University of Massachusetts, Amherst

Department of Finance and Operations Management

SOM 640 - Financial Analysis and Decisions
January 26, 2005 through May 18, 2005
Instructor: Sanjay K Nawalkha, Ph.D.
Home Page: http://www.isenberg.umass.edu/gsCMS/httpRoot/finopmgt/Faculty/Profiles/Sanjay_Nawalkha/

Office:
Office Hours:
Office Phone:
E-mail:
Office Fax:

Rm. 310B, ISOM

Tu. And Th. 1:30 to 2:30
pm. & by Appointment
(413) 545-5623
nawalkha@som.umass.edu
(413) 545-3858

Course Description:
SOM 640, Financial Analysis and Decisions, is the core finance course of the PMBA
program at the University of Massachusetts. The primary objective of this course is to study the
models and techniques used by corporate financial managers to make investment and financing
decisions. The students need to master a number of topics such as capital budgeting techniques,
measuring risk and return, financing of the firm's operations, capital structure, contingent claims
analysis, efficient markets, and the market for corporate control. Understanding issues that fall
under the rubric of finance is important regardless of the career path, may it be financial analysis,
consulting, strategic planning, or general business management.
This is an exciting time to be studying finance. The field is relatively young, and is developing
at a rapid pace. The job market is robust, and companies are placing a premium for those who
hold an understanding of finance as part of their portfolio of skills. My goal will be to cover as
many topics as I can and to incorporate some of the current discoveries in the field within the
constraints of our one-semester class. I will use various pedagogical tools including group case
analysis, use of videos, and internet resources.
Undergraduate foundational courses in finance, economics, and accounting are the basic
prerequisites for this course. Students are also expected to have working knowledge of algebra,
statistics, and of spreadsheet software such as Excel.

REQUIRED
Text:
Case Packet:
Calculator:

FINANCE, by Zvi Bodie and Robert C. Merton, Prentice Hall, New Jersey,
07458
Three HBS cases
Any calculator with exponential, log, and power keys
Instructors Recommendation Texas Instruments BAII PLUSTM

RECOMMENDED
READING
The Wall Street Journal

On-line and Other Course supplements:

I. The Prentice Hall Finance Center CD: Contained in the inside back cover of your course
text book is the Prentice Hall Finance Center CD. This CD contains the following useful folders:
1. Finance/spreadsheet/SprdshModExe/Bodie-Merton
Here you will find the description of how to build spreadsheet models. You are welcome to accept
Craigs challenge and build all nineteen spreadsheet models in this folder.
2. Fincoach
Here you will find zillions of problems and self tests in virtually all areas of math covered in the course
text.
3. Problem Templates
Many end of the chapter problems in this text book (especially assigned in this course outline) have
problem templates which you can fill out to solve these problems.
4. Qtime3
You will need to install Qtime3 on your computer to view many video clips of the investment professionals
contained in the folder Finance in this CD.

II. On-line Companion Web Site

Prentice Hall also has an online companion web site which has other course supplements available. The
address of this web site is as follows:
http://cw.prenhall.com/bookbind/pubbooks/bodie2/chapter1/deluxe.html

Course Credit Hours:

Grade Type:

3
Plus / Minus Letter Grade (A F)
+
+
A 93-100 A 90-92 B 87-89 B 80-86 B 76-79 C 70-75
C 60-69 F < 60

Grade Percentage:

60% - Two exams.

Alternative Weighing Schemes for the exams:
Mid-Term
Final
1.
20%
40%
2.
30%
30%
3.
40%
20%
Students are awarded the best weighing scheme applicable
20% - Group Case Analysis (approximately 7% per case)
20% - Attendance and Participation

The Teaching Methodology

A. Course Outline
The course outline given at the end of this syllabus describes how the class time will be utilized, the
topics that will be covered, and the preparation to be made by students before coming to class. As a
general rule, the students will be responsible for reading the assigned chapters and the cases before
coming to class. The students are also required to make a first attempt at solving the assigned end of
the chapter problems before coming to class. The instructors teaching style emphasizes both
conceptual understanding and problem solving.
The students who do not read the assigned chapter before coming to class may risk not understanding
the lecture at all.
B. Course Website
The course website address is as follows:
http://www-unix.oit.umass.edu/~som640/
On the course website you will find all the supplements for this course including chapter summaries,
problem solutions, spreadsheet model templates, online quizzes, etc.
C. Group Case Analysis
Three cases developed by the Harvard business faculty will be analyzed during the course. The class
will be divided into eight to ten groups with a maximum of three members in each group. Each
group will analyze and submit one written report per case (see the course outline for the case work
schedule).
The students will analyze the cases in a financial strategic context and give recommendations. The
instructor will suggest background reading (if any) and introduce the cases. The students must study
the case before coming to the class.

Some groups may choose to do peer evaluations. In a three-member group, each member will
allocate 200 points to the other two members. For example, the first member may allocate 120 and
80 points to the second and the third member, respectively, and so on. The allocation of points must
reflect the group members assessment of the contribution made by the other group members.
Evaluations by each group member should be put in a sealed envelope, and submitted to the
instructor. If none of the members of a group do peer evaluations, then all members of that group
will get equal credit for the case reports.
D. Class Assignments
Since the class comprises working students, explicit homework assignments are not required.
Instead, the instructor will lead group problem solving sessions in class. Solving the end of the
chapter questions is an important part of the learning process in this course. The solutions to the end
of the chapter problems are on the course web site.
Though students may already know the answers to the end of the chapter problems (from my lectures
and from the course web site), I would still recommend each one of you to solve these problems
again a week after they have been solved in class, without looking at your notes. This way you will
find out if you have really mastered these problems.
E. Attendance
Missing a weekly lecture of this class is equivalent to missing two lectures of a class that meets
biweekly. Please inform the instructor in advance if you plan to miss any class due to personal or
work-related issues.
F. Exams
The two exams are 1 hours long each and together constitute sixty percent of your grade. Some
exam questions will be conceptual, while others will be similar to the assigned end of the chapter
problems. You will be allowed one cheat-sheet on which you can write formulas. You will need to
bring your own calculator to the exam. The instructor will supply the blue books.
G. Other Issues
The syllabus is tentative. The instructor reserves the right to make changes if necessary. Any
student with a disability who needs accommodation or other assistance in this course should make an
appointment with the instructor by e-mail or by phone as soon as possible. Any student who cannot
attend a class due to a religious event should contact the instructor before missing the class for
making alternative arrangements in accordance with the university policy on the observance of
religious holidays.

Course Outline
Date
January
26th

Topic In Class

Preparation

6:30 to 7:30 PM
Introduction to Finance
Student Introductions
Discussion of Syllabus
Group Formation

Read Chapter 1
End of the chapter 1 questions
1,2,3,4,5,6,7

7:30 to 7:45 PM - Break

7:45 to 8:15 PM
Movie Excerpt from Other Peoples Money
(Ruthless Wall Street predator known as Larry the
Liquidator sets his sights on acquiring--and
destroyingthe New England wire and cable
company run in traditional and familial style
(starring Danny DeVito, Gregory Peck).
8:15 to 9:15 PM
Chapter 1 What is Finance?
9:15 to 9:30 PM
Student Instructor Meetings
February
2nd

6:30 to 7:45 PM
Chapter 4 The Time Value of Money and
Discounted Cash Flow Analysis

Read Chapter 4
End of the chapter 4 problems
1,2,4,5,6,7,16,30,and 39

7:45 to 8:00 PM - Break

8:00 to 9:00 PM
Watch video on investing by the financial gurus

9th

9:00 to 9:30 PM
Student Instructor Meetings
6:30 to 7:45 PM
Chapter 4 The Time Value of Money and
Discounted Cash Flow Analysis

End of the chapter 4 problems

1,2,4,5,6,7,16,30,and 39

7:45 to 8:00 PM Break

8:00 to 9:15 PM
Chapter 3 Interpreting and Forecasting Financial
Statements
9:15 to 9:30 PM
Student Instructor Meetings

Read Chapter 3

16th

6:30 to 7:45 PM
Butler Lumber Company Case Introduction by
the Instructor

Read the case, Butler Lumber

Company

7:45 to 8:00 PM Break

8:00 to 9:00 PM
Group Case Analysis by Students
9:00 to 9:30 PM
Student Instructor Meetings
March
2nd

6:30 to 7:45 PM
Chapter 6 How to Analyze Investment Projects

The group reports on the case,

Butler Lumber Company are due

7:45 to 8:00 PM Break

Read Chapter 6
End of the chapter 6 problems
1,2,5, and 6

8:00 to 9:00 PM
Chapter 6 How to Analyze Investment Projects

9th

9:00 to 9:30 PM
Student Instructor Meetings
6:30 to 7:45 PM
Investment Analysis and Lockheed TriStar Case
Introduction by the Instructor

Read the case Investment Analysis

and Lockheed TriStar

7:45 to 8:00 PM Break

8:00 to 9:00 PM
Group Case Analysis by Students

16th
23rd

9:00 to 9:30 PM
Student Instructor Meetings
SPRING BREAK
6:30 to 7:45 PM
Chapter 8 Valuation of Known Cash Flows:
Bonds
7:45 to 8:00 PM Break
8:00 to 8:30 PM
Watch Video on Fixed Income Investing
8:30 to 9:15
Chapter 8 Valuation of Known Cash Flows:
Bonds
9:15 to 9:30 PM
Student Instructor Meetings

SPRING BREAK
The group reports on the case
Investment Analysis and Lockheed
TriStar are due
Read Chapter 8
End of the chapter 8 problems
1,2,5,7,and 9

30th

6:30 to 7:45 PM
Chapter 9 Valuation of Common Stocks

Read Chapter 9
End of the chapter 9 problems
1,2,7, 11, and 12

7:45 to 8:00 PM Break

8:00 to 8:30 PM
Watch Video on Stock Investing
8:30 to 9:15
Chapter 9 Valuation of Common Stocks
9:15 to 9:30 PM
Student Instructor Meetings
April
6th

6:30 to 8:00 PM
Mid-Term Exam
8:00 to 8:15 PM Break
8:15 to 9:15 PM
Discussion Mid-Term Exam

13th

9:15 to 9:30 PM
Student Instructor Meetings
6:30 to 7:45 PM
Chapter 13 The Capital Asset Pricing Model

Read Chapter 13
End of the chapter 13 problems
1,4,5,9, and 14

7:45 to 8:00 PM Break

8:00 to 9:00 PM
Chapter 13 The Capital Asset Pricing Model

20th

9:00 to 9:30 PM
Student Instructor Meetings
6:30 to 7:45 PM
Chapter 14 Forward and Futures Prices

Read Chapter 14
End of the chapter 14 problems
2,4,6, and 8

7:45 to 8:00 PM Break

8:00 to 9:00 PM
Chapter 14 Forward and Futures Prices

27th

9:00 to 9:30 PM
Student Instructor Meetings
6:30 to 7:45 PM
Chapter 15 Options and Contingent Claims

Read Chapter 15
End of the chapter 15 problems
1,2,4, and 10

7:45 to 8:00 PM Break

8:00 to 9:00 PM
The B.F. Goodrich Rabobank Interest Rate Swap
Case Introduction by the Instructor
9:00 to 9:30 PM
Student Instructor Meetings

Read the case, The B.F. Goodrich

Rabobank Interest Rate Swap

May
4th

6:30 to 7:45 PM
Chapter 16 Capital Structure
Instructor handout on Capital Structure

Read Chapter 16
End of the chapter 16 problems
1,2, and 3

7:45 to 8:00 PM Break

8:00 to 9:00 PM
Group Case Analysis by Students (The B.F.
Goodrich Rabobank Interest Rate Swap)

11th
18th

9:00 to 9:30 PM
Student Instructor Meetings
Final Exam Review
Instructor Evaluations
6:30 to 8:00 PM Final Exam

The group reports on the case, The

B.F. Goodrich Rabobank Interest
Rate Swap are due