Introduction to Financial
Management
Administrative Issues and
Course Overview
FIn 351: Lecture 1
Today’s plan
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administrative issues
• syllabus
• prerequisite
• add, drop and withdraw
• three quizzes
• three cases
• final
• final grade
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course overview
FIn 351: Lecture 1
The instructor
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My name is George Li
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Call me George, not professor
Office: BUS 315 and DTC 582
Website: http://online.sfsu.edu/~li123456
Email: li123456@sfsu.edu
Office hours:
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Monday (Bus 315): 1:30 to 3:30 p.m.
Thursday ( DTC 582) 3:30 -5:30 p.m.
Research interest:
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Corporate finance: real options, technological innovations, and
valuations
Asset pricing: information and stock prices
FIn 351: Lecture 1
Textbook
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fundamentals of corporate finance, by
Brealey, Myers and Marcas (6th edition)
sorry about the cost
this is a standard textbook used in many
major schools for the first course in corporate
finance
FIn 351: Lecture 1
Prerequisite
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You are required to take FIN 350 with a
grade of at least C-.
It is the school’s policy that all the
students in this course must satisfy this
requirement and there is no exception
FIn 351: Lecture 1
Add, drop and withdrawal policy
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The business school has the policy for
add, drop and withdrawal
• In the first four weeks, you have to get
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enrolled in the class, if you want.
Students can withdraw once
Please read the bulletin for detail information
FIn 351: Lecture 1
Pass or no pass grade
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Fin 351 is a letter graded course.
Please don’t change to pass or no-pass
grade course; otherwise you will get a
no-pass grade.
FIn 351: Lecture 1
Homework
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To help you understand the concepts
taught in class, and prepare for the
quizzes and the final exam, there is a
weekly homework set, which is not
graded, but its solution will be posted in
my website. The best way to learn is to
do a lot of problems.
FIn 351: Lecture 1
Quizzes
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There are three quizzes, which are in the form of
multiple choice questions and take about 45-65
minutes each.
There are no makeup or in-advance quizzes.
Two highest quizzes count for the final grade ( each
20 pts). If you miss one, that is the quiz you will drop.
You are supposed to allocate your time to take all
the quizzes
FIn 351: Lecture 1
Three cases
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There are three cases to be discussed in class.
You are asked to read the case before coming
to the case discussion.
Case problems are related to some problems
in the final.
It is very important that you bring in a
calculator and a pen at every lecture
FIn 351: Lecture 1
Class attendance and
performance
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It is required that you come to each
lecture and case discussion.
If you miss one lecture or are late for two
lectures without a legitimate reason, talk
or speak to disturb the whole class, your
score in the class attendance and
performance will be reduced at the
instructor’s discretion.
FIn 351: Lecture 1
The final exam
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The final exam will be in class (closed book),
with a form of multiple choice questions.
There are no makeup or in-advance exams.
The final exam is cumulative, based on the
lectures, quizzes, homework and three cases.
The final exam will be at the same classroom
and start at the same time. The final exam
takes 150 minutes.
FIn 351: Lecture 1
Final grade
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Your overall course grade will be based on
your performance in the class, the quizzes,
homework problem sets, the team project,
and the final exam.
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Class attendance:
Quizzes (2 of 3 total)
Final exam:
Total
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10 pts
40 pts
50 pts
100 pts
FIn 351: Lecture 1
Grading policy
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Your grades are based on the distribution of
the scores of the class. Specifically, your final
grade is based on the following table.
Ranking
Grade
0%-10%
10%-50%
50%-85%
85%-95%
95%-100%
A range
B range
C range
D range
F
FIn 351: Lecture 1
Motivation for taking Fin 351?
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Why are you taking Fin 351?
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nothing better to do today ?
become a millionaire overnight?
the instructor is a nice guy for a good grade?
get a “stamp of approval” to get a job ?
learn finance for fun ?
simply a required course ?
learn finance to be more successful?
FIn 351: Lecture 1
My objective in this course
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I want everyone in the room to learn finance
very well this semester
• i want you to feel more comfortable talking about finance
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and answering finance questions.
i want you to have a better understanding of a set of
concepts and ideas that will help you look at the world in a
slightly different way.
What is standing in the way of those
objectives?
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Over-confidence
Under-confidence
FIn 351: Lecture 1
Two ways of learning
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Positive
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Can be a fun, since it is an opportunity to improve your
future career, open your mind and broaden your vision
Look at each difficulty as an opportunity to learn new
things
Good performance
Negative
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Can be boring, since it is regarded as a burden, a task
Look at each difficulty as a “torture” or pain
Bad performance
FIn 351: Lecture 1
My approach of teaching Fin 351
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Focus on several fundamental,
important concepts,
Applications and economic intuitions
Avoid too many materials
Help understand finance better.
FIn 351: 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 351: Lecture 1
Financial decisions
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Capital budgeting (use of the capital)
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Real investments
Mergers; acquisitions
Financing (capital structure decision)
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Equity
Debt
FIn 351: Lecture 1
FIN 351: course organization
FIN 351
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 351: Lecture 1
Course organization (2)
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This course is broken-down into four
modules
Module 1: time value of money
Module 2: risk and return
Module 3: capital structure
Module 4: financial markets
FIn 351: Lecture 1
Time value of money
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This module is a “skill building” block in
this course
We will soon have the necessary skills
needed to value stocks and bonds
In this module, we don’t consider risk
• It is assumed that future cash flows are
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riskless
It is assumed that the discount rate is riskless
FIn 351: Lecture 1
Risk and return
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This part teaches us about uncertainty
How do we measure risk?
How much is a risky cash flow in the
future worth (today)?
There are both:
• skill building sections
• conceptually more difficult sections
FIn 351: Lecture 1
Financing decisions
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If you are the CEO of an industrial
company
• you can make your company more valuable
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by choosing “better” projects
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)
FIn 351: Lecture 1
The efficiency of financial
markets
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We will look at how information gets into
security prices
We will learn three forms market
efficiency
We will examine the implication of
market efficiency on financing
FIn 351: Lecture 1