Managerial Finance

MGMT-2020 Fall 2010

Instructor Dr. C. Bülent Aybar

Classroom Harvard Hall 103 Monday 5:30-7:30
Communication E-Mail: aybar@fas.harvard.edu
Teaching Associate : TBA
Coursewebpage : http://isites.harvard.edu/k74632
Course Description Objectives

The course deals with managing business funds and planning their use to accomplish organizational objectives. It
covers the following: techniques of financial analysis and planning such as ratio analysis, pro forma projections
and discounted cash flow analysis; domestic and international financial environments; the sources and uses of
funds; problems of capital structure; capital budgeting and cost of capital; mergers and approaches to business
valuation; international financial management. Prerequisite: Introductory accounting or equivalent..

Methodology

I will use lectures, case discussions and overview of topical issues to create a rich learning environment in class. I
will emphasize theory and analytics, but also teach the course from an applied perspective.

Course Requirements

Students are expected to carefully review the assigned reading materials before each session, diligently work on
the assigned problems/questions and cases, and to participate actively in the class discussions. You should be
prepared to spend significant time to digest the material, to work on the assignments and case studies. Timely
submission of the assigned work is critical. Late submissions will not be accepted.

Best Preperation Method:

You should invariably read the assigned chapters and supplementary materials before you come to the class and
go over the assigned exercises and cases. After the end of each session, you should review handouts, your notes
and highlights in your readings. I would strongly recommend you to review the end of chapter questions on a
regular basis. I will provide the solutions for these questions.

Textbook and Resources

Principles of Managerial Finance, Gitman 12th Edition, Pearson Prentice Hall, 2009,
ISBN: 013-801123-0
Textbook Website: http://wps.aw.com/aw_gitman_pmf_12/85/21793/5579249.cw/index.html
Financial Calculator (If you do not have one, purchase an inexpensive one) For basic calculator tutorials
you can use http://www.tvmcalcs.com/calculator_index
Coursepack MGMT 2020
Subscription to WSJ or Financial Times is required
Assignments:

1. Mini Projects (Graded)

These are short projects to facilitate hands on learning. Mini projects will require analysis and
interpretation of real life data. Each project will include detailed guidelines on deliverables. You are
expected to submit three mini projects out of four.

2. Case Analyses (Graded)

We will use five HBS case studies in the second half of the class. You are expected to prepare a write up
for two out of the following four cases.
Ocean Carriers
Midland Energy
Blain’s Kitchenware
Linear Technologies
However, you should be prepared to discuss all five cases in the class. The case write ups are due on the
day we discuss the cases.

Case Analysis Guide :

Your write up should be analytical rather than descriptive of the contents of the case. Your analysis
should be geared towards identification of key questions and problems, evaluation of the situations, and
offering alternatives and solutions as well as discussing pros & cons of alternatives suggested. You
should choose one alternative as a decision maker, and provide a clear reasoning for your decision. Since
most cases used in the class require a composite of careful thinking, conceptualization, quantitative
analysis and some form of decision making your analyses will be evaluated based on breadth and depth
of your thought process documented in your submitted paper.

3. Weekly Article Review

This assignment was designed to facilitate learning by following current developments in financial markets.
You are expected to prepare a short “one to two” pages commentary about a current development during the
past week. Your account of the event story should be complete and reflect your interpretation of the issue.
You are not allowed to cut and paste from the source. I expect you to develop your own narrative and
explanations after filtering through the information. All information sources should be referenced
appropriately. I will ask you to briefly review your story at the beginning of each class. Grades will be
assigned on the basis of √-, √, √+.

More Specific Guidelines :

1. You should cover an article that discusses major developments and issues in financial markets . The
article should be up to date, relevant to the topics discussed within the last two weeks and comprehensive
enough to help you understand the issue and comment on it.
2. You can easily find an article in the Markets and Investment section of the WSJ
3 Very Short news reports without proper background information should not be used for this exercise. A
copy of the article used should be attached with the summary.
4. You should strictly adhere to the following format for this exercise:
a. Clearly report the title, author and date of the article
 b. Summarize the article, emphasize main arguments and points in the article (about half a page)
c. What information or ideas discussed in this article are also pertinent to our class discussions, book
chapters and assigned readings?
d. What did you learn by reading this article? Briefly state what you took away from this article
e. Are there any arguments that you want to comment on?
f. Are there any new terms, concepts that you learned by reading this article? What are they?

The answers to these questions should not exceed two double-spaced pages (12pts characters). Please do not
copy and paste parts of the article. Answer the questions after mentally filtering the article. Please also pay
attention to grammar and spelling in your writing.

Exams:

There will be two exams. Exam-I will cover chpaters 1 through 7 and will practically address the issues covered
in the first half of the class. Exam-I is a take home exam. The Exam-II will cover the second half of the class and
will be administered in class. You will be allowed to use a four page cheat sheet in Exam-II. Both exams will be
a mixture of multiple choice and short problems. Make up exams are available only for officially documented
cases.

Grading:
Exam-I 25
Case Write Ups x 2 out of 5 20
Mini Projects x 3 out of 4 15
Weekly Article Reviews 10
Attandance & Participation1 5
Exam-II 25
Total 100

95 < A 65-69 C+
90-95 A- 60-64 C
85-89 B+ 55-59 C-
75-84 B 54> F
70-74 B-

Academic Honesty Policy

Students who enroll in courses for credit are expected to attend all classes, take the midterm and final
examinations, and complete all other coursework. If a student is absent from a class meeting for any reason,
including registering late, it is the student's responsibility to make up all work from that class. All work submitted
to meet course requirements is expected to be the student's own work. A student suspected of academic dishonesty
in any form is subject to review and disciplinary action by the Summer School Administrative Board. Disciplinary

1Attandance & Participation refers to consistent, consturctive and creative engagement in the class with the instructor and your peers. You
are expected to make non trivial remarks, bring up interesting issues for discussion and offer clarifying comments to enhance your peer’s
understanding during the class discussions. Quality and substance of your contributions will determine your participation grade.
action may include, but is not limited to, required withdrawal from the course and/or required withdrawal from
the Extension School. Extension School regulations regarding academic honesty are discussed in detail in the
Extension School student handbook.
TENTATIVE SCHEDULE
August 30th Session-1: Introduction
Required Readings:
Gitman Chps 1 and 2

Topics Covered:
Introduction to Managerial Finance
Key components of the stockholders’ report: the income statement,
balance sheet,
statement of retained earnings, and the statement of cash flows.
Evaluation of financial statements using ratio analysis. Liquidity,
Activity, Debt, Profitability and Market Ratios.
DuPont Analysis

September Session-2: Financial Planning

13th Topics Covered
Cash Budget
Pro forma income and balance sheet
Operating cash flow and Free Cash Flow Depreciation of assets
Sources and uses of cash and statement of cash flows
Required Readings
Gitman Chp 3

September Session-3: An Integrative Review of Financial Analysis and

20th
Planning
Required Readings
HBS Case: Drivers of Industry Financial Structure
Assessing A Company’s Future Financial Health, Kester et.al
Assignment
Mini Project-1 is Due

September Session-4: Time Value of Money-1

27th
Topics Covered
The PV and FV of a sum

The present and future values of an annuity

Intra-year compounding,

Mixed cash flow streams

Mixed cash flows with an embedded annuity,

Required Readings
Gitman Chp 4
October 4th Session-5: Time Value of Money-2

Topics Covered
Perpetuities,

Deposits to accumulate a future sum

Loan amortization.

Required Readings
Gitman Chp 4

October 18th Session-6: Foundations of Valuation-Introduction to Risk and

Return

Topics Covered

Risk-Return Nexus
Risk Measurement
Portfolio Diversification
Capital Asset Pricing Model

Required Readings:
Gitman Chapter 5

October 25th Session-7: Bond Valuation

Topics Covered
Interest rates, yield curves, and required returns.

Major types of bonds

Bond Valuation

Required Readings:
Gitman Chapter 6

Assignments:
Mini Project-2 is Due

Exam-I will be made available on October 25th and will be due on

November 8th

November 1st Session-8: Stock Valuation

Topics Covered
Common Stock Valuation

Constant and Variable Growth Models

 Dividend Discount Model and Free Cash Flow Models

Required Readings:
Gitman Chapter 7

Mini Project-3 is Due

November 8th Session-9: Long Term Investment Decisions-1: Capital Budgeting

Topics Covered:
The steps in the capital budgeting process

The basics of determining relevant after-tax cash flows of a project

Capital Budgeting Techniques

Risk and Refinements on Capital Budgeting

Required Readings:
Gitman Chapters 8, 9 and 10

November Session-10: Long Term Investment Decisions-2: Capital

15th
Budgeting
Topics Covered:
The steps in the capital budgeting process

The basics of determining relevant after-tax cash flows of a project

Capital Budgeting Techniques

Risk and Refinements on Capital Budgeting

Required Readings:
HBS Case : Ocean Carriers

Assignments:

HBS Case Write Up Ocean Carriers

Mini Project-4 is Due
November Session-11: Cost of Capital
22nd Topics Covered:
Capital Structure

WACC

Refinements on WACC

Required Readings:
 Gitman Chapter 11

A Practical Guide to Calculation of Cost of Capital

HBS Case: Midland Energy Resources

Assignments
Case Write up Midland Energy Resources

November Session-11: Leverage and Capital Structure

29th Topics Covered:
Operating & Financial Leverage

Optimal Capital Structure

Capital Structure in Practice

Required Readings:
Gitman Chapter 12

How CFOs Make Capital Budgeting and Capital Structure Decisions,

JACF

Capital Structure Puzzle Revisited, JACF

December 6th Session-13: Leverage and Capital Structure

Topics Covered:
Operating & Financial Leverage

Optimal Capital Structure

Capital Structure in Practice

Required Readings:
Gitman Chapter 12
How CFOs Make Capital Budgeting and Capital Structure Decisions,
JACF
Capital Structure Puzzle Revisited, JACF
HBS Case: Blaine Kitchenware Inc.:Capital Structure HBS#4040

Assignments
Case Write Up : Blaine Kitchenware Inc.:Capital Structure HBS#4040
December Session-14: Redistribution Decisions
13th Topics Covered:
Dividend Policy and Firm Value

Dividends vs. Stock Repurchases

Required Readings:
Gitman Chapter 13

HBS Case: Dividend Policy at Linear Technologies HBS# 9-204-066

Assignments:

Case Write-up Dividend Policy at Linear Technologies

December Exam-II (In Class)

20th