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Financial Management, BMA 5008




National University of Singapore

NUS Business School Investment Financial Management BMA 5008

Spring 2015


Professor: Dr. Emir HRNJIĆ

Office: MRB #07-80

Phone: 6516 7824

e-mail: emir@nus.edu.sg

Office Hours: Wed 5:00 pm – 6:00 pm and by appointment (via email)


COURSE DESCRIPTION
This course will provide a strong conceptual foundation for finance. Finance theory will be used to solve practical problems faced by financial managers. You will find it beneficial to have some basic knowledge of accounting, algebra, and statistics prior to enrolling in this course.
By the end of this course you should be able to:
Understand the conflicts between shareholders and managers

Understand the time value of money and calculate present value of future cash flows

Value bonds

Value stocks

Estimate cash flows for a project

Calculate the cost of capital

Use the net present value rule and other methods to evaluate a project

Measure the risk of individual securities and portfolios

Evaluate different sources and methods of financing

Analyze a firms capital structure

Set payout policy of a firm


COURSE STRUCTURE
The lectures will focus on the major points introduced in the textbook. The lectures will provide general background information on the topics covered.
You are expected to access the course page on IVLE (ivle.nus.edu.sg) for course related information including announcements and PowerPoint slides of the lectures.
Prior to class you should read the relevant material in the textbook, the PowerPoint slides, and any additional assigned readings. You are expected to attend class regularly and to come to class on time. You are encouraged to ask questions and to be an active participant in class. After the lecture, you should review your lecture notes and work on the assignments.


ATTENDANCE POLICY
Class attendance is highly encouraged. You are responsible for all material and announcements made in class. All students should display name sign during the class AND during the test.


REQUIRED COURSE MATERIALS
(1) Textbook: Principles of Corporate Finance, Richard A. Brealey, Stewart C. Myers, and

Franklin Allen (11th edition), McGraw-Hill.


(2) Case studies:

1) Alibaba (NUS/Ivey)

2) Emirates Airlines: A Billion-Dollar Sukuk-Bond Issue (NUS / Ivey)

3) East Meets West: Rothschild’s Investment in the Indonesian Mining Sector (NUS / INSEAD)

4) SIAS (NUS/Ivey)
(3) Calculator: A calculator that does two variable statistics is needed for homework and tests. If you do not have one, I recommend the Texas Instruments BAII plus business calculator (thats the one I use). It does everything you need to be able to do, is user friendly, and is relatively inexpensive. You are required to bring calculator every class.
RECOMMENDED READING (1) The Wall Street Journal

(2) Financial Times

(3) Business Times


COURSE EVALUATION
The assessment policy for this course is specified in the following paragraphs. Please read it carefully. The final course grade will be computed based on the following weights:
(1) Class participation: 10% (2) Case study analysis and participation: 10% (3) Team project: 20% (4) Test: 20% (5) Final Exam: 40%


TESTS
Tests will be a combination of multiple choice questions, show-your-work problems, and essay questions. Tests will cover all assigned readings and problems as well as material covered and discussed in class. The multiple-choice questions will be conceptual. The show-your-work

problems will be computation based and similar to assigned problems. The essay questions will ask you to explain a concept. Answers to these should be one or two paragraphs in length. The best

way to prepare for the tests is to do the readings and the assignments and attend class.
You are allowed to have a calculator and formula sheet (and nothing else) to all tests. You may bring in a 5 8” formula sheet (both sides) for the test or a 8”x11” formula sheet (one side only). You are allowed to write only formulas on a formula sheet (this should be self-explanatory). Each formula sheet will be submitted with your test when you turn it in. If you know that you have

a conflict with an upcoming test such as a job interview, you must notify me several days in advance and provide supporting documentation or a make-up test will be denied. Students on athletic scholarships have to provide supporting material in the first week of the semester. Last minute requests for a make-up test will be denied except in the case of medical emergencies. In these cases, you must provide supporting documentation.




TEAMS
You will be assigned to a team of 4 6 students. If you are not assigned to a team, come and talk to me. Teams are responsible for the discussion of case studies and the class project.


PROJECT
Project is team effort. The project is to be done in Excel. Many recruiters want to see that you have done financial modeling. Calculations must be done using Excel formulas. You will submit the

hard copy of the report to me and electronic copy of the report and Excel file to IVLE. Guidelines will be posted on the class web page later in the course. Project is due on a specified date at the beginning of the class. Late submissions will be penalized at the rate of 10% for every 12 hours (with first 10% being deducted immediately after the deadline).



NAME OF THE FILE HAS TO LOOK LIKE FOLLOWING:

. For example, . Names of team members, your section number, and team number need to be printed on the cover page.


CLASS SCHEDULE:

The following is a list of some of the topics that we will cover in this course. Based on the progress of the class, minor changes (additions or deletions) may be made to this list.


Introduction to finance

What is a corporation?

The objectives of a firm

What is the role of a financial manager?

Separation of ownership and management
Valuation

Introduction to present value and the opportunity cost of capital

Valuation of stocks and bonds
Capital Budgeting

Making investment decisions with the Net Present Value (NPV) rule

NPV vs. alternative criteria for making investment decisions such as the Internal Rate of

Return Rule and Payback Period Rule



Estimation of cash flows and valuing a project using discounted cash flows
Risk, Return, and Cost of Capital

The benefits of diversification

Measures of risk for individual securities and portfolios

Capital Asset Pricing Model and alternative pricing models

The cost of equity and the weighted average cost of capital (WACC)
Market Efficiency

Efficient markets theory

Stock market anomalies and behavioral finance
Corporate financing

Financing a company using common stock, preferred stock, and debt

How corporations issue securities (e.g. IPOs)

Venture Capital and Private Equity
Payout policy

How dividends are paid and how firms repurchase stock

The payout controversy
Capital Structure

How much should a company borrow?

The trade-off theory of capital structure

The pecking order of financial choices
Special topics
 Islamic finance

Investing in weak legal environments

Shareholder activism


NON-TEXTBOOK BOOKS

Frequently, students will be interested in non-textbook books on investing in equity securities. There is a huge range in the difficulty level and quality of these books. Following is a list of books that complement what you are learning in this course and are at an adequate difficulty level. They are organized by general topic area.


GENERAL

A Random Walk Down Wall Street by Burton G. Malkiel

The Intelligent Investor by Benjamin Graham

Security Analysis by Benjamin Graham and David L. Dodd

Applied Equity Analysis by James English

Beyond the Random Walk by Vijay Singal
BEHAVIORAL FINANCE

The New Finance: The Case Against Efficient Markets by Robert A. Haugen

The Inefficient Stock Market: What Pays Off and Why by Robert A. Haugen

Irrational Exuberance by Robert J. Shiller

Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of



Investing by Hersh Shefrin

Inefficient Markets: An Introduction to Behavioral Finance by Andrei Schleifer



Advances in Behavioral Finance by Richard H. Thaler

Behavioral Corporate Finance by Hersh Shefrin

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for

Global Capitalism by George A. Akerlof, Robert J. Shiller

Predictably Irrational by Dan Ariely


SPECIFIC EVENTS OR PEOPLE

One Up on Wall Street by Peter Lynch with John Rothchild

Beating the Street by Peter Lynch with John Rothchild

The Warren Buffet Way by Robert G. Hagstrom, Jr.

Buffetology by Mary Buffet and David Clark

Winning on Wall Street by Martin Zweig

Freakonomics by Stephen J. Dubner, Steven D. Levitt

Accidental Investment Banker by Jonathan A. Knee




NUS Business School




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