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DEPARTMENT OF FINANCE

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DEPARTMENT OF FINANCE

    Finance 3320

    Financial Management

    Fall Semester 2009

    Department of Finance, Texas Tech University

    Classroom Rawls College of Business Administration Bldg., Room LH 202 Meeting time Tuesday / Thursday, 8 9:20 am (section 1), 9:30 10:50 am (section 2)

    Exams Wednesday, 6 8 pm (see dates below)

    Instructor Jack Cooney

    Office/phone Rawls College of Business Bldg., Room 909, (806) 742-1536 Email jack.cooney@ttu.edu or use the email function in Blackboard - http://www.depts.ttu.edu/lms/index.php

    Office Hours Monday / Wednesday 9-10 am, Tuesday / Thursday 11-1 pm (and by appointment), BA 909

    Review sessions Wednesday, 6-8 pm, BA 67 (starting September 2, 2009)

    TA Office Hours Josh Pickrell, josh.pickrell@ttu.edu, Mon, 1-4 pm, Tues, 5-7 pm, Wed, 1-3 pm, Friday, 11-1 pm, BA 52

Description This is an introductory course in finance. Its objective is to provide the student with the conceptual

    framework necessary to appreciate and understand the essential core concepts of financial management.

Learning Outcomes - After completing this course, students should be able to:

    1) Know the advantages and disadvantages of different organizational forms

    2) Understand the finance goal of the firm

    3) Know the different types of financial markets and securities

    4) Understand corporate financial statements (balance sheet and income statement) and their relation to

    financial ratios and corporate cash flows

    5) Understand the difference between accounting net income and taxable income

    6) Understand how to value a set of cash flows using time value of money formulas

    7) Understand how to use time value of money formulas to value stocks and bonds

    8) Understand the determinants of market interest rates

    9) Know how to use net present value, internal rate of return, and payback methods for evaluating new

    projects and understand why the net present value method is the best evaluation method

    10) Understand the basics of estimating project cash flows and a project’s cost of capital

    11) Know how to calculate the risk and return of a financial security

    12) Obtain a historical perspective of risk and return in the financial markets

    13) Understand the theoretical relation between risk and return

    14) Understand market efficiency

    15) Understand how a firm raises capital by borrowing money and issuing securities

    16) Understand the role of investment banks in helping firms issue new securities and the role of

    commercial banks in accepting deposits and providing capital to individuals and businesses

Textbook Essentials of Corporate Finance, Ross, Westerfield, and Jordan; McGraw Hill Irwin, 6th Ed., 2008.

Class notes You can retrieve the notes and other class material (saved as Microsoft Word and Excel files) from the class

    web site on Blackboard, http://www.depts.ttu.edu/lms/index.php

    Prerequisites ACCT 2300, 2301, ECO 2301, 2302, and MATH 2345, and a minimum 2.75 Texas Tech GPA

Assessment Assessment of completing the set of learning outcomes will be made with four exams. In particular, your

    class grade will be calculated based on 400 points.

    First Exam, September 23, 2009 100 points

    Second Exam, October 21, 2009 100 points

    Third Exam, November 18, 2009 100 points

    Fourth Exam, Final exam week 100 points

    Total 400 points

Grading I will take your score from the four exams, convert to a percentage score, add a class curve (if any), and

    round to the nearest percent. The rounded percentage scores are used to assign a grade.

    98% & above = A+ 92% - 97% = A 90% - 91% = A-

    88% - 89% = B+ 82% - 87% = B 80% - 81% = B-

    78% - 79% = C+ 72% - 77% = C 70% - 71% = C-

    68% - 69% = C- 62% - 67% = D 60% - 61% = D-

    Below 60% = F

    Class curve I may add a class curve at the end of the semester. (It is possible there will not be a curve.) If there is a class

    curve, then everyone (in both sections) will get the same curve, but only students near a grade cutoff will

    benefit. For example, assume that you have a total of 317 points from the four exams. This gives you a

    percentage score of 317 / 400 = 79.25% without the curve. If the class curve is 0.25%, then your curved

    percentage score is 79.5%, which rounds to 80% and you will receive a grade of “B-.” However, if your

    percentage score without the curve is 79%, then the curved percentage score will only be 79.25%. This

    rounds to 79% and you will receive a grade of “C+.” I will not be able to determine if there will be a curve or

    the amount of the curve until after the final exams have been graded.

    Extra Credit I am often asked after the end of the semester if there is anything that can be done to increase a grade. Grades

    are strictly based on the scores on the exams and class curve as outlined above. There are no extra credit

    assignments or extra points available in this course. This is true even if a student only needs just a small

    increase in score to pass the course. Graduating seniors should be especially careful to study hard to ensure

    that they pass this course.

    Exams There are four exams. Each of these exams will consist of approximately 25 multiple choice questions. The

    first three exams will be given on Wednesday nights from 6-8 pm. The fourth exam will be given during the

    final exam week. All exams will be in our regular classroom (BA LH 202).The exams will be non-

    comprehensive. Although each student is different, I have found that, on average, the first exam is the easiest

    and the third and fourth exams are the hardest.

All exams are closed book/notes. However, you are allowed to bring one “crib sheet” (one 8 1/2" x 11" sheet

    of paper, for formulas, notes, examples, etc.) into the exams. Of course, you should bring a calculator. Those

    with financial functions are strongly recommended.

    Scantron. All exams will use the red scantron sheet (i.e., the scantron with 10 possible answers). Please make sure you bring a red scantron to each of the exams. Red scantrons are available for purchase in the basement

    of the BA building.

IDs. You must bring your student ID card or driver’s license to the exams.

    Attendance As outlined above, there are no points specifically allocated for attendance. However, attendance is still

    extremely important in this class. This is a very difficult course and you can quickly get lost if you miss a

    class. Thus, you should plan to attend every scheduled class, adequately prepared to understand the class

    lecture. If you miss a class, you are still responsible for any material discussed and announcements made

    during the missed class. So, make sure you talk to a fellow student and refer to the class notes after any

    missed class. Classes will generally last the entire class period.

    Review sessions We will have review sessions every Wednesday night in BA 67 except for exam nights. Review sessions are

    scheduled from 6 to 8 pm, although we will often end before 8 pm. At each review session, we will quickly

    review the material discussed in the previous week of classes, but spend most of our time going over practice

    problems and answering your questions. Attendance at review sessions is optional.

    Missing an Exam If you have an excused absence for an exam, I will give you a makeup exam. If you do not have a valid

    excuse for a missed exam, you will receive a score of zero.

When is the makeup exam? What will it look like? Except under unusual circumstances (e.g., you miss the

    exam because of a serious illness or injury), you will be required to take the makeup exam before the regular

    exam date. The day, time, and room number for the makeup exam will be announced in class. Students taking

    the makeup exam before the regular exam date will be given a multiple choice exam similar to the exam

    given to the rest of the students. Students taking the makeup exam after the exam date will be given a

    problem / essay makeup exam.

    Acceptable reasons to miss an exam: Serious illness or injury, serious illness, injury, or death of an immediate family member, jury duty or participation in a court case, car accident (or something similar),

    official university related trip, mandatory attendance at a Texas Tech University class, observance of a

    religious holy day, or other important reason (e.g., attending a wedding or funeral, a job interview or job

    requirement, well-visit doctor / dentist appointments, mandatory attendance at an official Texas Tech

    organization meeting, etc.). I can’t list every possible reason for an excused absence. See me if you want to know if your reason for missing an exam will be excused.

Documentation. You need to send me an email explaining the reason you will be missing the exam. Except

    under unusual circumstances (e.g., you are too sick to email), you should send me the email before the exam

    and with enough lead time so that we can schedule the makeup exam before the regular exam date. The

    burden of proof is upon you to provide sufficient documentation about the nature of any excusable absence.

    For instance, you will need to provide a note from a medical professional (e.g., medical doctor, hospital, health clinic) if you have a serious illness or injury giving the dates of your illness / injury and when you can return to class. Illnesses or injuries without a note from a medical professional are assumed to be non-serious and are not excused. Official university related trips should document the nature of the trip and the dates you will miss class. A police report is needed for an accident. Similar documentation is required for the other excused absences. I will not give an excused absence unless I receive adequate documentation.

Absences on other days. There is no penalty for missing class on days when there is not an exam. Therefore,

    you do not need an excuse to miss these days.

    Announcements Class announcements will be posted on Blackboard, http://www.depts.ttu.edu/lms/index.php

    Grade errors If you feel that I gave you an incorrect score on an exam, you should email me a note detailing the error. The email should be sent to me as soon as possible after you discover the scoring error, but no later than the date of the final exam. With respect to the final exam or your final grade, I keep grading material for one year. However, it would be best to resolve any grading errors early next semester.

    Cheating Cheating, plagiarism, collusion, and other acts of scholastic dishonesty are serious offenses and may be

    punished with failure in the course, and/or expulsion from the university. They are defined in detail in the Texas Tech University catalog. You are responsible for reading and understanding the universities policies on scholastic dishonesty.

Other class rules regarding cheating, etc. (1) You may not use your cell phone, computer, or similar device

    during an exam. Keep cells phones and computer in your backpack. (2) No talking is allowed during an exam. Raise your hand if you have a question. You should leave the room after you finish the exam. (3) Do not transfer information about the exam to other students that have not taken the exam. Breaking these rules can result in failure of the exam, failure of the course, and/or expulsion from the university.

    Withdrawals September 14, 2009 is the last day you can drop this class on the web. November 2, 2009 is the last day to drop the course. If you are still in the course after November 2, 2009, you will be given a grade (A+ to F) based on your final curved percentage score at the end of the semester. Remember, unexcused missed exams receive a score of zero. You should talk to me before November 2, 2009 if you need help deciding whether to drop the course. This is especially important for finance majors since they must receive at least a B- in this course on their first attempt. So, finance majors need to very carefully consider whether they should stay in the course after November 2, 2009.

    Incompletes According to the university catalog, a grade of incomplete (a grade of “I”) “… is given only when a student’s

    work is satisfactory in quality but, due to reasons beyond his or her control, has not been completed. It is not given instead of an F. Prior to assigning the I, the instructor must fill out a form provided on the Web for Faculty stating the reasons beyond the student’s control for granting the I and the conditions to be met to remove the I. Both the student and faculty member must sign the form. The I may be replaced by an R if the course is repeated, and the appropriate grade will be given for the second registration. The grade of I will revert to an F after one calendar year if the conditions for completing the I as stated on the form have not been met.”

    Disabilities Any student, who because of a disabling condition, may require special arrangements in order to meet course

    requirements should contact me as soon as possible so that I can make any necessary accommodations. The student should present appropriate documentation from AccessTECH verifying their disability and outlining the special arrangements required. No accommodations will be provided prior to completion of this approved university procedure.

    Tentative Course Schedule Tuesday Wednesday Thursday

     1. Aug 25, Aug 27 No Class Chapter 1

     2. Sept 1, Sep 3 Chapter 1 Chapter 2

     3. Sep 8, Sep 10 Chapter 2 Chapter 2

     4. Sep 15, Sep 17 Chapter 3 Chapter 4

     5. Sep 22, Sep 24 Review Exam 1 (6 8 pm) Chapter 4

     6. Sep 29, Oct 1 Chapter 5 Chapter 5

     7. Oct 6, Oct 8 Chapter 5 Chapter 6

     8. Oct 13, Oct 15 No Class Chapter 6

     9. Oct 20, Oct 22 Review Exam 2 (6 8 pm) Chapter 6

     10. Oct 27, Oct 29 Chapter 7 Chapter 7

     11. Nov 3, Nov 5 Chapter 7 Chapter 8

     12. Nov 10, Nov 12 Chapter 8 Chapter 9

     13. Nov 17, Nov 19 Review Exam 3 (6 8 pm) Chapter 10

     14. Nov 24, Nov 26 Chapter 10 No Class

     15. Dec 1, Dec 3 Chapter 11 Chapter 11

     16. Dec 8, Dec 10 Chapter 11, Chapter 15 Final Exam Week

     17. Dec 15, Dec 17 Final Exam Week

Exam 1 Wednesday, September 23, 2009, 6 8 pm

    Exam 2 Wednesday, October 21, 2009, 6 8 pm

    Exam 3 Wednesday, November 18, 2009, 6 8 pm

    Exam 4 Final Exam week Section 1 (8:00 am section), 7:30 10:00 am, Wednesday, December 16, 2009

    Section 2 (9:30 am section), 7:30 10:00 am, Friday, December 11, 2009

Class Summary

(2 class periods) Chapter 1 - Introduction, organizational form, goal of the firm, agency problems

    (3 class periods) Chapter 2 - Financial statements, taxes, and cash flows

    (1 class period) Chapter 3 - Using financial statements

    (2 class periods) Chapter 4 - Introduction to valuation, the time value of money

    (3 class periods) Chapter 5 - Valuation of cash flows

    (3 class periods) Chapter 6 - Valuation of bonds, interest rates

    (3 class periods) Chapter 7 - Valuation of stocks, equity markets

    (2 class periods) Chapter 8 - Evaluation of projects, net present value, internal rate of return

    (1 class period) Chapter 9 Estimating project cash flows

    (2 class periods) Chapter 10 - Capital market history

    (2.5 class periods) Chapter 11 - Risk and return

    (0.5 class periods) Chapter 15 - Raising capital

25 Lecture days + 3 Exam review days + 4 Exams days = 32 Total days

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