The Lee Kong Chian School of Business Academic Year 2013/14 Term 2 FNCE103 FINANCE FOR LAW

Instructor Name: Title: Tel: Email: Office: Dr. David K. Ding Associate Professor of Finance (Education) 6828-0245 davidding@smu.edu.sg LKCSB #4064

COURSE DESCRIPTION
This course serves as an introduction to business finance. The aim is to provide students with a strong foundation in finance. Students will be exposed to key financial concepts and tools commonly used by managers in making sound financial decisions, which include time value of money, risk-return analysis, asset pricing and cost of capital. The course focuses on basic financial activities undertaken by a firm to create value for its shareholders. These activities include financial planning and management, investing and financing.

LEARNING OBJECTIVES
By the end of this course, students will be able to: Have a basic understanding of financial statements; Explain the capital market theory and explain the effect on expected returns, the standard deviation of returns, and possible risk/return combinations when a risk-free asset is combined with a portfolio of risky assets; Calculate and interpret the effective annual rate, given the stated annual interest rate and the frequency of compounding, and solve time value of money problems; State the various forms of investment returns; and calculate and interpret the value both of a preferred stock and a common stock; Explain the steps in the bond valuation process; and compute the value of a bond and the change in value that is attributable to a change in the discount rate; Discuss the fundamentals of option pricing; Explain the capital budgeting process, including the typical steps of the process, and distinguish among the various categories of capital projects; Calculate and interpret the results using each of the following methods to evaluate a single capital project: net present value (NPV), internal rate of return (IRR), payback period, discounted payback period; Calculate and interpret the weighted average cost of capital (WACC) of a company.

PRE-REQUISITE/CO-REQUISITE/MUTUALLY EXCLUSIVE COURSE(S)

Please refer to the Course Catalogue on OASIS for the most updated list of pre-requisites /co-requisites for this particular course. Do note that if this course has a co-requisite, it means that the course has to be taken together with another course. Dropping one course during BOSS bidding would result in both courses being dropped at the same time. Academic Integrity All acts of academic dishonesty (including, but not limited to, plagiarism, cheating, fabrication, facilitation of acts of academic dishonesty by others, unauthorized possession of exam questions, or tampering with the academic work of other students) are serious offences.

All work presented in class must be the students own work. Any student caught violating this policy may result in the student receiving zero marks for the component assessment or a fail grade for the course. This policy applies to all works (whether oral or written) submitted for purposes of assessment. When in doubt, students are encouraged to consult the instructors of the course. Details on the SMU Code of Academic Integrity may be accessed at http://www.smuscd.org/resources.html.

INSTRUCTIONAL METHODS AND EXPECTATIONS

Assessment Method Class Participation & Attendance Group Project Report and Presentation Quizzes Midterm Test Final Exam 10% 20% 10% 20% 40%

Class Participation & Attendance Participation is a central part of the learning process for you and your classmates. Your participation mark reflects your contribution to your classmates learning. You are expected to attend weekly class meetings, prepare for reading materials and other assignments before class, and actively participate in class discussions. Class participation is strongly encouraged and expected. Students should read the assigned materials before coming to class. In addition, various application exercises and mini projects may be assigned to enhance your understanding and learning experience. Whether or not you are able to solve them, each participant or team should have, at the minimum, attempted the exercise and obtained the necessary information. You may be randomly selected to present your findings or recommendations (even if incomplete) in the week that a topic is discussed. This will count toward your class participation marks. Participation marks are earned based on the deemed quality and impact of comments made or questions asked and not simply on the number of times one has asked or answered a question. Attendance in all scheduled classes is required and expected. If for some reason you are not able to make it to class due to some emergency situation, you must inform your instructor at the earliest opportunity. An unexcused absence will adversely affect your class participation/attendance mark. Full class attendance will count a maximum of 50% toward your participation marks. Each unexcused absence will reduce your attendance mark by 1. Self-test problems are provided at the end of each chapter of your text with fully worked out solutions provided in the appendix. Please work on these. Practice problems are also available through the Study Tools on CengageNOW, which is a new integrative website containing practice tests/problems and many other learning materials and information that are dedicated to student learning. Depending on demand, occasional tutorial sessions may be conducted by your TA to go through any queries or problems which you may have. Group Project There will be a group project on a firms financial health analysis, emphasizing risk-return tradeoffs and valuation. The project will be executed on a group basis. It will be graded based on a written final report as well as in-class presentation. The details are provided below. Each group will complete a project centered on the analysis of a companys future financial health. The target companies selected should be listed in Singapore (SGX) or a major international stock exchange (NYSE, Nasdaq, LSE, ASX, etc.). You must receive prior approval from your TA on the company you wish to pick, which must be mutually exclusive (i.e., no two teams are allowed to analyze the same company). Students are required to compare the selected company with its peers in the same industry and make a recommendation on the stock based on its valuation. A written report of at least 10 pages (excluding spreadsheets and appendices) is to be submitted. Toward the end of the term, there will be a required presentation of the projects by each group. More details of the expectations will be provided in class.

Quizzes Several online mini quizzes, aimed at helping you better understand the class materials and prepare for exams, are assigned. You have up to a maximum of three attempts at each quiz, where the highest mark of the three will be recorded. All quizzes are open-book and must be completed within a certain time-period. These must be completed on an individual basis. Examinations There will be a midterm test and a final exam. The midterm test is to be taken online over a two-hour period on Saturday, February 22nd starting anytime from 3-4pm. The exam opens at 3pm and that you must start on it no later than 4pm, after which you will no longer have access. The final exam is a two-hour closed-book exam covering all materials, i.e., cumulative, taught in the course. Financial calculators and a hand-written formula sheet (A4-sized written on both sides) are allowed. Please note that no make-up exams will be given. Financial calculator A financial calculator is essential for various materials covered in class and for the exams. Brief instructions on the operations of Texas Instruments BA II Plus are provided on eLearn. You are encouraged to purchase or borrow this model. You can also use other brands/models, provided that you know how to use them appropriately.

CONSULTATIONS AND TEACHING ASSISTANTS

Teaching Assistants (TA): G1: Mr. Solomon Ong (solomon.ong.2011@accountancy.smu.edu.sg) G2: Ms. Pamela Goh (pamela.goh.2011@economics.smu.edu.sg) G3: Mr. Zach Pang (ziqi.pang.2010@sis.smu.edu.sg) Please contact your TA for queries and further explanations of material taught, etc. Their consultation hours are listed on eLearn. Please make appointments with them directly for other timings.

RECOMMENDED TEXT AND READINGS

Required: (BH) Brigham, Eugene F. and Joel F. Houston, Hsu, Kong, Bany-Ariffin, Essentials of Financial Management, 3rd Edition, Cengage, 2014. Additional readings may be assigned. Students are encouraged to keep abreast of current developments in the world especially those that have an impact on business and finance, particularly in the Asia-Pacific region by reading leading business dailies/weeklies such as the Asian Wall Street Journal, Economist, Business Times, Financial Times, etc.

WEEKLY LESSON PLANS1

Week 1 Topic Introduction to Finance Why is finance so important? Major careers areas in finance Basic financial decisions The goal of financial management The agency problem in modern corporations The efficient market hypothesis Financial Statement Analysis Key financial statements Cash flow from assets Cash flow to shareholders Financial ratio analysis The Du-Pont identity Using financial statement information Assessing the financial health of a firm Readings from BH Ch 1, 2

Ch 3, 4

Take Quiz 1 Online (covers material from Week 1 & 2; to be completed between Jan 20-26) 3 Time Value of Money Financial Calculator Future Value and Compounding Present Value and Discounting Discount Rate and Number of Periods Annuities and Perpetuities Present/Future Values of Uneven Cash Flows EAR and APR Loan Amortization Interest Rates and Bond Valuation Bond characteristics Bond markets Bond valuation Bond yields Yield curve and term structure of interest rates Ch 5

Ch 7, 9

Take Quiz 2 Online (covers material from Week 3 & 4; to be completed between Feb 3-9) 5 Risk & Return and Portfolio Analysis I Components of return Historical and expected returns Risk measures Ch 8

This schedule is subject to change. Any changes will be announced in advance.

Risk & Return and Portfolio Analysis II Portfolio diversification SML, CML, CAPM

Ch 8

Online Mid-term Test (February 22, two hours starting at 3-4pm) (Covers material from Weeks 1-6) Recess Stock Valuation Stock characteristics Stock valuation Stock yields Stock market equilibrium Preferred stock Capital Budgeting and Project Analysis The investment evaluation process Identification of relevant cash flows Cash flows and incremental cash flows Capital budgeting techniques Comparison of techniques Cash Flow Estimation and Risk Analysis Ch 10

8 9

10

Ch 12, 13

Take Quiz 3 Online (covers material from Week 9 & 10; to be completed between Mar 17-23) The Cost of Capital Cost components Weighted average cost of capital (WACC) Derivatives and Risk Management Derivative basics Fundamentals of option valuation Valuing call and put options Option strategies Project Presentations Revision and Self Study Final Examination Ch 11

11

12

Ch 18

13 14 15