WIDENER UNIVERSITY
SCHOOL OF BUSINESS ADMINISTRATION
BUS 660 -FINANCIAL ANALYSIS
SPRING 2008
DR. IQBAL MANSUR
Office: 226 QC
http://muse.widener.edu/SBA/FacultyWebpages/Mansur/INDEX.HTM
Tel: (610) 499-4321
Fax: (610) 499-4614
E-mail: imansur@widener.edu
Prerequisite: FIN 540/548
Course Description and Objectives:
This course is designed to introduce the students to accounting and finance concepts as they
relate to business valuation and mergers and acquisitions. The course focuses on financial
reporting and tax issues associated with business combinations and consolidated financial
statements. In addition, the course covers the topics of capital structure and cost of capital and
applies these concepts to capital budgeting decisions in the context of mergers and acquisitions.
Business valuation issues including approaches to valuing a firm is an important segment of the
course.
This course consists of lectures, class discussion, and written problem assignments.
Lecture and discussion will focus on concepts and principles designed to demonstrate and
illustrate concepts and practices in the dynamic field of finance.
Learning Objectives:
At the completion of the course you should be able to:
1. understand the accounting issues as they relate to mergers and acquisitions;
2. understand the importance of cash flows, their sources and how business decisions
affect cash flows;
3. understand how managers combine debt and equity financing to establish an optimal
capital structure that maximizes the value of the firm’s assets;
4. understand the concept of the cost of capital and how it is used with the investment opportunity
schedule to make the firm’s financing and investment decisions;
5. understand the concept of Net Present Value (NPV) and how to apply it to investment
decisions;
6. understand why a project’s NPV is a measure of the value it creates;
7. understand various other alternative rules to screen investment proposals;
8. understand various methods used to value businesses and how to apply them in
practice to estimate the value of a company; and
9. measure value creation using the concepts of Marker Value added and Economic Value
Added.
Text:
Gabriel Hawawini and Claude Viallet. Finance for Executives: Managing for Value Creation.
2007, 3rd ed. , Thompson South-Western; ISBN # 0-324-27431-9.
It is strongly recommended that students read the Wall Street Journal on a regular basis.
Calculator:
A financial calculator, preferably HP 10BII, is required.
Student Evaluation:
a). Students are expected to study the relevant portion of the course material prior to the class
meeting on which it is to be discussed.
b). Grade will be based primarily on examination performance but due consideration will be
given to class participation.
c). Students are responsible for familiarity with materials discussed in class and are not
released from this responsibility because they ceased to attend.
Attendance Policy
It is expected that students attend all 7 class meetings. In rare instances, with the approval of
the instructor, a student may miss one session. Under no circumstances, a student may miss 2
or more meetings during the seven-week session.
Drop Policy
The University drop policy will be followed.
Grading Procedures
The "plus-minus" grading scale, as stated below, will be used to assign the final grade.
96 - 100
90 – 95
A
A-
87 - 89
84 - 86
80 - 83
B+
B
B-
Exams and Weights
There are two take home exams, each weighing 50% of the final grade.
77 - 79
70 - 76
C+
C
WEEKLY READING ASSIGNMENT
Date
Jan. 17
Chapters and Topics
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2 and 6
5.1
8
4.1
4
8.5
5 and 9
6.4 and
6.5
4, 6, and 8
Financial Accounting Statements
The Balance Sheet
The Income Statement
Reconciling Balance Sheet and Income Statement
The structure of the Owners’ Equity Account
Measure of Profitability
Return of Equity
Other Measure of Profitability
Financial Leverage and Risk
Self-sustainable Growth
Ch.4: Measuring Cash Flows
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Net Cash Flow from Operating Activities
Net Cash Flow from Investing Activities
Net Cash Flow from Financing Activities
The Cash Flow Statement
Net Operating Cash Flow Vs. Free cash Flow Vs. Bankers’ Cash
Flow
Ch. 8: Identifying and Estimating a Project’s Cash Flows
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The Actual Cash Flow Principle
Identifying a Project’s Relevant Cash Flows
Estimating a Project’s Relevant Cash Flows
Sensitivity of NPV to Changes in Cash Flows
Ch. 6: Using NPV Rule to Value-Creating Investment Decisions
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The Capital Investment Process
The opportunity Cost of Capital
Net Present value Rule
A Measure of Value Creation
Special Cases of Capital Budgeting
Limitations of the Net Present Value Creation
Ch. 7: Alternatives to the Net Present Value Rule
 The Payback and Discounted Payback Methods
 The Internal rate of Return
 The Profitability Index
 The Average Accounting Rule
Feb. 7
2.1
Fundamental Finance Principles
Role of Financial Markets
Sources and Uses of Cash
Economic Value Added
Ch.5: Diagnosing Profitability, Risk, and Growth
Jan. 31
End of
Chapter
Review
Problems
Ch. 1 Financial Management and Value Creation
Ch. 2: Understanding Balance Sheets and Income statements
Jan. 24
Self-Test
Problems
Midterm Exam due
7.5
7 and 10
Feb. 7
Feb. 14
Ch. 10: Estimating the Cost of Capital
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Ch. 11: Designing a Capital Structure
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Feb. 21
Feb. 28
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Mar. 10
11.4
1 and 5
12.3
4 and 8
14.2
5 and 8
Alternative Valuation Methods
Valuing a Firm’s Equity using Comparables
Valuing a Firm’s Assets and Equity Using DCF Approach
Estimating Acquisition Value
Estimating Leverage Buyout Value
Ch. 14: Managing for Value Creation
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1, 9 and 10
The Capital Structure
No Corporate Taxes and No Financial Distress Cost
Corporate Taxes and No Financial Distress Cost
Financial Distress is Costly
Effect of Changes in Capital Structure on the Firm’s Value
Formulation of Capital Structure Policy
Ch. 12: Valuing and Acquiring a Business
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10.5
Estimating the Cost of Debt
Estimating the Cost of Equity – Dividend Discount Model
Estimating the Cost of Equity – Constant Growth Model
Estimating the Cost of Equity – CAPM
Estimating Cost of Capital of a Firm
Estimating Cost of Capital of a Project
Measuring Value Creation
Identifying the Drivers of Value Creation
Linking Operating Performance and Remuneration to Value
Creation
Linking Capital Budgeting to Value Creation
Financial Strategy Martix of Value Creation
Final Exam due
Please note that the instructor reserves the right to change any items of the Syllabus and course
guidelines presented above without the prior approval of the students enrolled in class.