Course Outline
Department of Accounting, Finance, and Law
Bob Gaglardi School of Business and Economics
FNCE 2120-04 Financial Management (3,0,0)
Fall 2024
Instructor: Li Zhang
Phone: (250)371-5612
Office: IB 2018
E-Mail: lizhang@tru.ca
Office Hours: WF: 8:30-9:30 am; Wednesday: 11:30 am -12:30 pm; 1:30-3:30 pm, or by appointment
Calendar Description
Students develop a basic understanding of business finance, which deals with how organizations effectively
manage their operating and fixed assets and fund them with an optimal mix of debt and equity financing.
Topics include the role of the financial manager; goals of the firm; financial statement analysis; time value of
money; risk and return including Beta and the Capital Asset Pricing Model; common and preferred share
valuation; interest rates and bond valuation; capital budgeting; cost of capital; and optimal capital structure.
Educational Objectives/Outcomes
Upon completing this course, students will be able to:
1.
2.
3.
4.
5.
6.
7.
8.
Explain the importance of share price maximization and the influence of agency costs.
Examine the performance of an organization using different financial statement analysis techniques.
Solve business problems that incorporate the time value of money.
Demonstrate how risk is incorporated into the calculation of an asset’s required rate of return.
Value the stocks and bonds issued by companies to finance their operations.
Explain the shape of the yield curve, risk-free rate and sources of risk premium.
Appraise the financial viability of new projects using capital budgeting techniques.
Calculate the appropriate cost of capital for a business in different situations.
9. Analyze the optimal capital structure for a company based on an assessment of its operational leverage
and other factors.
Prerequisites
ACCT 1000, ACCT 1210/1220 or ACCT 2210; CMNS 1290; MATH 1070; ECON 2320
Note: Students may not receive credit for both of FNCE 2120 and FNCE 3120.
Co-requisites
None
Texts/Materials
Fundamentals Of Corporate Finance
11th Canadian Edition
1260881385 · 9781260881387
By Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, J. Ari Pandes, Thomas Holloway
© 2022 | Published: August 5, 2022 with Connect
Student Registration Info: https://connect.mheducation.com/class/l-zhang-fall-2024-fnce2120-04
Financial calculator: Texas Instruments BA II Plus (recommended) or equivalent
Student Evaluation
You will be evaluated on the basis of the following:
In-class Performance
Homework
Mid-Term Exam
Final Exam
5%
25%
30%
40%
*Students must pass the final exam to receive a passing grade for the course.
**Last day to withdraw is Oct 25th, 2024.
In-Class Performance:
•
•
•
Attendance: This semester your instructor will enforce the following rules:
Cell phones should be turned off and stored away during class unless authorized.
Students are required to attend all classes and are responsible for notifying the instructor of absences
before the day of the absence with supporting evidence and getting approval. Attendance will be taken
and those who miss more than three classes (with or without approval) during the semester will be
removed. Students who are removed will receive a Withdrawal (“W”) on their transcript if they leave
before the drop date set by TRU’s Registrar. If they are removed after the drop date, they will receive a Did
Not Complete (“DNC”).
The absences permitted above are for any reason including work or medical. Students who inform their
instructors of their absence before the beginning of class will still be marked absent. Students should set a
2
•
goal of zero absences and use the absences permitted for emergencies only. Exceptions are only made for
students experiencing serious medical or family issues.
Students must arrive at class on time. The instructor may allow the student to enter the classroom or deny
admission if late. In either situation, the student will be marked absent.
Participation: Students are encouraged to participate in class discussions. Both frequency and quality of
participation will affect the assessment result.
Homework: Homework will be completed online using Connect. You must register at
https://connect.mheducation.com/class/l-zhang-fall-2024-fnce2120-04.
Homework
consists
of
assignments and review questions assigned for each chapter. Students are expected to complete them in a
week and must complete their own homework set independently. Each homework may be attempted as
many times as you like with only the highest mark for each set used for the final grade. Late homework will
be discounted by 30% per day. Each homework set is worth the same number of points regardless of the
number of questions. You are responsible to ensure that your homework has been completed correctly and
that you understand it and are able to apply the concepts.
Exams: The mid-term exam will include all material covered in class or through homework before the exam
date. The final exam will not be cumulative, but new material builds on topics previously covered and so
concepts from the mid-term exam may be found on the final exam. The final exam will be scheduled by the
registrar office during the regular exam period. Missed exams will result in a zero grade unless the absence
is the result of a documented illness or family emergency. In those cases, the instructor may choose to
administer a make-up exam which may be different from the originally administered exam. As per
departmental policy, the final exam must be passed to pass the course regardless of the final grade point
average. Translators and other electronic devices other than approved calculators are not permitted during
exams.
Other Assessment
Other Information
Final grade: As per departmental policy, the final exam must be passed to pass the course regardless of the
final grade point average. The final grade is designed to reflect a student’ mastery of the course material and
performance as demonstrated on the exams and other assessments. Every student’s final grade will be
determined exactly as stated in this outline and on the basis of marks earned during the semester. It would be
unfair and unethical for the instructor to consider factors such as an individual student’s need to maintain a
certain GPA, graduation status, employment prospects, etc. During the semester, students are encouraged to
ask course-related questions and should inform the instructor immediately of any situations that may impact
their performance. Once final grades are posted, I will only discuss marking errors in the final exam or errors in
the calculation of the grades.
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Grading queries: Queries about the grading of an exam or other assessments must be made within one week
from the date the exam or the assessment is returned. On request for re-grading, the entire exam will be remarked, which may result in the same, higher or lower grade.
Philosophy: While this is an introductory course, it is fairly technical in nature and the extensive number of
topics to be covered requires that we move through the material at a fairly rapid pace. If you are having
trouble with the homework, readings, or exams, ASK.
E-mail Etiquette: E-mail is often the quickest way to reach me outside the classroom. If you send me an email,
please include the course number and brief topic in the subject line, ie FNCE2120 section 1 ch 4 question, and
be sure to include your name, especially if you are not using your MyTRU.CA email account. I will reply to the
email account you used to send your query. I may send class emails to your email account on file with the
university, which is your MyTRU.CA account by default, and will post important information to Moodle. I will
expect you to be aware of these messages so be sure to check your email and Moodle often.
Course Topics
1. Introduction to Financial Management
 Organization of the corporate finance function
 Professional designations in finance
 Goals of the firm - share price maximization
 Agency costs
 Financial markets and institutions
2. Financial Statement Analysis
 Common-sized financial statements (vertical analysis)
 Common-base-year financial statements (horizontal or trend analysis)
 Ratio analysis
 Liquidity
 Asset management
 Solvency
 Leverage
 Coverage
 Profitability
 In relation to sales
 In relation to investment
 DuPont analysis
 Market valuation
 Cash flow statement analysis
 Benchmarking financial ratios
 Limitations of financial statement analysis
3. Time Value of Money
 Simple interest, compound interest and continuous compounding
 Real, nominal and effective rates
 Present and future values
4

 Single cash flows, annuities and annuities due
 Perpetuities with and without growth
Types of loans
 Discount loans
 Interest only
 Amortization
4. Risk and Return: Beta and Capital Asset Pricing Model (CAPM)
 Individual risk – standard deviation
 Diversification - systematic versus non-systematic risk
 CAPM and the Security Markets Line (SML)
 Calculating the required rate of return using the CAPM and SML
 Arbitrage Pricing Theory
5. Common and Preferred Share Valuation
 Common and preferred shares features
 Shareholder rights
 Dividends
 Classes of stock
 Comparison of preferred shares versus debt
 Dividend growth model
 No growth
 One and two-stage growth
 Components of the required rate of return
 Dividend yield
 Capital gains yield
 Market multiples
 Price/Book Value, Price/Earnings, Price/Sales, Price/CFO, Price/FCFE
6. Interest Rates and Bond Valuation
 Basic bond terminology
 Bond valuation using yield-to-maturity
 Types of bonds
 Bond indenture
 Term
 Security
 Seniority
 Repayment
 Call provisions
 Protective covenants
 Bond ratings
 Bond markets, reporting and quotations
 Real and nominal interest rates and the Fischer Effect
 Risk-free rate and sources of risk premium
 Inflation
5



 Interest rate risk
 Reinvestment risk
 Credit risk
 Additional sources of risk premium
Term structure of interest rates versus the yield curve
Theories explaining the shape of the yield curve
 Liquidity
 Segmentation
 Expectations
Forecasting interest rates using the yield curve
7. Capital Budgeting
 Capital budgeting methods and their limitations
 Payback
 Discounted payback
 Average accounting rate of return
 Internal rate of return
 Profitability index
 Net present value
 Complex net present value analysis
 Standalone and replacement projects
 Initial costs and residual values
 Changes in net working capital
 Tax shield from Capital Cost Allowance (CCA)
 Estimating incremental/relevant cash inflows and outflows
 Sunk costs, opportunity costs, side effects and financing costs
8. Cost of Capital
 Required rate of return and the cost of capital
 Calculating the Weighted Average Cost of Capital
 Cost of common and preferred shares
 CAPM
 Dividend growth model
 Cost of debt
 Yield-to-maturity method
 Debt-rating approach
 Treasury-spread approach
 Appropriate weights
 Book value
 Market value
 Target capital structure
 Calculating the Weighted Marginal Cost of Capital
 Pure play approach
 Divisional costs of capital
 Adjusting for project risk
 Incorporating flotation costs
6

Trade-off between the cost and risk of debt and equity financing
9. Optimal Capital Structure
 Advantages of financial leverage
 Types of business risk
 Sales risk
 Operating risk and cost structure
 Trade-off between business risk and financial risk
 Measures of business risk and financial risk
 Degree of operating leverage, of financial leverage and of total leverage
 Determination of optimal capital structure
 Industry average ratios
 Worst-case scenario
 Other factors affecting capital structure
Course Topics
OM2742; Tuesday 5:30 - 8:20 pm
Week
Chapter
9/3
1
Introduction to Corporate Finance
Class starts; Homework
9/10
5
Introduction to Valuation: The Time Value of
Money
Homework
9/17
6
Discounted Cash Flow Valuation
Homework
9/24
6
DCF Valuation (Cont’d); Practice Session
10/1
7
Interest Rates and Bond Valuation
10/8
8
Stock Valuation
10/15
Readings
Homework/Exams/Notes
Homework
Homework;
Midterm Exam
10/22
9
Net Present Value and Other Investment
Criteria
Homework
10/29
12
Lessons from Capital Market History
Homework
11/5
13
Return, Risk, and the Security Market Line
Homework
11/12
14
Cost of Capital
Homework
11/19
16
Financial Leverage and Capital Structure Policy
Homework
11/26
3
Working with Financial Statements
Homework; last class
7
Note: This is a preliminary schedule and is subject to change. Subjects covered each day will be
confirmed in class.
Attendance
TRU Policy ED 3-5 Student Attendance states that students may be:



Removed from a course if they miss the first two classes without prior arrangements that are acceptable
to the instructor.
Refused admission to a course by the instructor for lateness, class misconduct, or failure to complete
required work.
Removed from a course by the instructor for deficient attendance without cause with the permission of
the instructor’s Chairperson or Dean.
Honour Code
SOBE’s honour code states:
“As a student of the School of Business and Economics at Thompson Rivers University, I promise to act
honestly, ethically and with integrity. I accept responsibility for my own actions. I will not cheat, plagiarize,
or condone such behaviour in others.”
Academic Integrity
Academic standards and the reputation of students and the university are based on, among other things,
academic integrity. Any form of dishonesty, including cheating on exams, aiding and abetting cheating,
plagiarism, the use of the work prepared by others and presented as your own, etc., are unacceptable
activities and will normally result in a grade of F for the assignment or course. TRU Policy ED 5-0 Academic
Integrity outlines the different types of infractions and the enforcement mechanisms followed by the
university. All students are encouraged to familiarize themselves with this policy to avoid committing a
violation.
Methods of Prior Learning Assessment
TRU recognizes that learners acquire knowledge and skills through life and work experience in addition to
formal academic study. TRU Policy ED 2-0 Prior Learning Assessment and Recognition outlines the
procedures that the university will follow in assessing this knowledge and skills for potential credit.
Grading
TRU Policy ED 3-5 Grading Systems describes the grading system to be followed in all courses at TRU to help
ensure the comparability of grades across campus. Letter grades do not become official until they are
approved by the Chairperson responsible for the course and they subsequently appear on the student’s
transcript. For undergraduate courses, the letter grade system is:
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Letter Grade
Grade Points
Letter Grade Definitions
A+
A
A-
Numerical
Grade
90-100
85-89
80-84
4.33
4.00
3.67
Excellent. Superior performance showing comprehensive,
in-depth understanding of subject matter. Demonstrates
initiative and fluency of expression.
B+
B
B-
77-79
73-76
70-72
3.33
3.00
2.67
Very Good. Clearly above average performance with
knowledge of principles and facts generally complete with
no serious deficiencies.
C+
C
65-69
60-64
2.33
2.00
C-
55-59
1.67
D
50-54
1.00
F
0-49
0.00
DNC
0.00
Satisfactory. Basic understanding with knowledge of
principles and facts at least adequate to communicate
intelligently in the discipline.
Pass. Some understanding of principles and facts but with
definite deficiencies.
Minimal Pass. A passing grade indicating marginal
performance. Student not likely to succeed in subsequent
courses in the subject.
Unsatisfactory. Fail. Knowledge of principles and facts is
fragmentary.
Did not complete the course, less than 50% of course
work completed or mandatory course component(s) not
completed. No official withdrawal.
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