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Managerial FinanceMGMT-2020 Fall 2011

Instructor Dr. C. Blent AybarClassroom Emerson Hall 101 Monday 7:35-9:35

Communication E-mail: aybar@fas.harvard.edu

Teaching Associate : Daniel Kim danielkim116@gmail.com

Course webpage : http://isites.harvard.edu/k81720

Course Description Objectives

The course deals with managing business funds and planning their use to accomplish

organizational objectives. It covers the following: techniques of financial analysis and planning

such as ratio analysis, pro forma projections and discounted cash flow analysis; domestic and

international financial environments; the sources and uses of funds; problems of capital structure;

capital budgeting and cost of capital; mergers and approaches to business valuation; internationalfinancial management. Prerequisite: Introductory accounting or equivalent..

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.

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.

Textbook and Resources

Principles of Managerial Finance, Gitman & Zutter 13th Edition, Pearson Prentice Hall,

2011 ISBN: 013-255435-6

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 (See the instructions below)

Subscription to WSJ strongly recommended

mailto:aybar@fas.harvard.edumailto:danielkim116@gmail.comhttp://www.tvmcalcs.com/calculator_indexhttp://www.tvmcalcs.com/calculator_indexmailto:danielkim116@gmail.commailto:aybar@fas.harvard.edu

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Assignments:

1. Case Analyses (Graded)

We will use seven case studies in the class. You are expected to prepare a write up for

two out of the following four cases.

Ocean Carriers

Midland EnergyBlains Kitchenware

Linear Technologies

However, you should be prepared to discuss all seven cases in the class. The case write

ups are due on the day we discuss the cases.

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 theclass 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.

2. Problems Sets

This assignment was designed to facilitate learning through problems sets addressing key

issues covered in the lectures.

Exams:

There will be two exams. Exam-I (take home) will cover chapters 1 through 8 and will practically

address the issues covered in the first half of the class. The Exam-II will cover the second half ofthe class and will be administered in class. You will be allowed to use a four page cheat sheet in

the second 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 25

Case Write Ups x 2 20

Problems Sets (x4) 20

Attendance & Participation1 10

Exam-II 25

Total 100

1 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 peers understanding during the class discussions. Quality and substance of your

contributions will determine your participation grade.

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95 < A 65-69 C+

90-95 A- 60-64 C

85-89 B+ 55-59 C-

75-84 B 54> F70-74 B-

Academic Honesty Policy

Students who enrol in courses for credit are expected to attend all classes, take the midterm andfinal examinations, and complete all other coursework. If a student is absent from a class meetingfor any reason, including registering late, it is the student's responsibility to make up all work fromthat class. All work submitted to meet course requirements is expected to be the student's ownwork. A student suspected of academic dishonesty in any form is subject to review and disciplinaryaction 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 ExtensionSchool. Extension School regulations regarding academic honesty are discussed in detail in theExtension School student handbook.

How to purchase the HBS Course pack?

Course pack link: http://cb.hbsp.harvard.edu/cb/access/10074359

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 tocreate a user name and password.

When you are done log out.

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

Follow the instructions to purchase the course pack.Your institution/school is HarvardExtension School. The course title is Managerial Finance Fall 2011. Instructor name isBulent Aybar.

http://cb.hbsp.harvard.edu/cb/access/10074359http://cb.hbsp.harvard.edu/cb/access/10074359

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TENTATIVE SCHEDULE

August 29th Session-1: IntroductionRequired Readings:

Gitman Chps 1 and 2

Topics Covered:

Course LogisticsIntroduction to Managerial FinanceFinancial Markets

September

12thSession-2: Financial Statements and Ratio Analysis

Topics CoveredKey components of the stockholders report: the income statement,

balance sheet,statement of retained earnings, and the statement of cash flows.Evaluation of financial statements using ratio analysis. Liquidity,Activity, Debt, Profitability and Market Ratios.DuPont Analysis

Required Readings

Gitman Chp 3

Stanford GSB Case: Costco Wholesale Corporation Financial Statement

Analysis (A) [No case write up required, read the case carefully for class

discussion]

Drivers of Industry Financial Structure [No write up is required; read the

case for class discussion]

Assessing A Companys Future Financial Health, Kester et.al

September19th Session-3: Cash Flows and Financial Planning

Topics Covered

Cash Budget

Pro forma income and balance sheet

Operating cash flow and Free Cash Flow Depreciation of assets

Sources and uses of cash and statement of cash flows

Required Readings

Gitman Chp 4

HBS Case: Advanced Medical Technologies Corporation [No case write

up is required, read the case for class discussion]

September

26thSession-4: 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

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Mixed cash flows with an embedded annuity

Perpetuities,

Deposits to accumulate a future sum

Loan amortization.

Required Readings

Gitman Chp 5

AssignmentProblem Set-1 is Due

October 3rd Session-5: Bond Valuation

Topics Covered

Interest rates, yield curves, and required returns.

Major types of bonds

Bond Valuation

Required Readings:Gitman Chapter 6

October 17th Session-6: Stock Valuation

Topics Covered

Common Stock Valuation

Constant and Variable Growth Models

Dividend Discount Model and Free Cash Flow Models

Required Readings:Gitman Chapter 7

Assignment

Problem Set-2 is Due

October 24th Session-7: Risk and Return

Topics Covered

Risk-Return Nexus

Risk MeasurementPortfolio Diversification

Capital Asset Pricing Model

Required Readings:

Gitman Chapter 8

Exam-I will be handed out on this session. No electronic copies will

be made available. Please make sure that you pick up your exam in the

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class. The exam is due on October 31st

October 31st Session-8: Cost of CapitalTopics Covered:

Capital Structure

WACCRefinements on WACC

Required Readings:

Gitman Chapter 11

A Practical Guide to Calculation of Cost of Capital

HBS Case: Midland Energy Resources (Preliminary Class Discussion)

Assignment

Problem Set-3 is Due

November

7thSession-9: 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:

Gitman Chapters 10,11

Assignments

Case Write up Midland Energy Resources is Due

November

14thSession-10: 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:

Gitman Chapter 12

HBS Case : Ocean Carriers

Assignments:

HBS Case Write Up Ocean Carriers

November

21stSession-11: Leverage and Capital StructureTopics Covered:

Operating & Financial Leverage

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Optimal Capital Structure

Capital Structure in Practice

Required Readings:

Gitman Chapter 13

How CFOs Make Capital Budgeting and Capital Structure Decisions,

JACF

Capital Structure Puzzle Revisited, JACF

November

28thSession-13: Leverage and Capital StructureTopics 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 HBS#4040

December

5thSession-14: Redistribution DecisionsTopics Covered:

Dividend Policy and Firm Value

Dividends vs. Stock Repurchases

Required Readings:

Gitman Chapter 13

HBS Case: Dividend Policy at Linear Technologies HBS# 9-204-066

Assignments:

Case Write-up Dividend Policy at Linear Technologies

December

12th

Session-15: Working Capital Management

Topics Covered:Current Asset Management

Current Liabilities Management

Required Readings:

Gitman Chapters 15 and 16

Assignments:

Problem Set-4 is Due

December

19thExam-II (In Class)