FIN 819: Financial Management

1
FIN 819 Financial Management

• Administrative Issues Course Overview

2
Todays plan

• Administrative issues
• prerequisite
• add, drop and withdraw
• projects
• case writing and discussion
• final exam
• final grade
• Course overview
• Team formation

3
The instructor

• My name is George Li
• Office DTC 582 and BUS 315
• Email li123456_at_sfsu.edu
• Office hours
• Monday 130 p.m. to 330 p.m. at BUS 315
• Thursday 330 a.m. to 530 p.m. at DTC 582
  
• Research interest
• Corporate finance real options
• Asset pricing information and stock prices

4
My website

• All the lecture slides, solution to homework
  problems, sample final exam will be posted on my
  website
• http//online.sfsu.edu/li123456
• I only use ilearn to send you emails.

5
Textbook

• The textbook for background reading
• Principles of Corporate Finance, 9th Edition, by
  Richard A. Brealy and Stewart C. Myers, published
  by Irwin McGraw-Hill, 2008.

6
Prerequisite

• You are required to take BUS 785 with a grade of
  at least B-, or have a waiver of this course.
• It is the schools policy that all the students
  in this course must satisfy this requirement and
  there is no exception, unless you get the waiver
  of this prerequisite

7
Add, drop and withdrawal policy

• The business school has the policy for add, drop
  and withdrawal
• Students can withdraw once
• If you like to withdraw, you have to do it in the
  first two weeks
• Please read the Spring 2012 bulletin for detail
  information

8
Homework problems

• In the first several lectures, I will review most
  important concepts in corporate finance
• In order to help you to understand these
  concepts, homework problems are assigned.
• I will not grade homework but its solution will
  be posted on my website.

9
The two projects

• There is one project for each team. A project is
  the presentation of a case. For each of the two
  cases to be discussed, every team must write a
  report, which is 2-10 pages long in single space
  and typed.
• Each team has about 4 students so that we have 4
  teams.
• Form your own teams after the break.
• For each case, two teams are assigned to present.

10
The two projects (continue)

• If your team is to present a project, your team
  has to use PowerPoint to present your analysis,
  and bring in a computer and a USB, with the
  PowerPoint file copied on it.
• Each member in the team will get the same score
  unless there is a free-rider problem.

11
The cases

• One case will be reserved electronically in the
  library. It is supposed to be available in the
  third week of this semester.
• I will tell you the password to access this case.
• The second case is from the end of chapter 22
  (Bruce Honiballs invention)

12
Two cases

• Nike Corporation
• The min-case in chapter 22

13
Valuing a writing-report

• The instructor will use the following criteria to
  value a writing-report
• understanding the case
• clear writing
• apply concepts correctly
• convincing arguments

14
Valuing the oral presentation

• The instructor will use the following criteria to
  value the oral presentation
• Clear presentation ( 5pts)
• Answer questions precisely and concisely (6 pts)
• Understand the concepts and theories (2 pts)
• Have convincing arguments (2 pts)

15
Solution to the free-rider problem

• In theory, all members in each team should get
  the same score.
• If more than two members in a team complain about
  the free-rider problem, the team member valuation
  for that team will be used to decide on the
  project score for each student in that team.

16
The mid-term and final exams

• There will be a mid-term and a final exams,
  which are closed-book.
• The mid-term exam has only multiple choice
  questions, but the final has only essay
  questions.
• The mid-term exam is closely related to lectures
  and homework problems.
• The final is closely related to the lectures,
  homework problems, and 2 cases to be discussed in
  the class.
• There is no makeup or in-advance final.

17
Class attendance and performance

• It is the instructors strong preference that you
  attend each class and be actively involved,
  unless you are very familiar with the basic
  concepts discussed in the first several review
  lectures.

18
Total points

• Your overall course grade will be based on your
  performance in the class, four cases, final
  project, and the final exam.
• Class attendance and performance 10 pts
• Case write-ups (each 5) 10 pts
• Case presentation 15
  pts
• Mid-term exam 25
• Final
  60 pts
• Total 120 pts

19
Curve grading

• Grading policy
• Your ranking Letter grades
• Top 15 A range (A-, A, A)
• 15 - 75 B range (B-, B, B)
• 75 - 95 C range (C-, C, C)
• Bottom 5 D range (D, D, D-)

20
FIN 819 course organization
FIN 819
Module 1 Fundamentals of valuation
Module 2 Valuing risky investments Risk and return
Module 3 Corporate financial decisions
Module 4 Market efficiency and options
Fundamentals of PV Financial decision Interest
rates
Portfolio theory Diversification and covariance
Weak, semi-strong and strong form
efficiency Information and stock prices
Types of securities Stocks, bonds and other
Perpetuities and annuities calculation
Modigliani-Miller theorem 1 Pizza size is
independent of how sliced
Tangency portfolio, CAPM risk and return
Options and Black-Scholes
Valuing stocks and bonds NPV and other criteria
Effect of leverage WACC and discount rate
Binomial model, replication Risk-neutral
probabilities
Modigliani-Miller theorem 2 WACC
21
Corporate finance what is it?

• A set of concepts, theories and approaches that
  help the firm make financial decisions.

22
Financial decisions

• Capital budgeting (use of the capital)
• Real capital investments
• Mergers acquisitions
• Financing (capital structure decision)
• Equity
• Debt
• Risk management
• Hedging to reduce the risk
• Portfolio diversification

23
Course organization

• This course is broken-down into 4 modules
• Valuation
• Assets pricing theory
• Option pricing theory and its applications
• Capital structure theory

24
Valuation

• This module covers the fundamentals of valuation.
  The topics include
• Present value concept and its application
• Unlevered assets and betas
• Levered assets and betas
• Two approaches for valuing a real project
• WACC
• APV.

25
Asset pricing theory

• This module is the fundamental of corporate
  finance
• Corporate finance is simply the application of
  asset pricing theories
• It covers the most fundamental theories in
  finance
• Portfolio diversification, mean-variance
  analysis, risk and return
• CAPM, WACC and its calculation

26
Option pricing theory and its applications

• This module, together with the first module,
  provides a complete picture about asset pricing.
• asset pricing based on equilibrium concept
• relative asset pricing, using no arbitrage
  argument
• It covers
• Black-Sholes valuation and its use in industries
• Binomial tree valuation in single and multiple
  stages
• Applications of option theory in valuing
  managerial flexibility waiting, expansion, and
  shutting down

27
Financing decision (capital structure theory)

• If you are the CEO of an industrial company
• you can make your company more valuable by
  choosing better projects (capital budgeting)
• we want to know if you (and the CFO) can make
  your company more valuable by changing the
  mixture of your financing (i.e. the ratio of debt
  to equity)
• It covers
• Modigliani-Miller theorems 1 and 2