Lahore University of Management Sciences. FINN 200 Intermediate Finance Fall Semester 2017

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1 Instructor Dr. Salman Khan Room No. SDSB 408 Office Hours TBA Telephone Secretary/TA Mr. M. Waqas TA Office Hours TBA Course URL (if any) LMS FINN 200 Intermediate Finance Fall Semester 2017 COURSE BASICS Credit Hours 3 Lecture(s) Nbr of Lec(s) Per Week 2 Duration 1H15M Recitation/Lab (per week) Nbr of Lec(s) Per Week Duration Tutorial (per week) Nbr of Lec(s) Per Week Duration COURSE DISTRIBUTION Core Elective Open for Student Category Close for Student Category Core COURSE DESCRIPTION This course addresses major decision making areas of corporate finance within the framework of finance theory and practices. It complements and supplements concepts covered in Principles of Finance. Some of the concepts previously covered are refreshed with broader perspective and more rigorous analysis to provide solid grounding in time value of money, project analysis, and asset pricing. Portfolio theory and risk return tradeoff implications for corporate finance decisions are examined in depth. The course focuses on investment and financing decisions. Capital investments are also evaluated under conditions of uncertainty and risk. Financing decisions are examined through cost of capital, capital structure theory, and dividend policy. Valuation of securities integrates the impact of both investment and financing decisions. Other topics covered include review of derivative instruments, valuation of options including convertible securities, insights from option pricing framework for investment and financing decisions, and usage of derivatives for risk management and hedging exposure. Course Modules: The course is divided into following four modules: Module 1: Valuation Fundamentals and Capital Budgeting Module 2: Risk Return Tradeoff and Portfolio Theory Module 3: Financing Decisions, Payout Policy and Firm Valuation Module 4: Derivative Contracts COURSE PREREQUISITE(S) FINN 100 Principles of Finance

2 COURSE LEARNING OUTCOMES Upon successful completion of this course, students should be able to: 1. Acquire the knowledge, skills, and understanding of the fundamental concepts and mainstream theories and practices in corporate finance. 2. Evaluate investment projects, value assets and securities, explain risk return trade offs, and analyze capital projects under the conditions of risk and uncertainty. 3. Demonstrate understanding of capital structure theories and appreciate their implications for the value of a firm. 4. Comprehend the rationale behind the payout policies in corporate finance 5. Demonstrate understanding of the derivative markets and selected instruments traded in the market. 6. Discuss and debate the ethical perspective in Finance. 7. Present and discuss their analysis and decision effectively, both in oral and written forms. (General Learning Goal) UNDERGRADUATE PROGRAM LEARNING GOALS & OBJECTIVES General Learning Goals & Objectives Goal 1 Effective Written and Oral Communication Objective: Students will demonstrate effective writing and oral communication skills Goal 2 Ethical Understanding and Reasoning Objective: Students will demonstrate that they are able to identify and address ethical issues in an organizational context. Goal 3 Analytical Thinking and Problem Solving Skills Objective: Students will demonstrate that they are able to identify key problems and generate viable solutions. Goal 4 Application of Information Technology Objective: Students will demonstrate that they are able to use current technologies in business and management context. Goal 5 Teamwork in Diverse and Multicultural Environments Objective: Students will demonstrate that they are able to work effectively in diverse environments. Goal 6 Understanding Organizational Ecosystems Objective: Students will demonstrate that they have an understanding of Economic, Political, Regulatory, Legal, Technological, and Social environment of organizations. Major Specific Learning Goals & Objectives Goal 7 (a) Discipline Specific Knowledge and Understanding Objective: Students will demonstrate knowledge of key business disciplines and how they interact including application to real world situations (Including subject knowledge). Goal 7 (b) Understanding the science behind the decision making process (for MGS Majors) Objective: Students will demonstrate ability to analyze a business problem, design and apply appropriate decision support tools, interpret results and make meaningful recommendations to support the decision maker Indicate below how the course learning objectives specifically relate to any program learning goals and objectives. PROGRAM LEARNING GOALS AND OBJECTIVES Goal 1 Effective Written and Oral Communication Goal 2 Ethical Understanding and Reasoning Goal 3 Analytical Thinking and Problem Solving Skills Goal 4 Application of Information Technology COURSE LEARNING OBJECTIVES CLO #7 CLO#6 CLO#1 5 Minor Component COURSE ASSESSMENT ITEM Project, CP CP CP, Quizzes, Assignments, Exams Project, Assignments

3 Goal 5 Teamwork in Diverse and Multicultural Environments Goal 6 Understanding Organizational Ecosystems Goal 7 (a) Discipline Specific Knowledge and Understanding Goal 7 (b) Understanding the science behind the decision making process Minor Component CLO#2 5 CLO1#6 GRADING BREAKUP AND POLICY Assignment(s): 15% Quiz(s): 15% Class Participation and Attendance: 10% Group Project: 25% Final Examination: 35% Project CP, Projects, Quizzes, Exam CP, Project, Quizzes, Assignments, Exams Class Participation and Attendance: Students are expected to attend all classes. If you are not present at the beginning of a class or leave class during the session without instructor s prior permission, you will be considered absent for the day. A maximum of 3 absences will be graded. Any additional absence will receive zero in attendance. You must review the assigned materials in advance of the class in order to contribute meaningfully to class discussions. Quizzes: Several unannounced quizzes will be given on the assigned material during the term. No make up quizzes will be given whatsoever. However, one lowest quiz grade including a zero for a missed quiz will be disregarded. Assignments: There will be several graded assignments and homework during the term to reinforce financial concepts and to encourage usage of spreadsheets such as Excel in performing financial analysis. The format and other requirements will be specified by the instructor. All assignments and homework must be submitted on the due date. Late submissions will not be accepted. Team Project: Each team should have a maximum of 3 students while no group should be less than 2 students. The project involves a comprehensive financial analysis (pricing the company stock) of a company listed on Karachi Stock Exchange (KSE), the company positioning in the industry and the company and industry positioning within the economy. Each group must select a company from KSE 30 and if all the companies have already been taken, the group will be required to select a company from KSE 100 index. The data for the company must be downloaded from Bloomberg available in the newly constructed Trading Lab in SDSB Building. The submitted report is in general subject to the following format requirements: Format 1. Margin: 1 inch 2. Font size: Font: Times New Roman 4. Line spacing: Page limits: Maximum 10 pages (excluding cover page and exhibits) 6. Executive Summary (1 pages) 7. Introduction 8. Analysis (Pricing Stock) Firm, industry, economy (local, global) 9. Conclusions 10. Exhibits Examinations: Final exam will comprise of MCQs. Calculator Requirement: You will need a financial calculator capable of performing present value/future value functions. For example, Texas Instrument BA II meets these criteria. Many other brands are equally suitable for this course.

4 EXAMINATION DETAIL Midterm Exam Yes/No:No Combine Separate: Duration: Preferred Date: Exam Specifications: Final Exam Yes/No: Yes Combine Separate: Duration: 2Hours Exam Specifications: MCQs COURSE OVERVIEW WEEK/ LECTURE/ TOPICS MODULE Module 1: Valuation Fundamentals and Capital Budgeting Week 1 Introduction to the Course Time value of money Overview of corporate finance (Financial Statement Analysis) RECOMMEND ED READINGS Chap 1,2 SESSION OBJECTIVE(S) THE STUDENTS WILL BE ABLE TO Acquire knowledge of the importance of financial information, the corporate forms, the financial markets and the manager s corporate decisions. The will be able to demonstrate the uses of three major financial statements and they will be able to analyze the information in these statements. Week 2&3 Interest rates Bond valuation and analysis Bond risk measures Common stock valuation methods Chap 5, 6 &7 Know how inflation, expectations and risk combine to determine interest rates. They will be able to compute and analyze the price and yield of bonds as well as traded equity. Week 4&5 Investment Decision Rules Fundamentals of Capital Budgeting Chap 8,9 Calculate the NPV and evaluate projects among various alternatives. They will be able to identify the types of cash flows needed in capital budgeting, forecast incremental earnings, assess the sensitivity of projects NPV to changes in assumptions. Module 2: Risk Return Tradeoff and Portfolio Theory Week 6 Risk and Return in Capital Markets Chap 11 Week 7 Systematic Risk and the Equity Risk Premium Chap 12 Compute the risk return of stock and understand the tradeoff between the risk and return for large portfolios versus individual stocks. Compute the expected return and volatility of a portfolio along with systematic risk. They will be able to understand the relation between systematic risk and the market portfolio. They will be able to compute cost of equity capital using CAPM.

5 Week 8 The Cost of Capital Chap 13 Module 3: Financing Decisions, Payout Policy and Firm Valuation Week 9 Capital structure Chap 16 Week 10 Raising equity capital Chap 14 Week 11 Debt Financing Chap 15 Week 12 Payout Policy Chap 17 Week 13 Working capital management Chap 19 Module 4: Derivative Contracts Week 14 Introduction to Forward, Futures and Options. Chap 21 TEXTBOOK(S)/SUPPLEMENTARY READINGS Fundamentals of Corporate Finance, Berk, DeMarzo, Harford, 2nd Edition. (Recommended) (Soft Copy will be available on LMS) Other Material: Short Chapter Summaries will be uploaded on the LMS which includes practice MCQs. Reference Books Principles of corporate finance, 8th edition by Brealey, Myers and Allen Fundamentals of Corporate Finance, 9th edition by Ross, Westerfield and Jordan Hull, Options, Futures and Other Derivatives 7th ed. Prentice Hall Demonstrate the knowledge of the drivers of the firms overall cost of capital. They will be able to measure the cost of debt, preferred and common stock in order to compute the firm s weighted average cost of capital. Demonstrate the knowledge of how capital structures vary across industries, how leverage increased the risk of the firm s equity and what is optimal debt and equity structure. Learn the different ways to raise initial and addition equity capital and understand the process of taking a company public. Identify different types of debt financing, the protective limits within bond contracts and the various options to early repayment of debt. Identify and evaluate the different ways in which corporation can make distributions to shareholders and what is the role of agency theory in payout policy. Understand the cash cycle of the firm, role of trade credit, managing accounts payable, cost and benefits of holding additional inventory and instruments available for investing cash. Understand the derivative markets, design various derivative contracts.