CAMERON UNIVERSITY
LAWTON, OKLAHOMA
DEPARTMENT OF BUSINESS
Finance 5613
Dr. Robert P. Yuyuenyongwatana
Spring 2000
COURSE OUTLINE
Contact:
Room 309, Department of Business
Phone: 581-2213
E-Mail: roberty@cameron.edu
Home Page: http://www.cameron.edu/~roberty
Hours: M-Th 1 - 3 p.m.
Or by appointment
Objective
The course covers financial decision theories and applications, asset valuation,
capital budgeting techniques, capital structure, leasing, working capital
management, and multinational financial management. Case-problem approach is
emphasized. The emphases are to:
1.
Gain a good understanding of finance theory and practice as applicable to
corporate financial management;
2.
Learn analytical tools useful for corporate decision making;
3.
Apply the theoretical principles of finance to coorporate decision making
relating to valuation, investment, dividends, and working capital
management; and
4.
Develop skills in the analysis of real life finance problems and evaluate
alternate approaches to their solutions.
Required Text and Cases:
Financial Management:Theory and Practice, 9th Edition
by Brigham, Gapenski and Erhardt (Dryden), 1999.
Study Guide to accompany the Financial Management:Theory and Practice.
Harvard Business School Case - The Super Project - Case # 112-034; Harvard
Business School Publishing, Boston, MA 02163.
Harvard Business School Case - Clarkson Lumber Company - Case # 297-028;
Harvard Business School Publishing, Boston, MA 02163.
Harvard Business School Case - Service Corporation International - Case # 9296-080; July 1996. Harvard Business School Publishing, Boston, MA 02163.
Recommended: The Wall Street Journal, Fortune, and BusinessWeek
Prerequisite: Finance 3603 or Finance 5053 WITHOUT EXCEPTIONS!
Grading:
Midterm
100 points
Final
100 points
Case Report
100 points
Class Participation and Case Discussion
100 points
Total
400 points
A: 360 - 400 points, B: 320 - 359 points, C: 280 - 319 points, D: 279 and below
Class Policy:
There will absolutely be no make-up exams. BE SURE you are adequately
prepared for each class session. In addition to assigned readings of the
chapters, you are expected to do work on a number of numerical problems,
exercises from the text and the Study Guide, and other assigned problems,
You should check the website for additional materials pertaining to the
lectures (see Internet Access). Class attendance and participation are
required and will be graded accordingly. Please be forewarned that any
form of cheating will result in an immediate F for the course along with
possible severe disciplinary actions taken by the College.
The Cases:
Three cases are included in the assignments. The cases provide practical
learning experience and will help you to apply lessons learned during the
course. Every student is expected to participate actively in the case
discussions. A number of questions relating to each case is provided (see
Questions Accompanying Cases). These questions help to highlight the main
issues involved in each case. Your preparation for the case should include
the appropriate financial analysis and computations. Each student is
required to turn in a written report of any ONE of the three cases. The
report includes a full analysis of the questions/issues involved and
recommendations for the appropriate actions required to solve the problems
faced by the company. All written report must be neatly typed and it should
include all necessary spreadsheets and appendices. I will grade the case
based on content and appearance. The report is due on the last day of class
(Sunday, 2/20/2000).
Internet Access
You will be able to download certain information directly to your computer
at home or work. I will provided you with the login id and password. Unless
you access the webpage from several computer labs on campus, you need an
internet access provider (IAP) to access the web page. My home page is:
http://www.cameron.edu/~roberty .
You may e-mail a case/assignment, as a text/binary attachments with your
e-mail messages, to me. However, you MUST do them by the due dates. It is
required that you have a working knowledge of e-mailing and browsing in
the Internet. For more information, consult the following site:
http://www.cameron.edu/admin/computer_services/index.html.
In fact, you should log into the Cameron University web site:
http://www.cameron.edu for complete information on the university policy,
personnel, backgrounds, and computer accesses.
COURSE SCHEDULE *
Date
Chapter
2/4
1 - 3, 5, 7
Introduction, Review of Financial Statement Analysis, Probability
Concepts, and Time Value of Money
2/5
5, 6
Risk and Return
21 - 23
Working Capital Management and Financing
2/6
Topic
Case: Clarkson Lumber Company
Review for Midterm.
2/11
MIDTERM EXAM, ch. 5, 6, 7, 21-23
2/12
Review of Midterm Exam
11
Capital Budgeting - Review of the Basic
12
Capital Budgeting - Advance Topics
19
Leasing
2/13
Case: Super Project
2/18
15, 16
Capital Structure
2/19
24
Derivatives and Hedging
27
International Finance
2/20
Case: Service Corporation International
WRITTEN CASE DUE
Review for Final Exam
2/25
FINAL EXAM
* The schedule is subject to change with notice.
Questions Accompanying Cases
For A Written Report
Choose ONE company below to do a written report. All answers must be concise BUT
THOROUGH. Remember to include all calculations, appendices and spreadsheets. All reports
must be neatly typewritten and all exhibits clearly identified. You will be graded on contents and
appearance.
Clarkson Lumber Company
1.
Why has Clarkson Lumber borrowed increasing amounts despite its consistent profitability?
2.
How has Mr. Clarkson met the financing needs of the company during the period 1993
through 1995? Has the financial strength of Clarkson Lumber improved or deteriorated?
3.
How attractive is it to take the trade discounts?
4
Do you agree with Mr. Clarkson’s estimate of the company’s loan requirements? How much
will he need to finance the expected expansion in sales to $5.5 million in 1996 and to take all
trade discounts?
5.
As Mr. Clarkson’s financial adviser, would you urge him to go ahead with, or to reconsider his
anticipated expansion and his plans for additional debt financing? As the banker, would you
approve Mr. Clarkson’s loan request, and, if so, what conditions would you put on the loan?
Super Project
1. What are the relevant cash flows for General Foods to use in evaluating the Super project? In
particular, how should management deal with issues such as
a)
Test-market expenses?
b)
Overhead expenses?
c)
Erosion of Jell-O contribution margin?
d)
Allocation of charges for the use of excess agglomerator capacity?
2. How attractive is the investment as measured by various capital budgeting techniques (i.e.,
accounting rate of return, payback period, internal rate of return, net present value)? Flow useful
are each of these measures of investment attractiveness?
3. How attractive is the Super project in strategic and competitive terms? What potential risks and
benefits does General Foods incur by either accepting or rejecting the project?
4. Should General Foods proceed with the Super project? Why, or why not?
Service Corporation International (SCI)
1. Although SCI’s stock is trading around $31.00 per share in July 1995, analysts are predicting it
could be at $41.00 or more within a year or two. Would you buy SCI’s stock at this time? Why or
why not?
2. How does SCI make money in the death care industry? Is this strategy sustainable?
3. Does SCI’s acquisition strategy create value in North America? in international markets?
4. Should SCI continue to grow? As a manager, how would you convince investors that SCI’s growth
strategy made sense? As an investor, how would you determine whether SCI’s growth strategy
made sense?
5. How much debt should SCI have in its capital structure? How should SCI fund future
acquisitions?
Discussion Questions Relating to the Cases
The following sets of questions are to help you answering the case questions and to facilitate class
discussions of the cases. You must prepare each case by answering all the questions below. Any
numerical and spreadsheet analysis must accompany these questions. Take the exercise seriously
because YOUR OVERALL GRADE DEPENDS ON IT.
Clarkson Lumber Company
1. Why has this profitable company had to borrow more and more money from the bank?
2. Does rapid sales growth always result in a need for substantial external finance?
3. How has Mr. Clarkson met the financing need during 1993-1995? Has the financial strength
of Clarkson Lumber increased or deteriorated?
4. How attractive is it to take the trade discounts?
5. Will a credit line of $750,000 be sufficient to meet the company’s needs in 1996 if it takes the
trade discounts?
a)
Would someone be willing to share his or her forecasts of Clarkson’s
financing needs?
6. What will happen to Clarkson’s financing needs beyond 1996?
a)
What would have to occur for the borrowing need to decline?
7. How rapidly can Clarkson Lumber grow without further deterioration in its balance sheet
leverage, assuming no new equity issues and continuation of its policy to pay no dividends?
8. Would you, as Mr. Dodge, agree to lend Clarkson the money needed?
9. What are the alternatives open to Mr. Clarkson if Mr. Dodge refuses his request for an
increased credit line?
10. What would you be willing to pay, as an outside investor, for a 30% ownership interest in
Clarkson Lumber?
11. What would you do, as Mr. Clarkson?
12. Summary of main issues.
Super Project
1. Listed on the board are the major issues concerning the evaluation of the Super project. Let us
consider them one at a time. How should each be handled in our analysis?
a)
Test-market expenses
b)
Overhead expenses
c)
Erosion of Jell-O contribution margin
d)
Allocation of charges for the use of excess agglomerator capacity
2. What measure is General Foods using to evaluate Super and other such projects? How would
the application of standard net present value analysis influence our decisions about test
marketing and other allocated expenses?
3. What are the relevant cash flows of the Super project under various assumptions about which
costs to include? What are the corresponding net present values?
4. What would you recommend General Foods do?
a)
What are the important strategic factors to consider?
b)
How might this decision influence future product-introduction decisions within
General Foods?
5. Summary.
Service Corporation International
1.
Introduction—Would you buy SCI at $31 per share? Why?
2.
How does the stock market value Sd? Note the relation between growth and value for SCI.
3.
Does the current strategy create value for Sd? Analyze the value drivers. How does SCI
make money (profitability)? Is it sustainable (advantage horizon)?
4.
Reinvestment opportunities—Will the international acquisitions generate positive
abnormal returns?
5.
Is there a problem here? Introduce the mining versus manufacturing analogy. What would
you recommend for the future?
6.
Summary and what happened.