Finan 411 – Capital Budgeting and Planning – Fall 2010
Section 001 – MW 1:40 – 2:55 p.m. – B312
Instructor:
Office Phone:
Office Hours:
Office:
L. Dwayne Barney
B-213-E
E-mail:
426-3429
Ldbarney@boisestate.edu
MW 5:00 pm – 6:30 pm, Th 3:00 pm – 6:00 pm, and by appointment
Text: No text required.
Calculator: A financial calculator will be needed to succeed in this course. My recommendation is the
HP-12-C. However, any financial calculator should do.
COBE Core Curriculum Student Learning Goals and Objectives:
Students in this class will learn or practice the COBE Core Curriculum concepts, methods, and skills
detailed below.
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Understand and apply analytical and disciplinary concepts and methods related to:
Accounting
Business Policy and Strategy
Economics
Finance
Information Technology Management
International Environment of Business
Marketing
Mathematics and Statistics
Communicate effectively: Write messages and documents that are clear, concise, and
compelling
Solve problems, including unstructured problems, related to business and economics
Use effective teamwork and collaboration skills
Course Learning Outcomes:
The topics to be covered in this course include the following:
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Wealth maximization and the goal of the firm
How wealth is created
How the capital investment process is used to value and identify wealth creating investment
projects
How to estimate the value of financial assets
How to estimate the value of the firm
How to use the project investment evaluation criteria (NPV, IRR, etc.)
Understand the importance of the duration of investment projects
How to estimate the cash flows to an investment project
How to incorporate inflation into investment project analysis
Understand the concept of risk as it applies to investment analysis
How to measure and apply the measures of risk in capital budgeting
How to estimate the cost of capital for a capital budgeting project
Understand the factors that influence the capital structure decision of the firm
Finan 411 – Sec. 001 – Boise State University – Fall 2010 – Barney
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Schedule: The anticipated schedule of activities is shown below. It may be necessary to alter the
schedule over the course of the semester.
AUGUST AND SEPTEMBER
Review of interest and compounding, present value and future value, annuities, continuous
compounding of interest, effective and stated interest rates, bonds and bond valuation, yield curves, the
term structure of interest rates, bond duration, interest rate risk management in a financial institution,
stock valuation, the Gordon equation, net present value, internal rate of return, multiple IRRs, the
modified internal rate of return
Exam 1: September 29
OCTOBER
Operating cash-flow approach to NPV, equity residual method of calculating NPV, cash-flow
estimation, project-specific financing and interest rate risk, the cost of capital, comparing mutually
exclusive projects, equivalent annual annuity, replacement chain, payback period, the cost of capital,
the cost of debt, the cost of preferred stock, the cost of equity
Exam 2: November 1
NOVEMBER
Measuring risk and return, geometric mean, arithmetic mean, historical returns to investments,
expected return associated with a stock, variance of returns, standard deviation of returns, covariance
of returns, combining stocks into portfolios, portfolio expected return, portfolio standard deviation,
efficient portfolios, the Capital Asset Pricing Model, beta coefficients
Exam 3: November 29
DECEMBER
Return duration of a capital budgeting project (Article by Barney and Danielson), Project Scale (Article
by Beaves and Stolz).
Wednesday December 15th at 1:00 PM: Comprehensive Final Exam
Course Reference Materials:
“Project-Specific Financing and Interest Rate Risk in Capital Budgeting,” The Engineering Economist,
Vol. 48, No. 2, 2003.
“Ranking Mutually Exclusive Projects: The Role of Duration” by L. Dwayne Barney and Morris G.
Danielson, The Engineering Economist, Vol. 49, No. 1, pages 43-61.
“Technical Note: Defining Project Scale” by Robert G. Beaves and Richard W. Stolz, The Engineering
Economist, Vol. 50, No. 3, pages 295-302.
Fundamentals of Financial Management: Concise 6th Edition. By Eugene F. Brigham and Joel F.
Houston. South-Western, 2009.
Grading:
Your final grade will be determined on the basis of classroom participation, two midterm exams, and a
comprehensive final exam. When computing your final grade the weights given to each component are
as follows:
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GRADE COMPONENT
WEIGHT
Classroom Participation
10%
Midterm Exam #1
30%
Midterm Exam #2
30%
Final Exam
30%
Three midterm exams will be given. You will be allowed to drop your low score from the three midterm
exams. Thus, two of the midterms will count towards your final grade. As you get to drop an exam,
there will be no makeup exams given. The only exception to this rule is in the case of university
approved absences, where a student will be allowed to take a makeup exam.
Throughout the semester a student will earn a percentage score for each of the components. At the
conclusion of the semester the student’s final percentage for the course will be calculated by applying
the aforementioned weights. Then, the final grade for the course will be determined according to the
following scale:
Percentage
90—100%
Final Grade
A
80—89%
B
70—79%
C
60—69%
D
Below 60%
F
Example of Grade Calculation:
Suppose John Doe receives the following scores for each of the grade components:
Classroom Participation:
Midterm Exam #1:
Midterm Exam #2:
Final Examination:
60%
81%
78%
80%
John’s final percentage for the course is determined as follows:
Final Percentage for the Course = 0.10(60%) + 0.30(81%) + 0.30(78%) + 0.30(80%)
Final Percentage for the Course = 78%
Thus, John Doe’s final course grade will be a C.
Other Grading Considerations: Of course, cheating on exams or disruptive behavior in class will
result in a grade of F for the semester.
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