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Department of Management Sciences

GIK Institute of Engineering, Sciences and Technology


MS344 Financial Management
Pre-Requisite: MS101 Business Mathematics
Instructor:
Dr. Mian Muhammad Atif
Office:
G-04, Brabers Building, GIK Institute, Ext. 2291
Email: mmatif@giki.edu.pk
Office Hours:
To be announced in the class
Course Introduction
The objective of this course is to introduce the students to the basic principles used in financial
management and their applications in long-term investment and financing. This course introduces
students to fundamental principles of finance i.e. time value of money and relations between risk and
return, MM theories of irrelevance and efficient markets. Through exposure to these fundamental
concepts it is expected that the students will learn how to apply their knowledge the valuation of stocks
and bonds, financial planning, capital budgeting, long-term financing, capital structure, dividend policy,
working capital management, and risk management.

Course Contents
Meaning and Scope of Financial Management and role of finance manager.
Understanding financial statements and cash flows
Time Value of Money
Capital Budgeting,
Risk and Return
The Cost of Capital
Capital Structure
Working Capital Management
Mapping of CLOs and PLOs
Course Learning Outcomes

Sr. No
CLO_
1
CLO_
2
CLO_
3

CLO_
4

CLO_
5

The basics of finance theory and its applications to


corporate financial decisions
Analysis of financial statements.
Tools and techniques of time value of money for
investing decisions and Estimate the required return on
projects of differing risk and how to use the required
return in evaluating investment decisions.
Working capital and its components, applications of
different techniques that managers can use to manage
various aspects of working capital cash and liquidity,
credit and receivables, inventories, etc.
Different theories of capital structure, their predictions
about optimal capital structure and the limitations of
using debt in the firms capital structure

Assessment Tool
Quizzes
Assignments
Mid Term

PLOs

Blooms
Taxonomy

PLO_2,PLO_6,
PLO_8, PLO_11
PLO_2,PLO_6,
PLO_8,
PLO_2, PLO_6,
PLO_7, PLO_8,
PLO_11
PLO_2, PLO_6,
PLO_7, PLO_8,
PLO_11
PLO_2, PLO_6,
PLO_7, PLO_8,
PLO_11

CLO Assessment Mechanism


CLO_1
CLO_2
CLO_3
100
0
0
0
100
0
0
0
50

CLO_4
0
0
50

CLO_5
0
100
0

Department of Management Sciences


GIK Institute of Engineering, Sciences and Technology
Final Exam

50

50

Department of Management Sciences


GIK Institute of Engineering, Sciences and Technology

Announced/Surprise Quizzes
Project/Assignment
Class Participation
Mid Term Exam
Final Exam

Grading Policy
05%
15%
05%
25%
50%
Text and Reference Books

Text Book:
Ross, S., Westerfield, R., Jordan, B. (Latest Edition). Essentials of Corporate Finance. McGraw-Hill: Irwin:
Chicago
Reference Books:
Ross, S. A., Westerfield, R., & Jordan, B. D. (2008). Fundamentals of corporate finance. Tata McGraw-Hill
Education.
Brealey, Richard A., Myers, Stewart C., Marcys, Alan J. (1999). Fundamentals of corporate finance.
Irwin:Mcgraw-Hill.
Ehrhardt, M., & Brigham, E. (2013 or latest available edition). Corporate finance: A focused approach.
Cengage Learning.

Administrative Instructions
According to institute policy, 80% attendance is MANDATORY to appear in the final examination.
There will be no retake of quizzes.
It is expected that you will always come to class well prepared having read the assigned material for
the class.
All assignments must be submitted both in PRINTED as well as in SOFT COPY. Extension in the
deadline will only be granted under extreme circumstances (on case-to-case basis) and must be
applied for at least 7 working days prior to the deadline. Please name your files (soft copy) as
Course_Class_Assignment_1_Roll Number e.g. for financial management class it will be
FM_SemV_Assignment_1_02.
For any queries, please follow the office hours in order to avoid any inconvenience.

Week
1

Lecture Breakdown
Topics Covered
Meaning and Scope of Financial Management.
Finance and financial management; Scope of Financial management;
Business organizations; Organization of the finance function; Finance
management vs. other managerial functions; The roles of the finance
manager; Goals of the firm; Agency problems and their mitigation
Time Value of Money
Calculate the future value (FV) or present value (PV) of a single sum of
money; Calculate the interest rate or time period for single-sum
problems; Calculate the FV or PV of an annuity and an annuity due;
Calculate the payments, interest rate, or time period for annuity and

Department of Management Sciences


GIK Institute of Engineering, Sciences and Technology

3&4

5&6

7&9

10 &
11

annuity-due problems. Calculate the value, cash flow, or interest rate in a


perpetuity problem; Calculate the FV or PV of a series of uneven cash
flows (i.e., compound or discount the Cash flows); Adapt all FV and PV
calculations to other-than-annual compounding periods; Compute the
solution for various time value of money problems.
The Basics of Capital Budgeting
define capital budgeting; describe and calculate four methods used to
evaluate capital projects: payback period, discounted payback period,
net present value (NPV), and internal rate of return (IRR); explain the NPV
profile; explain the relative advantages and disadvantages of the NPV
and IRR methods, particularly with respect to independent versus
mutually exclusive projects; Describe and calculate the modified IRR
(MIRR); Explain the multiple IRR problem and the condition that can
cause the problem; Explain why NPV, IRR, and MIRR methods can
produce conflicting rankings for capital projects.
Cash Flow Estimation and Other Topics in Capital Budgeting
Distinguish between cash flows and accounting profits; Define the
following terms and discuss their relevance to capital budgeting:
incremental cash flow, sunk cost, opportunity cost, externality, and
cannibalization; Define an expansion project and a replacement project;
Determine by NPV analysis whether a replacement project should be
undertaken; Define initial investment outlay, operating cash flow over a
projects life, and terminal-year cash flow, and compute each measure
for an expansion project and a replacement project; Compare two
projects with unequal lives, using both the replacement chain and
equivalent annual annuity approaches; Discuss the effects of inflation on
capital budgeting analysis.
Risk and Return
Stand Alone Risk; The Trade Off between Risk and Return; Define and
explain leverage, business risk, sales risk, operating risk, and financial
risk and classify a risk, given a description; Calculate and interpret the
degree of operating leverage, the degree of financial leverage, and the
degree of total leverage; Describe the effect of financial leverage on a
companys net income and return on equity; Calculate the breakeven
quantity of sales and determine the companys net income at various
sales levels; Calculate and interpret the operating breakeven quantity of
sales;
Analysis of Financial Statement
Interpret common-size balance sheets and common-size income
statements and demonstrate their use by applying either vertical
analysis or horizontal analysis; Calculate and interpret measures of a
companys operating efficiency, internal liquidity (liquidity ratios),
solvency, and profitability, and demonstrate the use of these measures in
company analysis; Calculate and interpret basic earnings per share and
diluted earnings per share; Calculate and interpret book value of equity

Department of Management Sciences


GIK Institute of Engineering, Sciences and Technology

12 &
13

14 &
15

16

per share, price-to-earnings ratio, dividends per share, dividend payout


ratio, and plowback ratio; Describe the elements of operating cash flows;
Describe the elements of investing cash flows; Describe the elements of
financing cash flows; Classify a particular item as an operating cash flow,
an investing cash flow, or a Financing cash flow; Compute, explain, and
interpret a statement of cash flows, using the direct method and the
indirect method; Compute free cash flow.
Capital Structure
Explain the ModiglianiMiller propositions concerning capital structure,
including the impact of leverage, taxes, financial distress, agency costs,
and asymmetric information on a companys cost of equity, cost of
capital, and optimal capital structure; Explain the target capital structure
and why actual capital structure may fluctuate around the target;
Describe the role of debt ratings in capital structure policy; Explain
factors that we should consider in evaluating the impact of capital
structure policy on valuation; Describe international differences in
financial leverage and their implications for investment analysis;
Describe the role of debt ratings in capital structure policy;
Cost of Capital
Calculate and interpret the weighted average cost of capital (WACC) of a
company; Describe how taxes affect the cost of capital from different
capital sources; Explain alternative methods of calculating the weights
used in the WACC, including the use of the companys target capital
structure; Explain how the marginal cost of capital and the investment
opportunity schedule are used to determine the optimal capital budget;
Explain the marginal cost of capitals role in determining the net present
value of a project; Calculate and interpret the cost of fixed rate debt
capital using the yield-to-maturity approach and the debt-rating
approach; Calculate and interpret the cost of noncallable, nonconvertible
preferred stock; Calculate and interpret the cost of equity capital using
the capital asset pricing model approach, the dividend discount
approach, and the bond yield plus risk premium approach; Calculate and
interpret the beta and cost of capital for a project; Explain the country
equity risk premium in the estimation of the cost of equity for a company
located in a developing market; Describe the marginal cost of capital
schedule, explain why it may be upward sloping with respect to
additional capital, and calculate and interpret its break points; Explain
and demonstrate the correct treatment of flotation costs;
Working Capital Management
Describe primary sources of liquidity and factors that influence a
companys liquidity position; Identify and evaluate the necessary tools to
use in managing a companys net daily cash position; Compare a
companys liquidity measures with those of peer companies; Evaluate

Department of Management Sciences


GIK Institute of Engineering, Sciences and Technology
working capital effectiveness of a company based on its operating and
cash conversion cycles, and compare the companys effectiveness with
that of peer companies; Evaluate working capital effectiveness of a
company based on its operating and cash conversion cycles, and
compare the companys effectiveness with that of peer companies;
Evaluate working capital effectiveness of a company based on its
operating and cash conversion cycles, and compare the companys
effectiveness with that of peer companies; Explain the effect of different
types of cash flows on a companys net daily cash position; Calculate and
interpret comparable yields on various securities, compare portfolio
returns against a standard benchmark, and evaluate a companys shortterm investment policy guidelines; Evaluate a companys management of
accounts receivable, inventory, and accounts payable over time and
compared to peer companies; Evaluate the choices of short-term funding
available to a company and recommend a financing method;