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Principles of Finance

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Principles of Finance

    Principles of Finance

    FIN 3403-903

    Fall 2003

Instructor Information:

    Sanjay Kudrimoti Office Hours: W 3:00 4:00 p.m.

    Office: BSN 3115 5:30 6:00 p.m.

    Voice: 974-6338

    E-mail: skudrimo@coba.usf.edu

    Course Web page: http://coba.usf.edu/departments/finance/fin3403/home.htm

    Course Description: This is an introductory course in managerial finance in which you should attain a clear, basic understanding of the essentials of financial decision making. Emphasis is given to the underlying principles of corporate finance and their associations to the decision-making framework faced by a financial manager who is charged with maximizing shareholders’ wealth. However, a great deal of the

    material in this course is presented so that the fundamental concepts of financial decision making can be related to personal financial situations. In essence the course covers topics related to financing and investment decisions; that is, how to raise cash and how to invest cash. The focus of the course is to provide an understanding of the tools and techniques required to make informed decisions about which assets a firm should purchase and how such purchases should be financed.

    When you finish this course, you should understand (1) the general framework for financial decision making, (2) the role of financial decision making in maximizing the value of a firm, (3) in general, how to determine whether an investment should be made and how to finance acceptable investments, (4) what is meant by the risk/return tradeoff and how risk and return affect investment decisions, and (5) how external factors, such as financial markets, affect financial decisions made by the firm. You will find that much of the information provided in this class can be applied to make informed personal financial decisions.

Prerequisites: Principles of Managerial Accounting (ACG 2071) and Economic Principles -

    Microeconomics (ECO 2023), or their equivalents, must be completed prior to taking this course. If you have not already completed these prerequisites you should drop the course immediately.

Required Text: Scott Besley and Eugene F. Brigham, Essentials of Managerial Finance, 12th ed. (Fort

    Worth, TX: Harcourt, Inc., 2000).

Other Course Materials:

     Optional Printed Materials

    ; Scott Besley, Eugene F. Brigham, and Dana Aberwald Clark, Study Guide: Essentials of

    Managerial Finance, 12th ed. (Fort Worth, TX: Harcourt, Inc., 2000).

    ; Scott Besley, Comprehensive Notes for Essentials of Managerial Finance, 2003 Edition, (Fort

    Worth, TX: Harcourt, Inc., 2003). The notes are provided at no charge with the purchase of a new

    text and online at http://coba.usf.edu/besley/fin3403/notes.htm. They are also available at Pro

    Copy, which is located in the Terrace Ridge Plaza shopping center at the corner of 53rd street and

    Fowler Avenue. The notes that are available online are in PDF format; you must have Adobe

    Acrobat Reader to view the online notes. If you have problems viewing the notes, click on the

    Adobe Acrobat Reader icon at the bottom of the Web page that contains the index for the notes

    and download the current version of Adobe Acrobat Reader.

    ; Wall Street Journalthis is recommended reading for all business courses. Sign-up sheets for the

    WSJ and such business magazines as BusinessWeek and Fortune are available in the Department

    of Finance office.

Pedagogical (Helpful) Materials

    ; Self-test quizzes, calculator tips, and other pertinent information concerning this course can be

    found at the course Web page, titled Principles of Finance, which is located at

    http://coba.usf.edu/departments/finance/fin3403/home.htm.

    ; The PowerPoint presentations are available online at: http://coba.usf.edu/besley/fin3403/ppt.htm

    ; Web sites related to the material contained in each chapter in the Online Essentials box can be

    found at: http://coba.usf.edu/besley/websites.htm

    Student Responsibilities: To get the most out of this course, you should attend every class meeting. Much of the understanding of the material contained in the text will be presented in class and the solutions assigned problems will be provided in class. Therefore, you should make every effort to attend all class meetings.

    The chapters that will be covered and the end-of-chapter questions and problems for which you are responsible each week are provided on the course outline attached to the end of this syllabus. It is expected that you have read the material and have at least attempted to work all of the questions and

    problems assigned prior to coming to the next class period. Conscientious attention to these assignments is essential for satisfactory performance in this course. To encourage adequate preparation for class and to enhance your understanding, some of the assignments will be collected. In addition, short quizzes will be given.

    Class time will be use to clarify, support, and enhance the material presented in the text. If you miss class, it is your responsibility to obtain the information covered during your absence.

    Student Evaluation: You will be evaluated according to your performance on three non-cumulative exams and weekly assignments/quizzes. The computation of your average numerical score for the course will be based on the following weighting scheme:

    Percent of grade

     Exam 1 28

     Exam 2 28

     Exam 3 28

    Assignments/quizzes 16

     100

    The exams will consist of a combination of multiple-choice definition/concept questions and multiple-choice problems. The questions and problems are designed to test your understanding of both fundamental and more complex topics covered in class and contained in the text. Most of the questions

    on the exams are structured to test your understanding of the concepts rather than how well you can work problems. As a result, try to understand the concepts presented in class.

    The plus/minus grading system will be used in this course. Course grades will be based on the weighted average score you receive for the term using the following scale:

     95% < A+ 85% < B+ < 87% 75% < C+ < 77% 65% < D+ < 67%

     90% < A < 95% 80% < B < 85% 70% < C < 75% 60% < D < 65%

     87% < A < 90% 77% < B < 80% 67% < C < 70% 57% < D < 60%

     F < 57%

    The course outline indicates when the exams will be given. If you miss an exam for any reason you will be required to take a comprehensive make-up exam administered at the end of the semester (see the course outline for the date) to determine the grade you will receive for the missed exam. You must have grades

    for all three exams to pass this coursethat is, if you do not have grades for all three exams, you

    will receive a grade of F for the course!

     Make-Up Exam: A make-up exam that covers the material presented in class throughout the semester

    will be given at the end of the semester (see the course outline for the date). Three exam scores will

    be used to determine your grade for the course. As a result, if you miss one of the three

    non-cumulative exams, you must take the make-up exam. However, if you take all three

    non-cumulative exams, you can take the comprehensive make-up exam to try to improve your average

    exam grade. If you take all the non-cumulative exams and elect to take the comprehensive make-up

    exam, the score you receive on the make-up exam will replace the lowest score you received for the

    three non-cumulative exams, even if the make-up exam score is lower than the non-cumulative exam

    score that is replaced. Therefore, you should take the comprehensive make-up exam only if you miss

    one of the non-cumulative exams, in which case your score for that exam is zero, or if you take all

    three of the non-cumulative exams and believe you can improve one of the exam scores you received.

    But, keep in mind that the score you receive on the comprehensive make-up exam will count as one

    of the three scores used to determine your grade for the coursethe other two scores will be the

    highest two scores received on the three non-cumulative exams. (If you take all the non-cumulative

    exams, then, as you will discover in the course, the decision to take the comprehensive make-up exam

    represents a risk/return tradeoffthat is, you can increase the average of your exam scores, but you

    can also decrease the average.) The make-up exam will only be given at the time designated on the

    course outlineno exceptions will be made, so make your end-of-semester travel plans accordingly.

     Extra-Credit Project: You will have the opportunity to earn extra credit to improve one of the three

    test scores used to compute your final grade in the course by completing an extra-credit project. The

    extra-credit project will be an assignment (to be completed individually outside class) that will be

    based on the concepts presented in class. The requirements for the extra-credit project will be handed

    out in class and posted on the course Web site after the appropriate material has been covered in class.

Assignments/Quizzes:

     Assignments: To ensure you are keeping up with the material in the course, some of the

    end-of-chapter questions and problems that are listed on the course outline will be collected in class.

    Other assignments might be handed out during the semester. The assignments will be evaluated on the

    basis of a total of 10 points, with points awarded in increments of one halfthat is, the grade will be

    a 0.5, 1.0, 1.5, 2.0, , 10.0. The numerical grade you receive will be based on the effort shown to

    complete the assignment rather than accuracy of your final answer. YOU MUST SHOW YOUR

    WORK (COMPUTATIONS) FOR THE PROBLEMS TO RECEIVE FULL CREDIT!

    Showing your work means setting up the problem and showing the steps, along with the intermediate

    results, necessary to attain the answerit does not mean describing the keys and the inputs used to

    solve the problem on your calculator (unless that is what the problem asks). Solutions to the assigned

    problems will be given in class. Working the problems prior to seeing the correct solutions will help

    ensure that mistakes you make at this stage will not be repeated on the exams.

     HINT: If you have difficulty working a problem, there are a couple of steps you can take to help

    solve the problem. First, look in the body of the chapter to see if a numerical example is provided that

    is similar to the problem you are trying to work. Second, look at the Self-Test Problems at the end of

    the chapter to see if there is one that is similar to the problem you are solving. The complete

    solutionthat is, from start to finishfor each Self-Test Problem is given in Appendix B at the end

    of the book.

     Quizzes: A short quiz that covers assigned reading material will be given each week, except for the

    weeks the exams are scheduled. The purpose of the quizzes is to ensure you are keeping up with the

    reading assignments. Each quiz will include five multiple-choice questions worth two points each. The

    quiz will be administered at the beginning of each class, so you should make an effort to be on time.

    The ending time for the quizzes, and the exams for that matter, will be the same for everyone in the

    class; that is, all quizzes and exams will be collected at the same time. If you arrive late, you will reduce

    the time you have to take the quiz or exam. If you arrive after a quiz has been given, you will not have

    an opportunity to make up the missed quiz. IMPORTANT NOTE: The questions given on the

    quizzes are not representative of the questions you will see on the exams. The questions on the quizzes

    are not intended to test your understanding of the concepts; rather they are intended to ensure you

    keep current with the reading assignments. As a result, the quizzes will have questions that are

    oriented toward definitions, whereas the exams will have questions that are based on concepts.

    At the end of the semester, the assignments/quizzes grade you receive for the course will be based on the highest ? of all the grades you received for the assignments that were collected and the quizzes that were administered in class. Thus, the lowest ? of your assignments/quizzes grades (including missed assignments and quizzes) will be dropped before determining the overall average score you receive for the assignments/quizzes portion of the course. For example, if 16 assignments and quizzes are graded during the semester, only the highest 12 grades will be used to compute your assignments/quizzes score for the course.

    If you attend class and keep up with the assignments (reading, questions, and problems), you should receive a fairly good score for this portion of your overall course grade. However, if you do not attend class, and as a result do not take any quizzes and do not hand in any assignments, you will receive a score of zero for 16 percent of your overall grade. To see how this would affect the grade you receive in this course, assume that the average score you received on the three regular exams was 78, but you didn’t take any quizzes and didn’t turn in any assignments. Even though the 78 average on the exams is a B–

    according to the grading scale given earlier, the grade you would receive in the course would be a D+. Why? The grades on the three exams, on which you averaged 78, represent only 84 percent of the course requirements; the grade you receive for the assignments/quizzes represents the remaining 16 percent of your grade. As result, in this case, you would receive a grade of zero for 16 percent of your overall grade in the course and a grade of 78 for the remaining 84 percent of your overall grade, which means the average for the entire course is 65.5 = 78(0.84) + 0(0.16); a D+.

Other Course Information:

     You must have a valid USF student ID to take the exams in this course. If you do not have a student

    ID, you should get one immediately. If you do not have your USF student ID with you at an exam,

    you will be allowed to take the exam, but (1) your grade on the exam will be lowered by three

    points and (2) you will be required to bring your ID to my office within 48 hours of the exam.

     Try to understand rather than memorize the material in this course. If you memorize the material, it

    will be very difficult to work some of the problems and to grasp the usefulness of financial decision

    making. Remember that understanding the financial concepts is more important than being able to

    work problemsthat is, understanding what the result of a computation means is more important than

    the computation. For that reason, most of the questions on the exams will be concept questions that

    test your understanding of the material rather than problems that test your ability to complete the

    computations.

     You do not have to memorize equations given in class or included in the text. For each exam you will

    be provided with a formula sheet that contains all the equations you will need to solve the problems

    and to answer the concept questions.

     If you are having difficulty grasping the material in this course, do not wait until just before an exam

    to seek help; by then it generally is much too late. Questions are encouraged in this course; so ask as

    many as you want! Please get help when you have questions about the material

    coveredunderstanding the material covered in this course will benefit you in other areas as well.

     If you don’t already have one, you should purchase a financial calculator to use in this course.

    Although many of the illustrative problems contained in the text are solved using a Texas Instruments

    BAII PLUS calculator, any financial calculator will suffice.

     Neither plagiarism nor cheating will be tolerated! It is expected that all the work you hand in is your

    own. Go to http://www.ugs.usf.edu/catalogs/0304/adadap.htm for the ramifications of academic

    dishonesty.

     Students who anticipate the necessity of being absent from class due to major religious observances

    must provide notice of the dates to the instructor, in writing, by September 3, 2003.

Students who entered USF under the 2001-2002, or later, catalog are required to earn a grade of C,

    or better, in every core business class (including this one) and an overall GPA of 2.0 for all core

    classes.

Announcements relating to the coursehelp sessions, seating assignments for the exams, and so

    forthwill be posted online at http://coba.usf.edu/departments/finance/fin3403/home.htm.

     Please be courteous to your fellow students. If you have a cell phone, a beeper, or any other electronic

    device that has an audio notification system, either turn off the device or disengage the audio while in

    class. Also, please do not leave class in the middle of the lecture; climbing over people is rude and can

    be disruptive.

     You have a couple of chances to improve the grade you receive in this course before the final course

    grade is determine: (1) You can take the comprehensive make-up exam, in which case the grade you

    receive on that exam will substitute for the lowest grade you received on the three non-cumulative

    exams (assuming you take all three non-cumulative exams). (2) You can earn extra points to improve

    one of your exam scores by completing the extra-credit project. If your grade for the course is

    ―borderline‖ or you are not performing as well as you would like, take advantage of these

    opportunities. After the course has been completed and your grade for the course has been

    computed at the end of the semester, there will be no additional opportunities to improve your

    grade.

     Grades will be posted on Blackboard. As a result, you must have access to Backboard to get your

    grade. If you do not have a USF NetID, which is needed to access Blackboard, you should get one

    immediately. (See the instructions attached to the syllabus to sign up for a USF NetID.) Virtual office

    hours will also be held using the Blackboard platform.

     The specific dates for the exams, including the comprehensive make-up exam, are given on the course

    outline that is attached to the end of this syllabus. You must take the exams on these dates. When

    making your end-of-the-semester travel plans, keep in mind that you might want, or need, to take the

    make-up exam. You will not be permitted to take the make-up exam, or any other exam, at a time

    different than is listed on the course outline.

     The last day to drop or withdraw from this course without academic penalty is Friday, November 1,

    2003; the deadline is 5:00 p.m.

Incompletes will not be given in this course.

    Principles of Finance

    FIN 3403-903

    Fall 2003

    Course Outline

    (Tentative)

    Date: Subject Chapter Questions* Problems** Aug 27 An Overview of Managerial Finance 1 1,3-5,7-9 none

    Sept 3 The Financial Environment 2 1,3,9 1,3,10

    Sept 10 Interest Rates and Taxes 2 2,5,6,13 5,6,15,16

     Risk and Rates of Return 5 2,3 1,3,5

    Sept 17 Risk and Rates of Return 5 4,5 2,7,9,10

     Time Value of Money Concepts 6 1,3,4,6 1-9,18, 21,22

    Sept 24 Time Value of Money 6 none 12,14-17,24,30

Oct 1 EXAM 1October 1; Chapters 1, 2, 5, 6

    Oct 8 Valuation Concepts 7 1-4,6,8 3,6,7,9,12,13,15,20,21

    Oct 15 Capital Budgeting Concepts 8 2,3,5,6 1-7,10,11

Oct 22 Capital BudgetingEstimating Cash Flows;

     Incorporating Risk 9 1,3,4,8,10 2,3,5,6,10,11

    Oct 29 Cost of Capital 10 1-3 2,3,6,7,15,18

Nov 5 EXAM 2November 5; Chapters 7-10

Nov 12 Capital Structure 11 1-4,6,7 2,5,6

Nov 19 Dividend Policy 12 1,2,4-6 1,3,4-7

     Analysis of Financial Statements 3 2,4 3,6,7

    Nov 26 Analysis of Financial Statements 3 6,10 8,9

     Financial Planning and Control 4 2-4 6-8

    Dec 3 Financial Planning and Control 4 5,8 11,12

Dec 10 EXAM 3December 10, 6 8 p.m.; Chapters 3,4,11,12

Dec 12 MAKE-UP EXAM; December 12, 1:00 p.m. until 3:00 p.m. in BSN 1401; Chapters 1-12 (Refer to the course

    syllabus for an explanation of the make-up exam.)

     * Refer to the Questions section at the end of the chapter.

     ** Refer to the Problems section at the end of the chapter.

    Blackboard

    1. Logon by going to https://my.usf.edu, where you should see the following logon screen. If you do not have

    a USF NetID, follow the instructions provided in the next section.

2. If you do not have a USF Net ID, go to https://my.usf.edu as instructed above, and then click on ―Sign up

    for your USF NetID account,‖ which is located below the USF bull logo. You must have a valid USF

    student ID to get a USF Net ID.

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