BA615 STRATEGIC FINANCIAL MANAGEMENT Syllabus, Outline & Class Schedule Spring 2016 Version: February 10, 2016 IU Executive Certificate for the Business of Life Sciences (ECBLS) THE BASICS Schedule 6 (Sunday) through May 14 (Saturday) 10 weeks beginning 6. For studying and topics scheduling purposes, a week begins on Monday morning and ends on Sunday evening, with most graded work having a deadline of 11:59 PM on Sunday evening. Instructor Contact Michael J Oakes, Senior Lecturer in Finance mjoakes@indiana.edu Official course communication to everyone from the instructor will come through Announcements on Canvas. See Module 00 on Canvas for help with setting things up for forwarding via email and text. For individual communication: please use email, mjoakes@indiana.edu. Course Description How do pharmaceutical firms like Merck decide which projects to fund? What sources of capital can a biotech firm tap? How do investors value such firms? How did Endius measure the financial viability of its new medical device? When taking a new drug to market, how does Glaxo choose between direct marketing and co-marketing with a partner? Why do pharmaceutical firms forgo the tax-shields associated with debt financing and choose relatively low debt levels? Finance offers a rigorous analytical framework with which to analyze such financing and investment decisions of individuals and firms. This framework is the result of several decades of research by many scholars, some of whom (Miller, Scholes, Sharpe, Markowitz, Merton) have won the Nobel Prize for their contributions to finance. A study of this framework will help you make value-creating financial decisions for yourself and your firm. Participants will learn in this class how the decisions of a company affect shareholder value. To understand this perspective, we will study basic principles of financial economics: time value of money, law of one price, valuation of debt and equity securities, discounted cash flow as a foundation for stock prices, the impact of diversification and leverage on portfolio risk, the relationship between risk and expected return in securities markets, and capital market efficiency. We will use these principles to analyze capital investment decisions by estimating cash flows and discounting them at the appropriate cost of capital. We will also study how shareholder value is affected by a firm s financing decisions, such as the choice of using debt or equity capital. TEXTS AND OTHER ITEMS Required 1. Paid (online) access to the Aplia space for BA615. This includes an online textbook and a package of practice and homework problem sets. Aplia offers students the option of also purchasing a printed text at a reduced price. (The online text on Aplia is printable.) A one-page information sheet with instructions and appropriate access keys for the Aplia BA615 space will be distributed via email and/or is available in Canvas Module 00. As an FYI, the required course text book (again, purchased when you register and pay online at Aplia) is: page 1
Corporate Finance: A Focused Approach, 5 th. Ehrhardt and Brigham. South- Western Cengage Learning. 2. Paid access to Finance Simulation: Capital Budgeting from Harvard Business Publishing. This is $15 simulation. For instructions and the appropriate link, see Canvas Module 00 and Module 05. 3. Hardware and software needed to access online discussion sessions. See Canvas Module 00 for more details. Recommended 1. A financial calculator. Highly recommended is the HP 10BII+. GRADING CRITERIA Item Unit of Assessment Problem Sets Individual various points each Points Weight Notes 25% Requires registration and purchased access to the course space on Aplia. Details are available in Canvas Module 00. These are fundamental problems in finance, stressing general concepts and tools, and are not necessarily life sciences related. Work on these as needed in order to be prepped for online discussions. These problem sets are always due by Sunday 11:45 PM. See the class schedule below. BLS Applications and Cases Capital Budgeting Simulation Comprehensive Assessment Individual 20 and 40 (cases) points each 35% These offer applications across health care and life sciences businesses, markets, and situations. Individual 20 15% Requires registration and purchased access to the simulation at Harvard Business Publishing. Details are available in Canvas Module 00 and Module 05. Individual 100 25% A final assessment of what you have learned, and what you can do, consists of both problem solving and analysis and decision-making. See Canvas for details on delivery and format. It is due completed (or uploaded) by Sunday, May 15, 11:45 PM. ASSIGNMENT OF LETTER GRADES Assignment of Final Letter Grade Weighted % Grade Weighted % Grade 93% to 100% A 73% to 77.9% C 90% to 92.9% A- 70% to 72.9% C- 87% to 89.9% B+ 67% to 69.9% D+ 83% to 86.9% B 63% to 66.9% D 80% to 82.9% B- 60% to 62.9% D- 77% to 79.9% C+ Below 60% F Grading Notes An A+ may be awarded at the instructor s discretion for superior work and critical thinking. For the level of study in ECBLS, it s expected that the grade distribution ranges from about 80% to about 95%. page 2
COURSE LEARNING OUTCOMES Course Learning Outcomes When completing this course successfully, a student will be able to 1. Evaluate financial performance by analyzing financial statements with key ratios, trends, and industry benchmarks. 2. Evaluate capital investment projects by estimating cost of capital and riskadjusted net cash flows using appropriate capital budgeting principles and tools. How This Will Be Assessed Scores from financial statement analysis portion of Cavalier Hospital case. Scores resulting from financial analysis problem solving on the Comprehensive Assessment. Scores resulting from the capital budgeting mini-case problem on the Comprehensive Assessment. Expected Outcomes For each assessment, 80% of students should score at the Met Expectations (or above) goal of 85% or greater of the available points. See the assessment rubric available on Canvas for more details. 80% of students should score at the Met Expectations (or above) goal of 85% or greater of the available points. See the assessment rubric available on Canvas for more details. ATTENDANCE AND OTHER COURSE POLICIES Attendance Late Work, Makeups Caveat for Personal Emergencies or Other Situations Communication Academic Integrity Attendance during online Connect sessions is expected and recommended, but there are no points directly tied to attendance. Instead, missing a few of those sessions reduces the likelihood of score well on engagement and contribution, either from instructor or peers. No late assignments are accepted, and there are no makeups for any graded work. Genuine and documented personal emergencies or special situations may warrant some flexibility in course policies. This flexibility will be infrequent and considered on a case-bycase basis. All official digital communication for the course should come through Canvas or via mjoakes@indiana.edu. Communicating through email is highly preferred. As in all things at the Kelley School of Business, the Honor Code serves as a guide to proper ethical, and academic decision-making. It is expected students are familiar with the code, available at: http://www.kelley.iu.edu/ugrad/academics/honorcode/page39065.html The section on Violations in the Honor Code explains well the kinds expectations in place for the course. IU Policies Related to Sexual Assault The classroom environment, whether online or in face-to-face settings, should be a safe environment. What you should know about sexual misconduct: IU does not tolerate acts of sexual misconduct, including sexual harassment and all forms of sexual violence. If you have experienced sexual misconduct, or know someone who has, the University can help. It is important to know that federal regulations and University policy require faculty to promptly report complaints of potential sexual misconduct known to them to their campus Deputy Title IX Coordinator(s) to ensure that appropriate measures are taken and resources are made available. The University will work with you to protect your privacy by sharing information with only those that need to know to ensure the University can respond and assist. If you are seeking help and would like to speak to someone confidentially, you can make an appointment with a Mental Health Counselor on campus (contact information available at http://stopsexualviolence.iu.edu/employee/confidential.html). Find more information about sexual violence, including campus and community resources at http://stopsexualviolence.iu.edu/. page 3
OUTLINE & CLASS SCHEDULE Version: February 10, 2016 Week Date Topic or Item Activities and Deadlines 7 Module 00 Preparing for BA615. This is an introduction to the course content coverage, how the course works, how grades are determined, and the mechanics of Canvas and Aplia. Module 01 Measuring Company Performance, Part I Prep 00 (ungraded practice problems) on Aplia due by Mar 9, 8:00 PM. Problem Set 01 on Aplia due by Sun, Mar 13, 11:45 PM. 1 How do I know if my organization or business is successful? How should my organization measure and evaluate growth? 10 questions you might prepare for, in Module 01 on Canvas. 2 14 Module 02 Measuring Company Performance, Part II What metrics are best to help me understand profitability and cash flow? What metrics are best to help me understand the efficiency or productivity of my operations? What metrics are best to help me understand debt and how my company s assets are financed? Complete the BLS Financial Profile worksheet. See details in Canvas Module 02. Due by Mar 17, 8:00 PM. Problem Set 02 on Aplia due by Sun, Mar 20, 11:45 PM. 17 questions you might prepare for, in Module 02 on Canvas. Familiarity with (and easy access to) Pfizer s fiscal year 2015 financial statements will help make this evening 3 21 24 Darden Case: Cavalier Hospital Find the case overview and instructions in Module 02 on Canvas. Mar 27, 11:45 PM. questions you might prepare for, in Module 02 on Canvas. This session is largely devoted to case discussion. Familiarity with the case is essential for the session to be 4 28 Module 03 Valuing Assets and Activities How can I estimate the value of my organization s assets now and in the future? How much does the timing of cash flows matter in terms of their net value? Complete the BLS Valuation worksheet. See details in Canvas Module 02. Due by Mar 31, 8:00 PM. Problem Set 03 on Aplia due by Sun, Apr 3, 11:45 PM. 31 questions you might prepare for, in Module 03 on Canvas. This session is devoted primarily to basic problem solving using time value tools. 5 Module 04 Financing Assets and Growth Problem Set 04 on Aplia due by Sun, page 4
4 What options are available for obtaining capital needed to fund future investments and fuel growth? What is the proper way to think about and determine the costs of these financing options? Apr 10, 11:45 PM. 8 questions you might prepare for, in Module 03 on Canvas. This session is devoted primarily to office hours. Come online with questions you have regarding Module 04. 6 11 Module 05 Investing for the Long-Term How do I determine whether a potential capital investment is worthwhile? How do I choose among the various capital investment projects available to my organization? Problem Set 05 on Canvas due by Sun, Apr 17, 11:45 PM. 14 questions you might prepare for, in Module 06 on Canvas. This session is devoted primarily to set up and analysis of the components of capital budgeting scenarios. 7 18 Module 06 Managing Risk How should I think about risk, and what are the proper ways to measure it? How is risk affected by the decisions I make about financing my firm s assets? How should I make use of this thinking and these measures in managerial decision-making? Problem Set 06 on Canvas due by Sun, Apr 24, 11:45 PM. 8 25 Capital Budgeting Simulation While Modules 05 and 06 focused on process and value determination for long-term capital investments and projects, this simulation focuses on multi-period decisionmaking. This is a simulation available from Harvard Business Publishing. See Canvas for access details. Find the case overview and instructions in Module 05 on Canvas. May 1, 11:45 PM. 9 May 2 May 5 Harvard Case: Merck & Company: Evaluating a Drug Licensing Opportunity questions you might prepare for, in Module 06 on Canvas. Find the case overview and instructions in Module 06 on Canvas. May 8, 11:45 PM. This session is largely devoted to case discussion. Familiarity with the case is essential for the session to be 10 May 9 COMPREHENSIVE ASSESSMENT See instructions and submission requirements for the exam on Canvas. Submission due by Sunday, May 15, 11:45 PM. page 5