FIN 819: Financial
Management
Administrative Issues
Course Overview
FIN 819: Lecture 1
Today’s plan
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Administrative issues
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Course overview
Team formation
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• prerequisite
• add, drop and withdraw
• projects
• case writing and discussion
• final exam
• final grade
FIN 819: Lecture 1
The instructor
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My name is George Li
Office: DTC 582 and BUS 315
Email: li123456@sfsu.edu
Office hours:
Monday: 1:30 p.m. to 3:30 p.m. at BUS 315
Thursday: 3:30 a.m. to 5:30 p.m. at DTC 582
Research interest:
• Corporate finance: real options
• Asset pricing: information and stock prices
FIN 819: Lecture 1
My website
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All the lecture slides, solution to
homework problems, sample final exam
will be posted on my website:
http://online.sfsu.edu/~li123456
I only use ilearn to send you emails.
FIN 819: Lecture 1
Textbook
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The textbook for background reading
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Principles of Corporate Finance, 9th Edition, by
Richard A. Brealy and Stewart C. Myers, published
by Irwin McGraw-Hill, 2008.
FIN 819: Lecture 1
Prerequisite
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You are required to take BUS 785 with a
grade of at least B-, or have a waiver of
this course.
It is the school’s policy that all the
students in this course must satisfy this
requirement and there is no exception,
unless you get the waiver of this
prerequisite
FIN 819: Lecture 1
Add, drop and withdrawal policy
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The business school has the policy for
add, drop and withdrawal
• Students can withdraw once
• If you like to withdraw, you have to do it in the
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first two weeks
Please read the Spring 2012 bulletin for detail
information
FIN 819: Lecture 1
Homework problems
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In the first several lectures, I will review
most important concepts in corporate
finance
In order to help you to understand these
concepts, homework problems are
assigned.
I will not grade homework but its solution
will be posted on my website.
FIN 819: Lecture 1
The two projects
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There is one project for each team. A project is the
presentation of a case. For each of the two cases to
be discussed, every team must write a report, which
is 2-10 pages long in single space and typed.
Each team has about 4 students so that we have 4
teams.
Form your own teams after the break.
For each case, two teams are assigned to present.
FIN 819: Lecture 1
The two projects (continue)
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If your team is to present a project, your
team has to use PowerPoint to present your
analysis, and bring in a computer and a USB,
with the PowerPoint file copied on it.
Each member in the team will get the same
score unless there is a “free-rider” problem.
FIN 819: Lecture 1
The cases
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One case will be reserved electronically
in the library. It is supposed to be
available in the third week of this
semester.
I will tell you the password to access this
case.
The second case is from the end of
chapter 22 (Bruce Honiball’s invention)
FIN 819: Lecture 1
Two cases:
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Nike Corporation
The min-case in chapter 22
FIN 819: Lecture 1
Valuing a writing-report
The instructor will use the following criteria
to value a writing-report
• understanding the case
• clear writing
• apply concepts correctly
• convincing arguments
FIN 819: Lecture 1
Valuing the oral presentation
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The instructor will use the following
criteria to value the oral presentation
• Clear presentation ( 5pts)
• Answer questions precisely and concisely (6
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pts)
Understand the concepts and theories (2 pts)
Have convincing arguments (2 pts)
FIN 819: Lecture 1
Solution to the free-rider
problem
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In theory, all members in each team
should get the same score.
If more than two members in a team
complain about the free-rider problem,
the team member valuation for that team
will be used to decide on the project
score for each student in that team.
FIN 819: Lecture 1
The mid-term and final exams
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There will be a mid-term and a final exams, which
are closed-book.
The mid-term exam has only multiple choice
questions, but the final has only essay questions.
The mid-term exam is closely related to lectures and
homework problems.
The final is closely related to the lectures, homework
problems, and 2 cases to be discussed in the class.
There is no makeup or in-advance final.
FIN 819: Lecture 1
Class attendance and
performance
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It is the instructor’s strong preference
that you attend each class and be
actively involved, unless you are very
familiar with the basic concepts
discussed in the first several review
lectures.
FIN 819: Lecture 1
Total points
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Your overall course grade will be based on
your performance in the class, four cases,
final project, and the final exam.
• Class attendance and performance: 10 pts
• Case write-ups: (each 5)
10 pts
• Case presentation:
15 pts
• Mid-term exam:
25
• Final
60 pts
• Total
120 pts
FIN 819: Lecture 1
Curve grading
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Grading policy:
Your ranking
• Top 15%
• 15% - 75%
• 75% - 95%
• Bottom 5%
Letter grades
A range (A-, A, A+)
B range (B-, B, B+)
C range (C-, C, C+)
D range (D+, D, D-)
FIN 819: Lecture 1
FIN 819: course organization
FIN 819
Module 2
Module 3
Module 4
Fundamentals of valuation
Valuing risky investments
Risk and return
Corporate financial decisions
Market efficiency and options
Fundamentals of PV
Financial decision
Interest rates
Portfolio theory
Diversification and covariance
Types of securities
Stocks, bonds and other
Weak, semi-strong and
strong form efficiency
Information and stock prices
Perpetuities and
annuities calculation
Tangency portfolio, CAPM
risk and return
Modigliani-Miller theorem 1
Pizza size is independent of
how sliced
Options and Black-Scholes
Valuing stocks
and bonds
NPV and other criteria
Effect of leverage
WACC and discount rate
Modigliani-Miller theorem 2
WACC
Binomial model, replication
Risk-neutral probabilities
Module 1
FIN 819: Lecture 1
Corporate finance: what is it?
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A set of concepts, theories and
approaches that help the firm make
financial decisions.
FIN 819: Lecture 1
Financial decisions
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Capital budgeting (use of the capital)
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Real capital investments
Mergers; acquisitions
Financing (capital structure decision)
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Equity
Debt
Risk management
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Hedging to reduce the risk
Portfolio diversification
FIN 819: Lecture 1
Course organization
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This course is broken-down into 4
modules
• Valuation
• Assets pricing theory
• Option pricing theory and its applications
• Capital structure theory
FIN 819: Lecture 1
Valuation
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This module covers the fundamentals of
valuation. The topics include
• Present value concept and its application
• Unlevered assets and betas
• Levered assets and betas
• Two approaches for valuing a real project
• WACC
• APV.
FIN 819: Lecture 1
Asset pricing theory
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This module is the fundamental of
corporate finance
• Corporate finance is simply the application of
asset pricing theories
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It covers the most fundamental theories
in finance
• Portfolio diversification, mean-variance
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analysis, risk and return
CAPM, WACC and its calculation
FIN 819: Lecture 1
Option pricing theory and its
applications
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This module, together with the first module,
provides a complete picture about asset
pricing.
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asset pricing based on equilibrium concept
relative asset pricing, using no arbitrage argument
It covers
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Black-Sholes valuation and its use in industries
Binomial tree valuation in single and multiple stages
Applications of option theory in valuing managerial
flexibility: waiting, expansion, and shutting down
FIN 819: Lecture 1
Financing decision (capital
structure theory)
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If you are the CEO of an industrial company
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you can make your company more valuable by
choosing “better” projects (capital budgeting)
we want to know if you (and the CFO) can make your
company more valuable by changing the mixture of
your financing (i.e. the ratio of debt to equity)
It covers
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Modigliani-Miller theorems 1 and 2
FIN 819: Lecture 1