ACE 442
APPLICATIONS IN FINANCIAL MODELING
SPRING 2006
_________________________________________________________________________________
Prof: Bruce J. Sherrick
Office: 306 Mumford Hall
Phone: 244-2637
Hours: M, W 3-4:00 or by appt.
E-mail: sherrick@uiuc.edu (best way to contact me)
Secretary: Melissa Warmbier, 332 Mumford (333-0737)
Class website: https://www.ace.uiuc.edu/classes/ACE442
_________________________________________________________________________________
SYLLABUS
Purpose of Course:
This purpose of the course is to improve your ability to make effective financial decisions. A
large part of the course involves taking a financial model or theory, and figuring out how to
implement that model or theory using Excel and other computerized tools. With the tools you build,
you can then address a wide variety of real world problems, but more importantly, learn modeling
skills for tackling new problems that you will encounter in your working life.
Course Topics (roughly in order of coverage):
$ Applied data management and analysis using Excel and other tools;
$
Locating, and retrieving web-based data (how to develop a web query, dealing with large
data sets, applied analysis, inference, estimates, and analytical tricks);
$
Analyzing and interpreting historic financial data (automating the common tasks, and
developing logical decision rules);
$
Optimization (examples include: how to pick profit maximizing price, and how does firm
structure impact the solution; maximizing under risk; mapping E-V frontier; several other
applications);
$
Assessing financial and operating leverage (how much debt and equity should you hold and
what are the effects on performance measures of choices in technology);
$
Adding risk to real decisions (modeling uncertainty and making risky decisions including
the impacts of uncertain demand, uncertain costs, uncertain production, and combinations of
other risky variables. Also may learn to develop and automate the standard portfolio
problem);
$
Valuing investment projects - capital budgeting methods using a computer, including
valuing "options" of the real and financial kinds;
$
Term structure of interest rates and currency exchange (making sense of trading effects
through time and across currencies).
The class meets entirely in the LIAC computer lab. Even though we are in a computer lab, we
will still have a mixture of lecture/discussion to go along with the computer exercises. You may find
participation to be uncomfortable, but it is essential for developing your understanding. There will be
homework exercises surrounding each topic to reinforce the issues and to help identify any gaps in
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understanding or "new" issues to address. Some of the assignments require you to follow an actual
outside company of your choice, and approach the decision from their point of view. The exams are
also held in the lab.
Companies:
Ticker symbols of companies that you might want to use for your class assignments (any other
approved in advance). Deere is not available for any student reports.
(K)
1. Kellogg's
(CNH)
2. Case-NewHolland (merger mania)
(MON)
3. Monsanto (perennial merger candidate, recent divestiture)
(PEP)
4. Pepsi (and its food businesses???)
(ADM)
5. ADM (dominating monopoly in some markets)
(JPM)
6. Bank One + JP Morgan + Chase (not ag, but needed one financial on the list)
(WEN)
7. Wendy's (where's the beef ), or Hardee's (who is Carl Jr.?)
(KR)
8. Kroger (how's that online shopping thing working out?)
(BUD)
9. Anheuser-Busch
(CAG)
10. ConAgra (how's healthy choice affecting them?)
(COKE)
11. Coke (or Coke KO) (and its movie businesses...???)
(TSN)
12. Tyson's
(MO)
13. Altria (old Phillip-Morris - what lawsuit.....??)
(CASY)
14. Casey's General Store
(CAT)
15. Caterpillar
(AG)
16. Agco – “not as much green” as Deere
Course Materials:
The class relies almost entirely on course notes and spreadsheet files developed and distributed
in class, by e-mail and via the class website. The course assumes you have had at least one and
preferably two background courses in finance, and you should have one of the commonly used texts
available for your reference (e.g. Brealy and Myers, Scott Martin, Petty, & Keown, etc). In addition,
you must have a good reference book for Excel (required). There are numerous after-market
references available and you should pick one appropriate for your incoming level of familiarity with
Excel. You will need to become familiar with an e-mail package that is suitable for transmission of
large attached files as well. You will also need your own jumpdrive memory stick, and a notebook
for the class notes that you will accumulate through time. The class requires you to use Excel
virtually every session and occasionally use IE during class. Browsing other web sites not related to
the class is incredibly distracting to others and will not be tolerated. Files will also be transferred
back and forth during class in a location on the lab network that should be viewed as temporary, so
that you must keep your own copy after the original has been distributed. Again, it is critical that you
keep multiple copies of everything you do.
Grading:
Activity:
Lab exercises/homework
Participation/Discussion
Midterm 1
Midterm 2
Final Exam
Instructor-Assigned points:
Points
150 (normalized after final homework)
100 (includes any in-class assignments/quizzes)
250 (tentative Feb. 22 or so)
250 (tentative April 12 or so)
250 (May 3 scheduled B hold May 1 and 6)
1000
Note: the in-class participation points will be aggressively distributed from 0 to 100.
(last year’s range was from 10 to 87 on a 100 point scale)
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Class Meetings/Labs (generally from 1:00-2:30, +/- ten minutes on end):
These sessions are very critical to your success in the course. In general, we use the class/lab
time to talk about the goal of the assignment, introduce a few new tools and techniques and then
spend the remainder of the time working to build an actual decision tool. Some of these assignments
will be graded, others will not, but they are highly correlated with the exam materials in all cases.
Typically, a completed version of each assignment is provided on the web site one to two courses
later to show one potential solution approach. However, it is a critical mistake to wait for the example
file to see how to solve the problems as the majority of the learning takes place from your own search
for the right answer. Attendance and active participation are critical parts of your course participation
grade. An overwhelmingly common impression from students in past offerings is that you simply
cannot miss a class and expect to recover fully. The class formally meets on Monday and Wednesday
only, but we can hold the lab on Friday’s as needed (with advance notice) for the completion of
assignments and for your general use related to class.
Your responsibilities include:
You are responsible for managing and maintaining all materials I provide, and all materials that
you generate throughout the semester. Past experience (strongly) indicates that you should keep a
backup of all material. You should assume that all transmissions may be lost, and that all shared files
in the lab or on the class site can be corrupted. A model that seemed to work for some students in the
past is to maintain duplicates of working files, and a single backup of all completed work (that and a
large 3-ring binder make for a good filing system). You must type and include the correct date (not
always system date, not a function for date) in every file you send, and use your classname as part of
the name of the file (e.g., sherrick_hw1.xls). E-mail messages to me containing attached files with
assignments must include the number 442 in the message subject line to be counted. No exceptions.
Period. Don’t ask. Same goes for late items.
You are also responsible for initiating your own participation, identifying any materials about
which you have questions, and guiding the class experiences to your own greatest benefit. And the
necessary citation: The University statement on your obligation to maintain academic integrity is:
"If you engage in an act of academic dishonesty, you will become liable to severe disciplinary action.
Such acts include cheating; falsification or invention of any information or citation in an academic
endeavor; helping or attempting to help others commit academic infractions; plagiarism; offering
bribes, favors or threats; academic interference; computer-related infractions; and failure to comply
with research regulations.@
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ACE 442
AGRIBUSINESS FINANCE
Spring 2006
Approximate Calendar - first section of course
(Check web version after 1/25 for first updates)
Date
Topic
Assignments/Materials *
Jan. 18
Course overview, introductions, Excel
Basics and begin data analysis primer
Data file.
Jan. 23
Data management techniques,
homogenizing our Excel Skills,
Jan. 25
Analyzing Historic Financial Statements
Dupont, and other approaches
Jan. 30
Feb. 1
Historic Statement usage and Construction
of analysis tools.
Cooperative Financial Statements:
Figuring out what=s different about the
corporate/cooperative objective functions.
Begin developing simple model of a firm.
Feb. 6
Introduction to optimization techniques.
Feb. 8
Begin assessing ALeverage@ of the
financial and operating types.Evaluating
the materials so far......
(see APop Nots@ templates, possible
guest)
HW2 due - start of class
Feb. 13
Finish Leverage Evaluation Templates.
Whither the D or E…
Build template to understand ROE
distribution
Feb. 15
Capital Structure: Optimal Mix of Debt
and Equity, cost of capital models
WACC in simple form. HW3 out here
or after midterm depending on pace of
course
Feb. 20
Review and Catch-up
HW3 due ?
Review Materials distributed/discussed
Feb. 22
EXAM I
Good Luck!
Start building a custom web-query.
HW1 out
HW1 DUE by START OF CLASS
HW2 out(?): Max Profit at what price?
Optimization techniques
*Other assignments will likely be assigned in sessions where class materials are incomplete. Some of
these will be spot checked for points in class, or in the following class. I also use “attendance”
quizzes to help guide my assignment of participation points. HW dates may be shifted to fit into
course materials.
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