choiceEssential Readings

: Understand the four key financial statements: The Balance Sheet, The Income Statement, The Statement of Retained Earnings & The Statement of Cash Flows

Optional Readings

: The Dupont Analysis

Case : Jeadan Industries CaseSession No. 19-20

Topic : Dividend Decisions, Determinants of Dividend Policy

Exercise : Workout the exercises at the end of the chapter in the prescribed text book relating to Walter’s & Gordon’s Models

Essential Readings

: Relevance of Dividends to a Company

Optional Readings

: Legal, Procedural & Tax aspects of Dividends

Session No. 21-24

Topic : Introduction to Working Capital - Nature of working capital , Components of working capital,  Tradeoff  between  profitability  and  risk,  Determinants  of  working  capital; operating cycle and cash cycle; Management of working capital; Financing of working capital and norms of bank finance, Management of Cash, receivables & Inventory

Exercise :

Workout the exercises at the end of the chapter in the prescribed textbook

Assignment

: Bracelet Blanks Inc Mini CaseFoah’s Design Mini Case

Essential Readings

: Effective Short-term Financial Management Short term lending norms of banks in India

Optional Readings

: Trade credit practices around the worldCash management services offered by banks

Case : Anheuser-Busch CasePepsi CaseInn-Room Safe CaseHome Depot Case

Text Book:M. Y. Khan & P. K. Jain – Financial Management (TMH).

 Suggested Readings/ References:

1. Brigham & Houston – Fundamentals of Financial Mgmt., Thomson Cengage Learning.

2. Megginson/Smart/Gitman – Corporate Finance., Thomson South Western Learning

3. Stephen A. Ross, Wester Field, Jordan – Fundamentals of Corporate Finance (MacGraw Hill).

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4. Vanhorne & Wachowicz, Fundamentals of Financial Management – Pearson / PHI.

5. Damodaran, Corporate Finance – John wiley & Co. Gitman, Principles of Managerial Finance, Pearson Education / PHI.

6. Vanhorne, Financial Management & Policy, Pearson/PHI.

7. Prasanna Chandra: Financial Management (TMH).

8. I.M. Pandey – Financial Management (Vikas).

9. Brearley, Richard A and Steward C. Myers: Corporate Finance, McGraw Hill, lnt. Ed., New York.

Likely Evaluation Scheme:

1. Class Participation: 10%2. Quizzes / Cases / Assignments: 30%3. Group Work / Project / Presentations: 20%4. End Term Exam: 40%

The likely scale for awarding marks for Component 1 and 3 (as above) will be as under:

The Rating of the Component

Likely Marks for component-1

Likely Marks for component-3

(Out of 10) (Out of 20)Excellent 9-10 17-20

Very Good 7-8 14-16Good 5-6 10-13Fair 3-4 6-9

Not Satisfactory 0-2 0-5

Indicative Grading Scheme:

It will be strictly as per standing policy of CIMP. However, an indicative grading scheme may be as under:

Grade

A+ A A- B+ B B- C+ C C- D+ D D- F

Likely Range

80 and above

75-79

71-74

67-70

63-66

59-62

55-58

51-54

47-50

43-46

39-42

35-38

Less than 35

Important Notes:

1. Case assignments: Students will prepare cases in groups of 6 students (size is dependent on class enrollment). Case assignments and due dates will be indicated in the class. Case assignments will be graded using the following criteria:

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a) Analyzing each question effectively 20%b) Identifying and evaluating alternative solutions 20%c) Linking the case to strategic issues 20%d) Organizing the case logically 20%e) Quality of the presentation 20%; Total 100%

2. Class participation: Students are expected to read the material for class and to participate actively in every class. Class participation marks will be given on the quality of the comment, not the quantity and how these comments relate to the ongoing discussion.

3. Students are expected to enter in to the class with full preparation and enthusiasm.

4. There will be no reexamination for any missed evaluation component.5. Students are expected to be above reproach in all scholastic activities and

disciplinary issues.6. Plagiarism of any kind will not be tolerated & will be dealt with strictly.7. Very Important Note: The instructor reserves all rights to fine-tune /

modify the above mentioned session plan and the grading scheme as may be required.

8. Mobile phones are banned9. Internet activity on laptop during the course of the lecture is prohibited.

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