LahoreUniversityofManagementSciences

FINN100PrinciplesofFinance
FallSemester2015

Instructor
RoomNo.
OfficeHours
Email
Telephone
Secretary/TA
TAOfficeHours
CourseURL(ifany)

Dr.ZaghumUmar
SDSB324
TBA
zaghum.umar@lums.edu.pk
04235608434/03015090372
TBA
TBA
suraj.lums.edu.pk

COURSEBASICS
CreditHours
Lecture(s)
Recitation/Lab(perweek)
Tutorial(perweek)

3
NbrofLec(s)PerWeek
NbrofLec(s)PerWeek
NbrofLec(s)PerWeek

Duration
Duration
Duration

75Minutes

COURSEDISTRIBUTION
Core
Elective
OpenforStudentCategory
CloseforStudentCategory

Elective
All
WhohavenotdoneACCT100

COURSEDESCRIPTION

Firmsinvestinrealassetssuchasplantandequipment(theInvestmentdecision)andraisemoneyviapersonalfunds,stocks,
bonds or bank loans (the Financing decision). Broadly speaking, Financial Management is about how this Investment and
Financingdecisionsshouldbemade.ThiscourseexploresthefirstpartofFinancialManagementandintroducestheframework,
toolsandtechniquesformakingInvestmentdecisions.Specifically,wewillcoverValuation,CapitalBudgeting,ModernPortfolio
TheoryandEquilibriumRiskReturnRelationship.
This is an introductorycourse in Financeand the first in a series of requiredFinance corecourses for theB.Sc.Accounting &
Financedegree.Thiscoursetogetherwiththenextcourse,IntermediateFinance,completesanintroductiontomoderntheory
of Corporate Finance. The final required course in the sequence, Applied Corporate Finance, introduces advanced topics and
explorescertaintopicsindepth.

COURSEPREREQUISITE(S)

ACCT100.
MSExcel

LahoreUniversityofManagementSciences
COURSELEARNINGOUTCOMES(CLO)

Uponsuccessfulcompletionofthecourse,studentsshouldbeableto:

1.
DemonstrateunderstandingoftheconceptofTimeValueofMoney(TVM)anditsapplications
2.
DemonstrateunderstandingoftheconceptofRiskandReturn
3.
DemonstrateknowledgeofthebasicsofCapitalBudgetingandtechniquesofevaluation
4.
DemonstrateknowledgeoftheCostofcapitalandCapitalstructure.
5.
Presenttheiranalysiseffectively,bothinoralandwrittenforms,whileworkinginteamsaswellas
independently.(GeneralLearningGoal)

UNDERGRADUATEPROGRAMLEARNINGGOALS&OBJECTIVES

GeneralLearningGoals&Objectives
Goal1EffectiveWrittenandOralCommunication
Objective:Studentswilldemonstrateeffectivewritingandoralcommunicationskills
Goal2EthicalUnderstandingandReasoning
Objective:Studentswilldemonstratethattheyareabletoidentifyandaddressethicalissuesinanorganizational
context.
Goal3AnalyticalThinkingandProblemSolvingSkills
Objective:Studentswilldemonstratethattheyareabletoidentifykeyproblemsandgenerateviablesolutions.
Goal4ApplicationofInformationTechnology
Objective:Studentswilldemonstratethattheyareabletousecurrenttechnologiesinbusinessandmanagement
context.
Goal5TeamworkinDiverseandMulticulturalEnvironments
Objective:Studentswilldemonstratethattheyareabletoworkeffectivelyindiverseenvironments.
Goal6UnderstandingOrganizationalEcosystems
Objective:StudentswilldemonstratethattheyhaveanunderstandingofEconomic,Political,Regulatory,Legal,
Technological,andSocialenvironmentoforganizations.

MajorSpecificLearningGoals&Objectives
Goal7(a)ProgramSpecificKnowledgeandUnderstanding
Objective:Studentswilldemonstrateknowledgeofkeybusinessdisciplinesandhowtheyinteractincluding
applicationtorealworldsituations(IncludingSubjectKnowledge).
Goal7(b)Understandingthesciencebehindthedecisionmakingprocess(forMGSMajors)
Objective:Studentswilldemonstrateabilitytoanalyzeabusinessproblem,designandapplyappropriate
decisionsupporttools,interpretresultsandmakemeaningfulrecommendationstosupportthedecisionmaker

Indicatebelowhowthecourselearningobjectivesspecificallyrelatetoanyprogramlearninggoalsandobjectives.

ProgramLearningGoalsand
Objectives

CourseLearningObjectives

CourseAssessmentItem

Goal1EffectiveWrittenandOral
Communication

Studentswillbegivenanumber
opportunitiestodemonstratetheirability
tocommunicateeffectively(CLO#5)
Ethicalperspectivesinfinancingdecision

CP,Projectwriteup&presentation,
Exams

AnalyticalThinkingandProblemSolving
Skillsareanessentialcomponentofthe
course(CLO15)
Applicationofinformationtechnologyin
forassignments,projects

CP,Quizzesandexams

Goal2EthicalUnderstandingand
Reasoning
Goal3AnalyticalThinkingandProblem
SolvingSkills
Goal4ApplicationofInformation
Technology

Groupproject

Projectwriteup&presentation

LahoreUniversityofManagementSciences
Goal5TeamworkinDiverseand
MulticulturalEnvironments
Goal6UnderstandingOrganizational
Ecosystems

Goal7(a)ProgramSpecificKnowledge
andUnderstanding
Goal7(b)Understandingthescience
behindthedecisionmakingprocess

Studentsworkingroupsforgroup
projects
Developstudentsunderstandingofthe
interactionofmicro(firmspecific)
variableswiththemacro(securities
markets,industry,andtheeconomy)
variables
IntroductiontothetopicsinManagerial
Finance(CLO15)

Groupproject
CP,Projectwriteup&presentation,
Exams,quizzes

CP,quizzesandexams

GRADINGBREAKUPANDPOLICY

CLASSROOMPOLICY
AttendanceandClassParticipation:15%.
Anoverallabsenceof10minutesormore,inasessionshallbedeemedasanabsenceforthefullsession.
Studentsarenotedforlatecomingandearlyleavingorunnecessarilyleavingtheclassduringtheclasshours.
All the students are expected to participate in the class discussions. In order to ensure a positive learningclimate, only
intelligentandcontributoryobservationanddiscussionsshallberewarded.
Allethicalnormsshallbeobservedintheclassandexaminations.
Any attempt to disturb a classmate, engage in talking or whispering during the class or to vitiate the overall class
atmospheremayresultinnegativemarksinclassparticipation.
TurnOffyourCellphonesorputthemonSilentmode.UseofSmartphone,internet,onlinechattingoruseoftechnology
relatedgadgetryofanykindisnotallowed.

POLICYREGARDINGEXAMINAIONSQUIZZESANDOTHERGRADINGINSTRUMENTS.
Thereisazerotolerancepolicy(ZTP)foranyundesirablebehaviororundeservingattempttoimproveyourgradesduringthe
quizzesandexaminations.Suchactioncanresultincancellingyourexaminationpaper.Itmayalsoresultindisciplinaryactions
byDisciplinaryCommittee.
Please carefully weigh in your actions costs and benefits and always show an ethical and moral deportment and behavior
always.

Quiz(s):20%.
th

th,

th

rd.

Thereshallbetotalof5allannouncedQuizzes(7 ,10 13th,19 &23 Sessions)Thebestfourshallbecounted.Thereshallbeno

makeupquizzes.Nosharingofcalculators,oranyhelpsheetbeallowed,whatsoever

MidtermExamination:20%
TheexaminationcouldbemixofMCQ,shortexercisesandshortexplanations.20%
Thereisazerotoleranceforanyundesirablebehaviortoundeservingattempttoimproveyourgradesduringthequizzesand
examinations.

FINALGROUPPROJECT:20%
(Agroupprojectfromagroupsizeof68persons,dependingonthesizeoftheclass).
Areportoncomprehensiveandcriticalanalysisofaselectedcompanyshallbepreparedandpresentedbyeachgroup.Thegroups
th

th

shall be finalized in the 4 session. The outline of the report shall be presented by 8 session for approval. The report must be
th

submitted by 24 session. The report shall not exceed 15 pages 1 space 12 Times New Roman excluding title index and
bibliographyetc.

LahoreUniversityofManagementSciences
(Eachgroupshallselectacompanyorbusinessforthedetailedanalysis.Groupmembersshallbeaskedtoremainabreastwiththe
developmentstakingplaceinthemarketplace,throughfinancialpress.Theimpactofcurrentdevelopmentstakingplace,whichare
pertinenttotheirselectionofstudy,shallbemonitoredandcompiledbythegroup.Thegroupisexpectedtoapprisetheclasswith
theirobservationsthroughclassparticipation.

FINALEXAMINATION:25%.
TheexaminationcouldbemixofMCQshortexerciseandshortexplanations.Studentsmayalsoexpectaquestionortwofromthe
assignedreportoracaseorasituationanalysis.25%

EXAMINATIONDETAIL
Midterm
Exam

FinalExam

Combined
Duration:1Hours
PreferredDate:SaturdayorSunday
ExamSpecifications:CloseBook,CloseNotes,TVMTablesandCalculatorsallowed.Nocalculatorssharingin
examinationsshallbeallowed,Whatsoever.

Combinedallsections
Duration:2Hours
PreferredDate:SaturdayorSunday
ExamSpecifications:CloseBook,CloseNotes,TVMTablesandCalculatorsallowed.Nocalculatorssharingin
examinationsshallbeallowed,Whatsoever.

COURSEOVERVIEW/SCHEDULE
LECTURE/MODULE TOPICS
Week1,Session1.

Week1,Session2

1.1FinanceandBusiness:
Introductiontothecourse;
WhatisFinance;WhyStudy
ManagerialFinance.
1.2GoalsoftheFirm:
MaximizingProfitorwealth?
.corporategovernanceand
businessethics
1.3ManagerialFinance
functions:organizationof
ManagerialFinancefunction;
relationshipstoeconomicsand
accounting.

3.1StockholdersReport:Four
keyFinancialStatementsand
notesofFinancialreports.
3.2UsingFinancialRatios:user
offinancialratios;Typesof
Ratiocomparison;Cautions
aboutusingFinancialRatios
Analysis.SuchasLiquidity;
Activity;Debt;Profitabilityand
Marketratios

RECOMMENDED
READINGS

OBJECTIVES/
APPLICATION

Readings:Chapter1ofLG
1.RoleandEnvironments
ofManagerialFinance.

Session1
IntroductiontothecourseStructure
(Invitationtoformgroupsforprojects.)

Readings:
Chapter3.
ReadingFinancial
Statementanalysis

Reviewofbasicaccountingconcept.
RevisitRatioanalysisanddiscussits
relevancetoproject.
FinalizationofgroupsForming,

LahoreUniversityofManagementSciences
Week2,Session3

Week2,Session4

Week3,Session5

Week3,Session6

Week4,Session7

Week4,Session8v

Week5,Session9

Week5,Session10

Week6,Session11

Week6,Session12

3.8ACompleteRatioAnalysis:
Summarizingallratioanalysis;
DuPontSystemofAnalysis.
exercises
4.1AnalyzingtheFirmscash
Flow:
4.2FinancialPlanningprocess:
4.3CashplanningandCash
Budgets:
4.4ProfitPlanning
ProformaStatements:
4.5ProformaIncome
statements:
4.6ProformaBalancesheet:
4.7EvaluationofProforma
Statements:
2.1FinancialInstitutionsand
Markets:FinancialInstitutions;
Money&capitalMarkets.
ScopeandAreasoffinanceand
howitisrelatedtootherareas
ofbusiness.
2.4BusinessTaxes:Ordinary
IncomeandCapitalgaintaxes.
5.1:TheroleoftheTVMin
Finance
5.2SingleAmount&Review
questions
5.3Annuities&Perpetuities.
5.4MixedStream

5.5CompoundingInterest
MoreFrequentlyThanannually
5.6SpecialApplicationsof
TimeValue

8.1:Riskandreturn
Fundamentals
8.2:riskofSingleassets
8.3:RiskofaPortfolio:
8.4:RiskandReturn:The
CapitalassetsPricingModel
(CAPM):
6.1:Interestratesandrequired
Return:
6.2:CorporateBonds:

Readings:
Reviewofbasicaccountingconcept.
Chapter3.
RevisitRatioanalysisanddiscussits
FinancialStatementanalysis relevancetoproject.
Readings:
Chapter4.
CashFlowandFinancial
Planning

RevisitthePreparationofCashFlow
Fromafinancemanagersperspective

WarmupExercises
Integrativecase1Track
softwareInc.

RevisitthePreparationofCashFlow
Fromafinancemanagersperspective

Readings:
Chapter2Roleand
Environmentsof
ManagerialFinance.
RoleandEnvironmentsof
ManagerialFinance
Classnotes
FocusonPractice

Chapter,5.
TimeValueofMoney

ImportanceofSpreadsheetand
financialmodelingonExceltobe
emphasized.

DiscussingtherollofTimeValuein
Finance,Theuseofcomputational
tools,andthebasicpatternsofcash
flow.

Chapter8.
RiskandReturn

Understandingthemeaningand
fundamentalsofrisk,return,andrisk
preferences.
Discussingthemeasurementofreturn
andstandarddeviationforaportfolio.

Chapter6.
InterestratesandBond
Valuation

Describeinterestratefundamentals,
thetermstructureofinterestrulesand
riskpremiums.

LahoreUniversityofManagementSciences
Week7,Session13

6.3:Valuationfundamentals:
6.4:BondValuation.

Week7,Session14

7.1:Differencebetweendebt
andEquitycapital:
7.2:CommonandPreferred
Stock
7.3:CommonStockValuation:
7.4:DecisionMakingand
CommonStock

Week8,Session15

Understandingthekeyinputsandbasic
modelusedinthevaluationprocess.
Chapter7.
StockValuation

ToDifferentiatebetweendebtand
equitycapital.
Discusstherights,characteristics,and
featuresofbothcommonandpreferred
stocks.

MIDTERM
Week9,Session17

Week9,Session18

Week10,Session19

Week10,Session20

Week11,Session21

Week11,Session22

Week12,Session23

Week12,Session24

Week13,Session25

10.1:OverviewofCapital
budgeting:
11.1:RelevantcashFlow:
11.2:FindingtheInitial
Investments
11.3:FindingtheOperating
CashFlow:
11.4:FindingtheTerminal
CashFlow:
11.5:Summarizingtherelevant
CashFlow
10.1:OverviewofCapital
Budgeting:
10.2:PaybackPeriod:
10.3:NetPresentValue
10.4:InternalrateofReturn:
10.5:ComparingNPVandIRR
Techniques
12.1:IntroductiontoRiskin
CapitalBudgeting.
12.2:BehavioralApproaches
forDealingwithRisk
12.3:InternationalRisk
Considerations
12.4:RiskAdjustedDiscount
Rates(RADRs):
12.5:CapitalBudgeting
Refinements
9.1:OverviewofCostofcapital
9.2:CostofLongTermDebt
9.3:CostofPreferredstock
9.4:CostofCommonStock
9.5:Weightedaveragecostof
Capital
13.1:BreakevenAnalysis,
OperatingLeverage,Financial
LeverageandTotalLeverage.
13.2:FirmsCapitalStructure
13.3:EBITEPSApproach

Chapter10&11.
CapitalBudgetingCash
Flows
FocusonEthics
NonFinancialconsideration
inProject

Understandingthekeymotivesfor
capitalexpenditureandthestepsinthe
capitalbudgetingprocess.
Definebasiccapitalbudgeting
terminologies

Chapter10.
CapitalBudgeting
Techniques

Understandingtheruleofcapital
budgetingtechniquesinthecapital
budgetingprocess.
Usenetpresentvalueprofilesto
compareNPVandIRRintechniques

Chapter12.Riskand
refinementsinCapital
budgeting
FocusonEthics:
EnvironmentCompliance:
Honestyisthebestpolicy

ounderstandtheimportanceof
recognizingriskintheanalysisofcapital
budgetingprojects.
Todiscussriskandcashinflows,
scenarioanalysis,andsimulationas
behavioralapproachesfordealingwith
risk.

Chapter9.Thecostof
Capital
FocusonEthics
NonFinancialconsideration
inProjectSelection

Tounderstandthekeyassumptions,the
basicconcept,andthespecificsources
ofcapitalassociatedwiththecostof
capital.

Chapter13
LeverageandCapital
Structure

Tounderstandoperating,financial,and
totalleverageandtherelationships
amongthem.
TodiscusstheEBITEPSapproachto
capitalstructure.

LahoreUniversityofManagementSciences
Session26

Week13,Day26,GroupPresentations

Session27

Week14,Day27,GroupPresentations

Session28

Week14,Day28,GroupPresentations

FinalExam

TEXTBOOK(S)/SUPPLEMENTARYREADINGS
th

RequiredText:PrinciplesofManagerialFinanceByLawrenceJGitman13 edition
Tostayabreastwiththemarketaregularreadingoffinancialpressisessentialtounderstandingandappreciationofthebodyof
knowledgeandthesubjectmatterofthecourse.Readingofotherintroductorytextbooksonthesubjectisencouragedtofindout
theotherwriterspointofviewaboutthepedagogy.
SupplementaryReadings:
StudentsareencouragedtoreadfinancialpublicationssuchasTheWallStreetJournal,FinancialTimes;BusinessRecordertostay
abreastofdevelopmentsrelatedtothiscourse.

LahoreUniversityofManagementSciences
Annexure1
GUIDELINESOFPROJECTREPORT
ProjectforSemester(Fall2014),PrinciplesofFinance(Finn100)
IntroductionorExecutiveSummery
Theproposedbusiness
FactorAffectingBusiness
MacroFactorsaffectingbusiness

IndustryAnalysis

FinancialsPlanningandForecasting
SalesForecasting
SalesDriversandAssumptions
Regressionanalysisandforecasting
BaseCaseSalesProjection

PerformaFinancialReports
PerformaIncomestatement
ProformaBalanceSheet
CapitalRequirementandprojectedStatementofOwnersEquity
ProjectedCashFlowStatement

CashFlowAnalysisforProjectEvaluation
NPVusingKIBOR+
IRR,OrMIRR
PaybackandDiscountedPaybackPeriod

StandAloneRiskAnalysisandWhatifAnalysis
Sensitivityanalysis
ScenarioAnalysis
BreakEvenAnalysis
OperatingandFinancialLeverage

CalculatingCostofCapitalBasedOnCapitalStructure
RecalculatetheentireprojectoncalculatedHurdleRate

ConclusionFindingandFinalSummary
(Someusefulhintsandguidelinesforfinancialmodelcanbetakenfrom
http://www.smeda.org/businessdevelopment/prefeasibilitystudies.html)
http://www.nestle.pk/assetlibrary/documents/financial_reports/nestle_ar_2012.pdf
http://www.unilever.pk/Images/Unilever%20Pakistan%20Limited%20Financial%20Result%20Q2%202013_tcm96370009.pdf
http://www.unilever.pk/
http://www.unilever.pk/Images/Unilever%20Pakistan%20Sustainability%20Report%202012_tcm96355078.pdf
http://engro.com/wpcontent/uploads/2012/03/FECorp%20AR%202011.pdf
http://www.pg.com/en_US/sustainability/reports.shtml
http://www.pg.com/en_US/downloads/sustainability/reports/PG_2012_Sustainability_Overview.pdf
http://www.pg.com/en_US/downloads/investors/annual_reports/2013/2013_AnnualReport_proxy.pdf
http://www.pg.com/en_US/investors/index.shtml
http://www.pg.com/annualreport2012/files/PG_2012_AnnualReport.pdf
http://www.kse.com.pk/