Course Description

This course helps students to gain an introduction to the concepts of time value of money, risk and rates of return, cost of capital, financial planning, capital investment decisions, capital management, capital structure and rewarding policy (shareholders), cconcepts and techniques of financial management decision; valuation of a firms stock, capital asset pricing model; risk analysis; working capital management, management of cash, management of accounts receivable; inventory management, short and intermediate term financing, long term financing tools of financial analysis, financial ratio analysis, funds analysis and financial forecasting, operating and financial leverages. Course Objectives The structure of the course will enable students to appreciate the integration between financial markets, business environment and the role of finance manager in maximizing firm's and shareholders' value. This course helps students to gain an introduction to the principles of financial management, shareholders wealth maximization vs. profit maximization, time value of money, risk and return investors and companys perspectives, cost of capital, capital investment decisions, capital management, capital structure and rewarding policy (shareholders) and corporate taxation. Teaching Methodology: All additional course materials will be upload in taxila. The course will utilize the activity based learning methods such as project-based learning and problem-based learning in addition to the effective utilization of the electronic resources. Periodically students will be given assignments to apply/validate the concepts/theories discussed in the course in the context of an organization preferably students own employer. Therefore, each student will choose his/her own organization (employer), as a case study for all assignments, provided the same is listed in any stock exchange and if is not listed then can choose another organization one in the same industry (sector). Prescribed Text Book: T1. Prasanna Chandra, Fundamentals of Financial Management, TMH, 5th 2010. Reference Book R1. Chandra Prasanna, Financial Management Theory and Practice, Tata McGraw-Hill, 8th Edition, R2. Van Horne J.C., Financial Management and Policy, Pearson Education, 12 th Edition, 2001.

MMVA ZG521 (Course Handout) Plan of Study

Week No. 1-2 Topics Financial Management: An Overview

First Semester 2013-2014

Page 2

3-4

Financial Statements Analysis and Interpretation

The Time Value of Money

6-7

Risk and Return

Reference to Textbook Describe what the subject of financial management is Ch.1 & 2 about. Interface between Finance and Other Functions. Interface between goal of the firm, responsibility of finance manager and financial system. [Profit Maximization versus Shareholder Wealth Maximization]. Understanding 10 principles that form the basics of financial management. Understanding Indian financial system markets, features and participants Reference Reading: Arvind Mahajan and Scott Lummer, Shareholder Wealth Effect of Management Changes, Journal of Business and Accounting. Donald R. Chambers and Nelson J. Lacey, Shareholder Wealth Maximization: Business Ethics and Social Responsibility, Journal of Business Ethics Thomas E. Copeland, Why Value Value, McKinsey Quarterly. Understanding of various components of financial Ch 3, 4, 5 statement Statement of Sources & Application of Funds, & 6 Statement of Income and Expenditure, and Statement of Funds Flow. Financial Statement Analysis: Ration Analysis (Du Pont Analysis) and Interpretation. Mechanics of compounding: how money grows over time Ch.8 when it is invested. Determine the future or present value of a sum when there are non-annual compounding periods. Discuss the relationship between compounding (future value) and bringing money back to the present (present value). Define an ordinary annuity and calculate its compound or future value. Differentiate between an ordinary annuity and an annuity due, and determine the future and present value of an annuity due. Calculate the annual percentage yield or effective annual rate of interest and then explain how it differs from the nominal or stated interest rate. Describe the relationship between the average returns that Ch.8 investors have earned and riskiness of these returns. Explain the effects of inflation on rates of return. Describe term structure of interest rates. Define and measure the expected rate of return of an individual investment. Define and measure the riskiness of an individual investment. Measure the market risk of an individual asset. Reference Reading: Robert F. Peterkort and James F. Nielsen, Is The Book-ToMarket Ratio a Measure of Risk? The Journal of Financial Research Taek Ho Kwon, Sung C. Bae and Jay M. Chung, Do Foreign Investors Price Foreign Exchange Risk Differently? The Journal of Financial Research Steven T Goldberg, 7 Sure Ways to Bigger Return Learning Objectives

8-9

Analysis and Impact of Leverage (Business and Financial Risk)

10-11

12-13

14-15

Understand the difference between business risk and financial risk. Use the technique of break-even analysis in a variety of analytical settings. Distinguish among the financial concepts of operating leverage, financial leverage, and combined leverage. Explain why a firm with a high business risk exposure might logically choose to employ a low degree of financial leverage in its financial structure. Reference Reading: Richard A Lord, The Impact of Operating and Financial Leverage on Equity Risk Brent A Gloy and Timothy G. Baker, The Impact of Financial Leverage and Risk Aversion in Risk Management Strategy Selection Hossein Asgharian, Are highly leveraged firms more sensitive to an economic downturn? Richard A Lord, Interpreting and Measuring Operating Leverage. Robert J Long, A Different Perspective on Operating Leverage: Comments. Syllabus for Mid-Semester Test (Closed Book): Topics in Week No. 1 to 9 Cost of Capital Understanding the application of cost of capital in business decisions. Determine cost of various components of capital - cost of debt, preferred stock, common stock and weighted average cost of capital. Impact of floatation cost on cost of capital Techniques of Understanding different types and importance of capital Capital expenditure decisions on business sustainability. Budgeting Understanding various non-discounted and discounted cash flow methods and their application in capital expenditure decisions. Understanding limitations of discounted and nondiscounted cash flow evaluation methods and exploring best possible option. Analysing and measuring various risk involved in capital expenditure Scenarios Analysis, Sensitivity Analysis and Decision Trees Analysis. Reference Reading: Thomas E. Copeland and Philip T. Keenan, How much is the Flexibility Worth? Jeremy Carter Menno van Dijk Ken Gibson, Capital Investment: How not to build the Titanic. Harol H. Koyama and Robert Van Tassel, How to Trim Capital Spending by 25 percent? Review Session Working Objective of Working Capital Management, Static and Capital Dynamic view of Working Capital Management Factors Affecting Composition of Working Capital Working Capital Determination Operating Cycle and Simulation Approach.. Criteria for Evaluation of Working Capital Management. Financing Current Assets: a. Behaviour of Current Assets and Pattern of Financing b. Spontaneous Sources of Finance c. Trade Credit, Short-term bank finance, PDs, CPs and Factoring. Management of Current Assets a. Inventories - Role of Inventories in Working Capital, Cost of carrying inventories, Inventories planning and management techniques. b. Receivables Purpose and cost of Maintaining

Ch. 14

Ch. 11, 12 & 13

Ch. 22 to 26

16-17

Capital Structure and Firm Value

Receivables, Impact of Credit Policy and Process of Credit Evaluation, Decision Tree Approach and Monitoring Receivables. Management of Cash: a. Difference between profits and cash, Factors affecting cash management and Internal Treasury Controls. Understanding Theories of Capital Structure (MM Theories). Asymmetric Information Theory Pecking Order Theory Understanding financial distress and agency cost Determinants of capital structure. An approach to setting the target capital structure.

Ch.15 & 16

18-19

Dividend Policy and Firm Value

Reference Reading: Saumitra N. Bhaduri, Determinants of Corporate Borrowing: Some Evidence from the Indian Corporate Structure. Thomas W. Killian, Designing an Optimal Capital Structure Erik Lie, Do Firms Undertake Self-Tender Offers to Optimize Capital Structure? Linda, Thomas and Stephen, Debt vs. Equity and Asymmetric Information Chin-Bun Tse, Top Gearing. Understanding dividend versus capital gains: What do investors prefer? Appreciating rationale behind stable dividend policy. Understanding other means of rewarding to the shareholders Bonus Share, Stock Options, Stock Split, Share Buyback, etc. Reference Reading: Aswath Damodaran, Beyond Cash Dividends: Buybacks, Spin Offs and Divestitures. Aswath Damodaran, Returning Cash to the Owners. Suzanne and Greg IP, Buybacks Aren't Always a Good Sign for Investors.

Ch.17 & 18

20

Review Session Syllabus for Comprehensive Exam (Open Book): All topics given in Plan of Self Study

Evaluation Scheme: EC No. EC-1 EC-2 EC-3 EC-4 Evaluation Component & Type of Examination Assignment- I Assignment - II Mid-Semester Test (Closed Book)* Comprehensive Exam (Open Book)* Duration Weightage 10% 10% 30% 50% Day, Date, Session,Time

* * 2 Hours 3 Hours

30/09/2013 31/10/2013 Sunday, 15/09/2013 (FN)* 10 AM 12 Noon Sunday, 17/11/2013 (FN)* 9 AM 12 Noon

* Legend: AN: AfterNoon Session;

FN: ForeNoon Session

Closed Book Test: No reference material of any kind will be permitted inside the exam hall. Open Book Exam: Use of any printed / written reference material (books and notebooks) will be permitted inside the exam hall. Loose sheets of paper will not be permitted. Computers of any kind will not be allowed inside the exam hall. Use of calculators will be allowed in all exams. No exchange of any material will be allowed. Instructor-in-Charges