PEPPERDINE UNIVERSITY THE GEORGE L. GRAZIADIO SCHOOL OF BUSINESS AND MANAGEMENT

PEPPERDINE UNIVERSITY THE GEORGE L. GRAZIADIO SCHOOL OF BUSINESS AND MANAGEMENT Managerial finance (FINC 474) Dr. Michael D. Kinsman SYLLABUS

THE GEORGE L. GRAZIADIO SCHOOL OF BUSINESS AND MANAGEMENT 6100 CENTER DRIVE LOS ANGELES, CALIFORNIA 90045 -- MICHAEL D. KINSMAN, CPA, PH.D. PROFESSOR OF ACCOUNTING AND FINANCE -- (949) 223-2533 Attached is your syllabus for Fall, 2017. I am looking forward to working with you to ensure that we have the best possible class in finance, which will allow you to use this material in your business life. For this class, you will need a financial calculator capable of doing internal rates of return. Any calculator that does present and future value, including Internal Rate of Return, is acceptable. If you are going to purchase a new calculator, I suggest that you purchase one of first three (I do not have a financial interest in HP!): 1a) If you have an iphone or an ipad, strongly consider the "10BII Calc HD" calculator available at the itunes store for $5.99. Its icon is blue and green. You get all of the same look and feel of the HP-10BII plus many very useful added features. Its author is Ernest Brock, and searching his name in the itunes store is the easy way to find the calculator.1b) If you have an Android, strongly consider the "10bii Financial Calculator" calculator available at the Google Play store for less than $6. Its author is In A Day Development. 2) An HP-10BII calculator, which costs around $40, is a good choice. 3) The HP-12c financial calculator (about $90), is the "old standby" in the finance industry. 4) I have not used, but have instructions for, the TI BA-II calculator on my website. If you have this calculator, it should work. If you do not have it, please consider buying one of those listed above. 5) I have posted additional calculator sheets for the HP17 and HP19 calculators, in case you have them. I have a handout that shows the keystrokes for doing financial problems with each of these calculators. To get a preview of this, check my website at http://luna.pepperdine.edu/faculty/mkinsman/calculators/using.html I do not show them for other calculators--though if you already have a calculator and know how to use it, that will not be a detriment to you. I will not be able to help you learn to use other calculators (because I don't know them). Please come to each class with your calculator. If you have an old financial calculator at your house that is not one of the ones listed above and you don't know how to use it, please buy a new one--you will use this calculator a lot and the price of a slow start is high. Using these notes: You should download and carefully read the notes for each week before class. They are at http://luna.pepperdine.edu/faculty/mkinsman/finc474/474syllabus.html. [The center menu is a pull down menu.] If you want to use your iphone or ipad for the notes, you will need to enter Preferences>Safari in your device Settings. At the bottom of those preferences, you will find JavaScript (it needs to be ON) and Block Pop-ups (it needs to be OFF). If you are having trouble downloading the notes, check those settings. Dr. Michael Kinsman Page 2 of 8 FINC 474

Managerial Finance Dr. Michael Kinsman FINC474--Wednesday, OCC room 400 (949) 223-2533 Fall 2017 MKinsman@pepperdine.edu Syllabus Catalog description: The official catalog description of this course reads: "This course examines the financial function of the firm, including raising capital, allocating capital, and deciding the capital structure of the firm. The course also examines the firm's working capital decisions and financial markets. Prerequisites: FINC 471 Statistical Methods and Research Design and FINC 472 Accounting." What's going to happen in this course? In my view, finance is the single course that could be offered in no other department in the university--it is the one course that is unique to the business school in your education. In this course, we begin where you left off in accounting, by looking at the firm's financial statements to determine its health. We then examine risk, return, and the valuation of assets--a subject that will allow you to make both better business decisions and better personal decisions as you acquire assets of various types and make decisions involving financial variables. We examine working capital, capital structure (how much debt and equity a firm issues) and dividends. We look at capital markets, and discuss ways a firm can raise money. Heck, we might even discuss how you could buy and sell securities and other assets in this section of the course. This is a course that will require that you keep up, and that you be actively involved in our discussions. It is a course where working in a group on the material (excepting exams, which in this course are to be done strictly alone) will be of great help to you. I hope, at the end of the program, you will look back on this course and say, "Of all the courses I took, that was the best. It was the best use of my time, and I learned the most there." Ethical considerations: Throughout this course, you will find discussions of ethics. There are many ways of looking at ethical issues--if there were not, there would be no need to study ethics, it would be automatic. Each of us needs to consider his or her own ethical standards in business, and there are many frameworks to choose from. The purpose of our discussions is to challenge yours so that it is as strong as it can be. Global considerations: You will find in our discussion of finance that we in the main focus on US finance and financial markets. However, dealing globally has become increasingly important over time. We will, when appropriate, bring in aspects of finance from other countries, including the way US companies operate their foreign subsidiaries (and visa versa). Grading and attendance: attendance issues. Please see the last page of this syllabus regarding grading and Conduct: The Graziadio School of Business and Management has asked me to direct your attention to the academic catalog, regarding conduct expected of students and of employees of the University. Policy on disabilities: The University s Policy on disabilities is also contained in the academic catalog. It is important that you read and act on that policy if you feel you qualify for special help due to a disability. Dr. Michael Kinsman Page 3 of 8 FINC 474

The text for the course is: Besley, Scott, and Brigham, Eugene F., Essentials of Managerial Finance, (14th ed., Mason, Ohio, South-Western), 2008. Listed below as BB. This book is best purchased through Ebay or Amazon, and can be had for less than $30 (in most cases, a lot less). Its ISBN is 978-0-324-42270-2 and its cover has a black stripe at the top and green rolling hills at the bottom with a man standing on a ladder in the middle. This book is required for the class--order early to get the best buy. Information and helpful hints: Please prepare the readings and materials listed below each session for that session. Many students have told me that the optional study guide assignments have been useful to them. These assignments will not be collected. PREPARE, listed below, means that at a minimum you should read the material, think about it and prepare any questions listed. PREPARE does not mean write for turn in, although I may, on occasion, choose to collect your notes. Please feel free to bring up uncovered issues in class. You will be assumed prepared unless you tell me otherwise. It is very important that you be prepared for each session--important to you and to our learning team. I realize that some of this material will be difficult for some of you. It is the doing and the trying that are important. Coming to class prepared--having done the reading and prepared as best you can--is very important to your learning. Previous groups have told me that working in groups of three to five in preparing the out of class material was very helpful--in fact, many of those students have told me that they would require such groups, although at the start of class they would have resisted such an assignment. I do not plan to assign such groups, but I strongly urge you to get into a study group. However, if you are not participating in your group, or are the only one participating in your group, you are in the wrong group. If I were studying for the class, I would do a quick reading first, then do a more detailed reading, and then would prepare the other material. I expect that you may spend approximately eight hours per week outside of class preparing this material. If you are significantly below that estimate, please be sure that you aren't fooling yourself regarding your preparation. You may be interested in checking out my "Useful Finance and Accounting Websites" data page located at http://luna.pepperdine.edu/faculty/mkinsman/datasources.html As you go through the course, I believe you will find this a good source of information. Session I August 30--Introduction to the course; ratio analysis; financial markets Read: BB, pp. 3-27 (ch. 1) BB, pp. 33-71 (ch. 2) BB, pp. 87-119 (ch. 3) Chapters 1 and 2 should be a refresher of your accounting course. Read them in enough detail so that that material is fresh in your mind. Introduction to the course External forces that affect companies and their finances Financial statements The importance of cash flows Ratio analysis: A key to company analysis Financial markets and their importance Raising capital in the US and globally Prepare: Be prepared to discuss Ethical Dilemma: Hocus-Pocus--Look, an increase in sales! (BB, p. 69) Pick up: Case on ratios for Session II Download: Handout for your type of calculator for next time Dr. Michael Kinsman Page 4 of 8 FINC 474

Session II--September 6--Time value; valuing stocks and bonds; cost of capital Read: BB, pp. 127-165 (ch. 4) BB, pp. 183-211 (ch. 5) Practice on your calculator as you go through chapter 4, and be sure to bring your calculator with you to class. We'll use it. The time value of money Present and future value Solving for interest rates Annuities and single payments How do interest rates get set? Why are interest rates important? Prepare: Case on ratios passed out in last class. 1. Do the questions at the end of the case as a guide to your study. Session III--September 13--Valuing stocks and bonds; cost of capital, capital budgeting Read: BB, pp. 219-253 ch. 6) BB, pp. 263-294 (ch. 7) BB, pp. 355-379 (ch. 9) BB, pp. 449-479 (ch. 11) Valuing perpetuities What are bonds? Valuing bonds Valuing stocks The Gordon model Putting capital together in a firm: Weighted average cost of capital Project cash flows Payback, IRR, and NPV Evaluating risk in a capital budgeting project Capital budgeting in practice Download: Taco Frio case for next week Session IV September 20--Catch up, Taco Frio case Prepare: Taco Frio (downloaded) Pick up the midterm examination tonight Session V September 27--First midterm examination There will be a take home midterm examination handed out at Session IV due back to me as discussed in class. No class tonight. Dr. Michael Kinsman Page 5 of 8 FINC 474

Session VI October 4--Leverage, dividends and internal financing Read: BB, pp. 493-523 (ch. 12) BB, pp. 535-554 (ch. 13) Capital structure: What is leverage? What does leverage do for a firm? How does leverage affect risk? Business and financial risk? Dividends and their effect on firm value Retention Session VII October 11--Working capital management, managing current assets Read: BB, pp. 565-587 (ch. 14) BB, pp. 595-625 (ch. 15) BB, pp. 637-659 (ch. 16) Working capital Conversion of other assets into cash Liquidity Why hold cash? Cash budgets Managing cash Managing your receivables Credit policies Types of inventory Why hold inventory at all? Inventory management models Bank loans Choosing a bank Commercial paper Factoring Inventory loans Prepare: Be prepared to discuss Ethical Dilemma: Money Back Guarantee, No Questions Asked (BB, p. 623) Session VIII October 18--Risk and investing Read: BB, pp. 305-342 (ch. 8) BB, pp. 395-428 (ch. 10) Risk Beta Stand alone risk Dr. Michael Kinsman Page 6 of 8 FINC 474

Session IX October 25--Forecasting, planning and control; advanced topics Read: BB, pp. 671-704 (ch. 17) BB, pp. 719-744 (ch. 18) Forecasting financial needs Raising additional funds Percent of sales method Lumpy assets Leases Convertible securities Puts and calls Prepare: Case on forecasting. We did the part of this case at week 2. Session X November 1--Stocks and markets Re-read: BB, pp. 219-253 ch. 6) BB, pp. 263-294 (ch. 7) The market for common stocks Bonds markets Puts and calls Other marketable securities Session XI November 8--Second midterm examination In class examination covering sessions VI through IX. approximately 2-1/2 hours in length. This examination will be Note on potential changes to the class in sessions XII through XIV: I reserve the right to change the next three weeks of this course based on what I believe is in the best interests of the students of the class. I may, for example, alter Session XII and have a team presentation (individually graded) as the final examination, which would count as 34 percent of the total points in the class. We will talk more about that after the second midterm examination. (I will not change Session XIII.) Session XII November 15--Investments, financial planning and estate planning In this class we will discuss the various stock and bond investments that you can make. Remember that your purchase decisions are the other half of your firm's sale decisions, so that at the same time you are learning to buy securities, you will be learning to sell them. In addition, we will be discussing gifts and estates. Please feel free to bring a "relevant other"--a spouse, a parent, a child or a co-worker--to this session if you think they might benefit from its content. Session XIII November 22 No class--enjoy Thanksgiving tomorrow Session XIV November 29--Final examination or other final exercise as determined by the professor hours. If we have a final examination will cover the whole course and will last approximately 2-1/2 Dr. Michael Kinsman Page 7 of 8 FINC 474

How will my grade be computed? Your grade will be based in the main on your total points on three examinations: Examination I (take home) will be approximately 33 percent of the total points available in the class. Examination II (in class) will be approximately 33 percent of the total points available in the class. See the comments on the final examination above. The final examination (in class) will be approximately 34 percent of the total points in the class. The actual percentages of points on each examination may vary from 25 to 40 percent (as opposed to the 33 percent listed above) of the total points, depending on the length of the examination and the type of questions on it. In addition, you must turn in all collected homework in order to pass the class. If you miss four classes, you will lose one letter grade in the class. For each additional class you miss, you will lose one additional letter grade. I reserve the right to raise or lower grades based on class participation as follows: If you are one of the one or two most outstanding people in the class in terms of participation and have turned in all your homework on a timely basis, I reserve the right to raise your grade to the next higher sign (for example, from B+ to A-). If you have generally not participated in the class (or that participation has been a negative participation), I reserve the right to lower your grade to the next lower sign (for example, from A- to B+). This procedure will not affect many of you--probably two at most in any class. Dr. Michael Kinsman Page 8 of 8 FINC 474