University of Puget Sound
School of Business and Leadership
Principles of Financial Management - BLP
Professor Alva Wright Butcher
McIntyre 303 MWF 11:00-11:50
Fall Semester 2003
Office: McIntyre 111 I
Phone: 253-879-3349
FAX: 253-879-3156
Office Hours:
Mon-Wed-Fri 2:00-3:30
Tuesday 10:00-12:00
Note that I am always willing to schedule additional office hours by appointment. I check email
frequently, so that is also a good way to communicate. Do not hesitate to call me at home. If you
cannot reach me, please leave a number so that I can get back to you.
Email: butcher@ups.edu
Home: 206-285-3990 or 360-779-4706
Required Course Materials:
1. Ross, Westerfield, and Jordan, Essentials of Corporate Finance, Fourth Edition,
McGraw-Hill Irwin, 2004
2. Harvard Business School cases available in course packet in bookstore
 Assessing a Firm’s Future Financial Health
 Note on Financial Forecasting
 Clarkson Lumber
 Krispy Kreme Doughnuts
Recommended:
Subscription to the Wall Street Journal
We will be working with the Wall Street Journal during several class sessions. As a
business student, you should read this publication regularly.
References and Support Materials:
1. Self-Study Software that accompanies the textbook. After you have downloaded this
on your computer, it provides multiple choice quizzes for all chapters. The software
immediately grades your response to a question and provides hints if your answer is not
correct.
2. Self-test problems and solutions at the end of each chapter provide excellent review
material. Note that in general, solutions to odd numbered end-of-chapter problems are
available in the back of the textbook.
3. Website supported by the publisher.
http://highered.mcgraw-hill.com/sites/0072510765/student_view0/index.html
The site provides access to many sources of financial information as well as material
specific to each chapter in the text. This includes:
 a brief chapter summary,
 online multiple choice quizzes,
 Web links Bibliography (access to web links noted in the chapter),
BUS 315 BLP
Fall 2003 Professor Alva Butcher
1

What’s on the Web?(access to web links noted in these questions at the
end of each chapter),
 Excel templates for selected problems at the end of the chapter.
4. Thomas Eyssell, Student Problem Manual, Fourth Edition, McGraw-Hill Irwin, 2004.
For each chapter, this provides a summary of key concepts, a concept quiz, and
problems with detailed solutions.
5. Please contact me for sources that provide other explanations of the material.
Calculator: A financial calculator is required. The calculator must have functions for bond
valuation, net present valuation (NPV), internal rate of return (IRR), present value (PV), and
future value (FV). One suitable calculator is the HP10-B. It is available in the bookstore for
around $30.
Course Objectives: The key objective of this course is to develop a conceptual and pragmatic
understanding of corporate finance. The topics and assignments are designed to prepare you to
apply both theory and techniques in the “real world” of corporate finance. Note that some of
these topics, such as the time value of money, are ones that you will also find invaluable in
handling your own personal finance. Assignments include end of chapter questions and case
analyses. You will create spreadsheets to model financial problems and will prepare professional
reports of your analyses.
The course builds upon concepts covered in Elements of Applied Statistics (Math 271) and in
Principles of Financial and Managerial Accounting (BUS 205). It is assumed that you are
proficient in the use of financial data as reported in financial statements. If you are not
comfortable with these concepts, please see me for some review problems. Since the application
of financial concepts also requires proficiency in basic algebra and geometry, we will frequently
address basic mathematical concepts and techniques.
After you have successfully completed this course, you will be able to:
 Work with financial statements to evaluate financial ratios and their implications
regarding the financial strengths of weakness of a firm.
 Use historical financial statements and assumptions about future growth to prepare
pro-forma financial statements and estimate additional financing needed to support
that growth.
 Determine the value today of cash flows to be received later.
 Evaluate the cost-benefit trade-off of costs incurred today with cash inflows expected
in the future.
 Understand the effect of compounding periods on interest rates. (What interest rate
are you really paying on that loan?)
 Understand the basic features of bonds and how they are priced.
 Estimate the fundamental price of a common stock, using the two-stage discount
model.
BUS 315 BLP
Fall 2003 Professor Alva Butcher
2
 Identify the relevant cash flows for a proposed investment, and evaluate a complex
proposed investment using Net Present Value, Internal Rate of Return, and Payback
Period.
 Recognize the impact of diversification, and use the Capital Asset Pricing Model to
quantify the risk-return tradeoff.
 Use financial information to estimate the required rate of return on a proposed
investment. This is known as the firm’s weighted average cost of capital.
 Have a basic understanding of the Efficient Market Hypothesis and its implications
when you are presented with a “hot tip”.
 Read financial data as reported in the Wall Street Journal and have a basic
understanding of primary versus secondary markets.
 Evaluate your “stock pick” and reflect on your “virtual” gains or losses.
Class Preparation and Participation: Preparation for class is extremely important. Prior to
class, you are expected to have read the assigned reading material. You are also expected to have
analyzed any assigned discussion problems and to be prepared to participate in the class
discussion. If for some reason you are not prepared to participate in the discussion please let me
know prior to class.
Your presence and contribution to class discussion are important. There are three categories:
present, absent with leave, and AWOL.
Online Course Management Platform – Blackboard
We will be using an online course management platform this semester. The key benefit is that it
provides an excellent means of communication. You will be able to download the syllabus,
homework assignments, homework solutions, sample exam problems etc. from the internet at any
time. It also provides a platform for threaded discussion. Another feature allows discussion
among group members on their group project; access is restricted to members of the group.
You can access this at blackboard.ups.edu. Click on “Course Catalogue.” Find the course,
Principles of Financial Management, and click on “Enroll.” You will need a password in order to
enroll. I will provide this in class.
If this is your first course on Blackboard, you will need to create an account and specify your
user-id and password. (Click on “Create Account.”) During this process, you will be asked for
additional information, such as your name, email address etc. Please begin both your first and
last name with a capital letter, and enter the other letters in lower case. If you have other courses
on Blackboard, I would suggest that you use the same user-id and password for all classes.
Once you have enrolled in Blackboard, subsequent contacts only require that you open
blackboard.ups.edu and click on “Login”. You will be asked for your id and password.
BUS 315 BLP
Fall 2003 Professor Alva Butcher
3
Homework: Homework assignments are listed on the course outline, and are due on the class
date indicated on the outline. These assignments are designed to reinforce your familiarity with
the material, to train you in the use of your financial calculator and computer spreadsheets, to
identify areas in which you may be having difficulty, and to serve as a basis for classroom
discussion.
The end of each chapter includes Critical Thinking and Concepts Review and Questions and
Problems. Most homework questions are from the end-of-chapter Questions and Problems. A
critical thinking question will have the notation CT3, i.e. question 3 under Critical Thinking and
Concepts Review. The course outline notes two categories of homework: discussion and written.
Written homework assignments will be collected at the beginning of class, and a subset of these
problems will be selected on a random basis for grading. Solutions to homework assignments
will be available after class on the online course management platform, blackboard.ups.edu
(under Assignments).
Late homework assignments will not be accepted.
Case Analyses and Projects: Several case studies and projects will be assigned during the term.
These are utilized to enable you to: 1) practice effective communication techniques, both written
and oral; 2) engage in an active learning situation; 3) perform data interpretation and analysis; 4)
gain experience in decision making under uncertainty. They are also designed to give you an
opportunity to use an essential tool in real world business finance - the application of computer
models in financial analyses.
Each case study will require a written report. Some of these reports will be short memos; others
will require more lengthy exposition. Reports must be typed, with exhibits inserted in the
narrative where appropriate, or at the end of the report. One of these assignments, the Stock
Project, will be a team project. Additional details will be available on Blackboard, the online
course platform. (blackboard.ups.edu Check under Assignments)
The cases will be discussed in detail during a regular class session. You should be prepared to
respond to specific questions, and to the comments of other students. Grades for both written
reports and class discussions will be based on content, exposition, and clarity.
Late written reports will not be accepted. Reports are due at the beginning of the class period.
Please make an extra copy for your use during the class discussion.
Exams: There will be three midterm exams and a comprehensive final. Exams will be problem
oriented, but will also include short essay questions. Exams are closed book, but you may use
one side of an 8 by 11 paper for notes and formulae.
As a general policy, makeup exams will not be given.
Extra Credit Quizzes: During the term, there will be unannounced pop quizzes. These will
consist of a few multiple choice or true false questions, and will cover material presented in the
prior one or two class sessions. As with homework problems, these are designed to reinforce the
material, and to identify problem areas. By keeping current with the material, these quizzes also
provide you with a means of earning extra credit points.
BUS 315 BLP
Fall 2003 Professor Alva Butcher
4
Grades:
Grades will be based on the following weights:
Three Midterm Exams
43%
Comprehensive Final Exam
25%
Projects and Case Analyses
Stock Project (5%)
22%
Financial Forecasting Case (6%)
Clarkson Lumber
Capital Budgeting Case (6%)
Capstone Case (5%)
Krispy Kreme Doughnuts
Homework and Class Discussion
10%
Total
100%
Unannounced Quizzes
5% (extra credit)
BUS 315 BLP
Fall 2003 Professor Alva Butcher
5
Course Outline
Wed.
9/3
Introduction to Course
Chapter 1: Overview of Financial Management
Establish the Dartboard Portfolio
Fri
9/5
Chapter 2: Financial Statements, Taxes, and Cash Flow
Homework
Register on Blackboard, the online course platform.
Discussion
Chapter 2: 1, 2, 3
Chapter 2: What’s on the Web? 2.2
Note: Please bring your financial calculator to class.
Mon
9/8
Chapter 3: Working with Financial Statements
Math Concept: Review of Algebraic Manipulation
Homework
Discussion
Chapter 3: CT3.1, CT3.4, CT3.5,1,3,9
Written
Chapter 2: 6,7
Stock Project
Submit names of 3 potential firms for your stock project. Please list firms in
order of preference.
You are encouraged to pick a company in which you have some interest. This
could be a firm that employs someone in your family, one in which you would
like to own stock, one with products or services you admire or use often. The
firm must be publicly traded and in an identifiable industry. Financial
institutions, such as banks, are not allowed.
Wed
9/10
Harvard Business School Case Discussion
Assessing a Firm’s Future Financial Health
Homework
Written
Chapter 3: 2, 4,6, and 34 (a,b,d,e,f,g,j,l,m,n)
In problem 34, calculate ratios for 2003. Use the year end information.)
Discussion of Harvard Case
1. Read the discussion of the essence of long-term financial health
2. Work through the programmed text on financial ratios. Answer each of the
questions and be sure you understand the calculation and meaning of each of
the ratios. Be prepared to discuss your results in class. This does not need to
be handed in.
3. Using any approach you find helpful, identify three of the five unidentified
industries (pages 14, 15 and 17 of the case). The case is designed to help you
recognize the range of distinctive patterns in financial statements for
different industries. For example, different industries will have different
inventory turnover rates, different asset structures (high versus low levels of
plant property and equipment), different inventory turnover ratios, different
collection periods for accounts receivable etc. You are asked to play the
BUS 315 BLP
Fall 2003 Professor Alva Butcher
6
financial detective here, and to use selected financial data to identify
companies in 5 industries. Note that the balance sheets shown in Exhibit 3
are common size balance sheets. That is all items are calculated as a
percentage of total assets.
Be prepared to discuss your results in class. This does not need to be handed
in.
What were the key screening devices or key clues that you used to identify a
particular industry? Briefly explain your rationale.
Fri
9/12
Excel tutorial
Room to be announced
Mon
9/15
Harvard Business School Case Discussion
Note on Financial Forecasting
You may skip the section on Cash Budgets, pp 6-8.
The assumptions used to prepare the Pro Forma Operating Statement
(Table A) and the Pro Forma Balance Sheet (Table B) are provided in the
Note. Be prepared to discuss the details behind some of these pro-forma
forecasts. In particular, can you explain the calculations behind the Pro
Forma numbers for Inventories, Accounts payable, Accrued liabilities,
Earned surplus, and Additional financing needs in Table B?
Wed
9/17
Financial Forecasting Case Discussion - AWOL
You have been asked to analyze whether an expected increase in AWOL sales
will require additional financing. The analysis of this case will provide a good
background for your preparation of the Clarkson Lumber case that is due on 9/22.
Under Assignments on Blackboard you will find a folder named AWOL. This
folder contains the following:
 Instructions for the case
 An Excel file that contains the most recent financial statements
for fiscal year 2002 and the assumptions.
Use this Excel file to prepare your forecasts for 2002 and to calculate the
specified financial ratios. Please bring a hard copy of your Excel solution to
class for class discussion.
Fri
9/19
Chapter 7: The Stock Markets (Sections 7.2 and 7.3)
Working with the Wall Street Journal
Please bring a copy of the Thursday edition, 9/18/03, or today’s edition
Homework
Discussion
BUS 315 BLP
Chapter 7 :19
Fall 2003 Professor Alva Butcher
7
Mon
9/22
Harvard Business School Case: Written Report and Case Discussion
Clarkson Lumber
You will find the instructions for this financial forecasting case under
Assignments on Blackboard. Please submit your Excel file for this case via the
Blackboard Drop Box. Your excel file should be named “your name
CLARKSON”. A file with a virus will not be accepted, and the grade for this
project will be discounted depending on the length of the delay
Wed
9/24
Chapter 4: Introduction to Valuation: The Time Value of Money
Homework
Stock Project: Part One -A Profile of Your Firm
See Part 1 of the Stock Project for details.
Discussion
Chapter 4: CT1, CT2, CT3, CT4, CT8, CT9
Chapter 4: 1,2,3,4
Note that problems 2,3,and 4 each have four parts. You only
need to be prepared to discuss the first part.
Please bring your financial calculators to class.
Fri
9/26
Exam 1: Chapters 2, 3, and Financial Forecasting
Mon
9/29
Chapter 4: continued
Homework
Discussion
Chapter 4: 8,11, 18, 24
Written
Chapter 4: 6, 12, 14
Chapter 5: Discounted Cash Flow Valuation
Homework
Discussion
Chapter 5: 1,4,5
Wed
10/1
Discounted Cash Flow Valuation continued
Math Concept: Continuous Compounding
Homework
Discussion
Chapter 5: 12, 17
Written
Chapter 5: 2, 6, 8
Fri
10/3
Discounted Cash Flow Valuation continued
Homework
Discussion
Chapter 5: 24, 25
Written
Chapter 5: 14,16,18
Mon
10/6
Discounted Cash Flow Valuation continued
Homework
Discussion
Chapter 5: 35, 53
Written
Chapter 5: 20, 55
Wed
10/8
Chapter 6: Interest Rates and Bond Valuation
Homework
Discussion
Chapter 6: CT6, 2, 3
BUS 315 BLP
Fall 2003 Professor Alva Butcher
8
Fri
10/10 Interest Rates and Bond Valuation continued
Homework
Written
Chapter 6: 6, 7, 8
Mon
10/13 Interest Rates and Bond Valuation continued
Working with the Wall Street Journal
Please bring a copy of the Friday edition, 10/10/03, or today’s edition
Wed
10/15 General review of time value of money
Homework
Discussion
Chapter 6: 21 (a, b)
Written
Chapter 6: 19, 25
Fri
10/17 Exam 2: Chapters 4, 5, and 6
Mon
10/20 Fall Break Day
Wed
10/22 Chapter 7: Stock Valuation
Homework
Discussion
Chapter 7: CT1, CT2, CT3, 4
Fri
10/24 Stock Valuation continued
Homework
Discussion
Chapter 7: CT7.6, 5
Written
Chapter 7: 7, 12, 15, 16
Mon
10/27 Chapter 8: Net Present Value and Other Investment Criteria
(Skip sections 8.3 and 8.5)
Homework
Stock Project: Part 2- Examine Historical Daily Returns
See Part 2 of the Stock Project for details.
Wed
10/29 Chapter 8: Net Present Value and Other Investment Criteria continued
Homework
Discussion
Chapter 8: CT8.5, CT8.6
Written
Chapter 8: 10, 22
Fri
10/31 Chapter 9: Making Capital Investment Decisions
Mon
11/3
Making Capital Investment Decisions continued
Homework
Written
Chapter 9: 5, 6, 20
Wed
11/5
Chapter 10: Some Lessons from Capital Market History (Skip section 10.5)
Math Concept: Sample Mean and Standard Deviation
Homework
Discussion:
Chapter 10: 1, 2, 7
BUS 315 BLP
Fall 2003 Professor Alva Butcher
9
Capital Budget Case – Written Report and Case Discussion
Additional details are available on Blackboard under Assignments. Please
submit your Excel file for this case via the Blackboard Drop Box. Your file
should be named “your name Budget”. Files with a virus will not be accepted;
the grade for this project will be discounted depending on the length of the delay
Fri
11/7
Mon
11/10 Review
Homework
Written
Chapter 10: 9, 10, 17
Wed
11/12 Exam 3: Chapters 7, 8, 9, 10 (Not including section 10.5)
Fri
11/14 Chapter 11: Risk and Return
Homework
Discussion
Chapter 11: CT 11.3, CT 11.3
Mon
11/17 Risk and Return continued
Math Concept: Linear Regression and Basic Inferential Statistics
Homework
Written Chapter 11: 7(Stock B only), 16, 19(Assume that CAPM is true), 31
Wed
11/19 Risk and Return continued
Homework
Stock Project: Part 3 – How Risky is Your Firm?
See Part 3 of the Stock Project for details.
Fri
11/21 Chapter 12: Cost of Capital
Mon
11/24 Cost of Capital continued
Homework
Discussion
Chapter 12: CT 8
Written
Chapter 12: 3, 6, 15
Wed
11/26 Video: Changing Values: What is a Company Worth?
Thanksgiving Holiday
Mon
12/1
Chapter 10: Capital Market Efficiency (Section 10.5)
Homework
Discussion
Chapter 10: CT 10.5, CT 10.9, CT 10.10
Wed
12/3
Chapter 15: Raising Capital
Fri
12/5
Guest Speaker
Homework
Stock Project: Report 4 –Your Virtual Profit or Loss
See Part 4 of the Stock Project for details.
Note that you are only responsible for the written report. You will not be making
an oral presentation.
BUS 315 BLP
Fall 2003 Professor Alva Butcher
10
Mon
12/8
Harvard Business School Case: Capstone Case
Krispy Kreme Doughnuts
Additional details will be provided in class.
Wed
12/10 Integration and Review
Comprehensive Final Exam
Tuesday December 16th, 12:00-2:00
BUS 315 BLP
Fall 2003 Professor Alva Butcher
11