SMU Classification: Restricted
The Lee Kong Chian School of Business
Academic Year 2023/24
Term 1
FNCE101
FINANCE
Instructor Name
Title
Tel
Email
Office
:
:
:
:
:
Dr Botong Shang
Assistant Professor of Finance
6828 9087
btshang@smu.edu.sg
LKCSB #4061
COURSE DESCRIPTION
The course helps students understand the various financial activities undertaken by a firm to create value for its
shareholders. Students will be taught key financial tools and concepts relevant for managers, investors, and
stakeholders in making sound financial decisions. The topics covered include time value of money, investment
appraisal techniques, working capital management, cost of capital, risk-return tradeoff, diversification, asset
pricing, capital raising, and options. The foundational knowledge acquired here will enable students to understand
finance from the perspective of company managers as well as finance from the perspective of investors.
LEARNING OBJECTIVES
By the end of this course, students will be able to:
• Describe the important role of financial management decisions for business, society and sustainability
• Interpret financial statements and understand how working capital is managed
• Solve time value of money problems
• Know and use different investment appraisal techniques and understand cost of capital concepts
• Estimate the values of bonds, common stocks, and preferred stocks
• Understand investment returns, diversification, the risk-return tradeoff, and the capital asset pricing model
• Explain the basic processes for capital raising
• Understand fundamentals of the Modigliani and Miller (MM) theory of capital structure
• Define options and understand their pricing and payoffs
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.
ASSESSMENT METHODS
Class Participation:
Project:
Assurance of Learning Assessment (AoL) Quiz:
Midterm Exam:
Final Exam:
10%
25%
5%
20%
40%
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SMU Classification: Restricted
INSTRUCTIONAL METHODS AND EXPECTATIONS
Class Participation
Class participation is strongly encouraged. Note that you are not entirely judged on the quality of your answer.
Rather, you are judged on earnest and honest attempts to help the rest of the class learn the material. If you
actively answer questions and solve problems in class, I reserve the right to raise your grade. Participation grades
are not awarded based on mere class attendance.
Group Project
There will be a group project. The project will be executed in groups of about 4-5 students each. You are
encouraged to find your own group members, preferably a mix of local and exchange students. Members in a
group by default get same grade for the project. The group-member list should be submitted to the TA no
later than the end of the third week of class. Details will be provided in class.
Quiz
There will be closed-book quiz. Each quiz contributes 5% of your course grade. The quiz must be taken in
the section of which you are registered. If you are unable to take quizzes for a legitimate reason (e.g., a
serious health problem), you must bring reliable proof of absence. Once the proof of absence has been approved,
the following rules apply: (a) the missing score for the first quiz will be estimated based on your midterm exam
score; (b) the missing score for the second quiz will be estimated based on your final exam score.
Assurance of Learning Assessment (AoL) Quiz
The Lee Kong Chian School of Business (LKCSB) is accredited by the Association to Advance Collegiate Schools
of Business (AACSB). To maintain our accreditation, we need to provide evidence that our students have a good
grasp of basic finance concepts. There will be a closed-book quiz at the end of the semester. The quiz accounts
for 5% of your course grade. No make-up quiz will be allowed.
Examinations
There will be two exams (Midterm and Final). Both exams are closed-book & closed-notes exams, mainly
focus on material covered in class and consist of multiple-choice questions and several long questions.
Calculators (any type/model & programmable/non-programmable with no internet connection) are allowed in
each exam. The final exam will be cumulative of all content covered in this course.
The midterm exam time is non-negotiable. If you think you will miss an exam due to a health problem or a
legitimate reason (1) immediately e-mail me prior to the exam time and (2) bring reliable proof of absence. Once
the proof of absence has been approved, the following rule applies: the missing score for the midterm exam will
be estimated based on your final exam score.
Final Examination will be scheduled by the Office of the Registrar.
CONSULTATIONS AND TEACHING ASSISTANTS
TBA
CLASS TIMINGS
This course will be taught in one 3-hour session. I will hold regular office hours on (TBA). If you need to see me at
any other times, please contact me to make appointment. My office and contact information are listed at the top
of this course outline. I am also readily available by emails.
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SMU Classification: Restricted
FINANCIAL CALCULATOR
A financial calculator is needed for various materials covered in class and for the exams. I’ll give a brief instruction
on the operations of Texas Instruments BA II Plus in class. I encourage you to buy or borrow the same model
(many of your seniors have this model). You can use other brands/models, provided that you know how to use
them appropriately.
RECOMMENDED TEXT AND READINGS
Required: Fundamentals of Corporate Finance by Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan, 13th
Edition, McGraw-Hill.
Used copies of the Corporate Finance Fundamentals by Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan,
Joseph Lim, and Ruth Tan, Asia Global Edition, McGraw-Hill or 10th or 11th or 12th edition of Fundamentals of Corporate
Finance by Stephen A. Ross, Randolph Westerfield and Bradford D. Jordan, McGraw-Hill can also be used but do bear
in mind that there could be some variations in contents and assigned problems.
Additional readings will be assigned. Students are expected to keep abreast of current developments in the
Asia-Pacific region by reading leading business dailies/weeklies like the Asian Wall Street Journal, The Economist,
Business Times and Business Week.
UNIVERSITY POLICIES
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 (whether oral or written) submitted for purposes of assessment must be the student’s own work.
Penalties for violation of the policy range from zero marks for the component assessment to expulsion,
depending on the nature of the offense.
When in doubt, students should consult the instructors of the course. Details on the SMU Code of Academic
Integrity may be accessed at https://oasis.smu.edu.sg/Pages/DOS-WKLSWC/UCSC.aspx.
Copyright Notice
Please note that all course materials are meant for personal use only, namely, for the purposes of teaching,
studying and research. You are strictly not permitted to make copies of or print additional copies or distribute
such copies of the course materials or any parts thereof, for commercial gain or exchange.
For the full copyright notice, please visit: https://smu.sg/Copyright-notice or OASIS -> CAMPUS LIFE &
EXCHANGE -> CONDUCT & DISCIPLINE -> UNIVERSITY COUNCIL OF STUDENT DISCIPLINE
Accessibility
SMU strives to make learning experiences accessible for all. If you anticipate or experience physical or
academic barriers due to disability, please let me know immediately. You are also welcome to contact the
university's disability services team if you have questions or concerns about academic provisions:
DSS@smu.edu.sg. Please be aware that the accessible tables in our seminar room should remain available for
students who require them.
Digital Readiness for Teaching and Learning (DRTL)
As part of emergency preparedness, instructors may conduct lessons online via the Zoom platform during the
term, to prepare students for online learning. During an actual emergency, students will be notified to access
the Zoom platform for their online lessons. The class schedule will mirror the current face-to-face class
timetable unless otherwise stated.
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WEEKLY LESSON PLANS1
Week
1
Topic
Introduction
Reading
Overview of Corporate Finance
• Describe important financial management decisions and forms of business
organizations; explain the goal of financial management; explain how different
stakeholders impact on corporate objectives (e.g., agency problems, ethical and
sustainability concerns); and describe the characteristics of a well-functioning
securities market.
Ch 1
Review of Financial Statement Analysis
• Interpret balance sheet, income statement; compare and contrast cash flows from
operating, investing, and financing activities; and conduct basic ratio analyses.
Ch 2, 3
Review of Financial Statement Analysis (Continues)
• Understand how working capital is managed, such as components of operating
cycle and cash cycle (inventories, account receivable, account payable) and the
cash budget.
Ch 18
Time Value of Money and Its Applications
• Solve time value of money problems for single and multiple cash flow with
compounding; understand the calculation of fixed-payment amortization; and
calculate and interpret annual percentage rates and effective annual rates.
Ch 5, 6
3
Time Value of Money and Its Applications (Continues)
• Solve time value of money problems for single and multiple cash flow with
compounding; understand the calculation of fixed-payment amortization; and
calculate and interpret annual percentage rates and effective annual rates.
Ch 5, 6
4
Capital Budgeting and Investment Criteria
• Know and use the following investment appraisal techniques: payback period,
discounted payback period, net present value (NPV), internal rate of return (IRR),
and profitability index; explain specific investment decisions; and identify various
types of costs such as sunk costs, opportunity costs, and other side effects (such
as social responsibility, ethical or environmental costs).
Bond Valuation
• Explain contractual properties of bonds and bond quotations; calculate and
interpret various types of bond yields; explain the steps in the bond valuation
process; explain the difference between nominal and real rates; explain factors
driving bond yields; and explain the interest rate risk and the term structure of
interest rates.
Ch 9, 10, 11
Stock Valuation
• Estimate the values of common stocks and preferred stocks using the discount
dividend models (DDM); and explain free cash flow valuation models.
Ch 8
2
5
6
Ch 7
Catch Up
7
Midterm Exam Week
Midterm Exam (on topics covered in weeks 1-6)
▪ Date: TBA
▪ Venue: TBA
1
The schedule is tentative and subject to change. Any change will be announced in advance.
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SMU Classification: Restricted
8
9
Recess
Risk and Return
• State the various forms of investment returns; calculate mean and standard
deviation of returns on a single asset; and explain risk-return tradeoffs across asset
classes based on historical evidence.
• Calculate mean and standard deviation of returns on portfolios; understand the
correlation between assets and diversification benefits; differentiate systematic vs.
unsystematic risk; explain the capital asset pricing model (CAPM) and beta, and
their effects on expected returns and risk; and explain various forms of the
efficient market hypotheses and their practical implications.
10
The Cost of Capital
• Calculate and interpret the cost of equity, cost of debt, and the weighted average
cost of capital (WACC) of a company; explain the effect of tax subsidy on cost of
debt and WACC; calculate and interpret flotation costs; and explain the pure play
approach of estimating WACC for multi-sector companies.
Ch 14
11
Raising Capital
• Explain the basic processes for capital raising, such as venture capital, IPOs, SEOs,
and rights offerings.
Ch 15
Capital Structure
• Explain the Modigliani and Miller (MM) theory of optimal capital structure choice
under various tax and bankruptcy costs scenarios; and solve problems of firm
valuation and cost of capital with and without corporate taxes.
Ch 16
Derivative Securities: Introduction to Options
• Define European options, American options, moneyness, and compute and
interpret option payoffs; explain option valuation using at least a one-period model
and factors influence the price of options, the put-call parity; and understand the
equity portion of the company as a call option on its total assets.
Ch 24, 25
12
Ch 12, 13
Catch Up / Project Presentation
13
Project Presentations
14
Study Break
15
Final Examination (all topics)
▪
Date: TBA
▪
Venue: TBA
AoL Quiz (Same day as Final Exam)
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