Managerial Finance. MGMT E-2020 Fall 2020 [CRN16043]

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Managerial Finance

MGMT E-2020 Fall 2020 [CRN16043]

Instructor Dr. Bülent Aybar Web Conference: Monday 7:40-9:40 pm

Communication E-mail: [email protected] Teaching Associate: TBD

Course webpage: https://canvas.harvard.edu/courses/XXXXX Course Description Objectives

The objective of the course is to provide the student with the necessary analytical tools required to make value-creating financial decisions. The student will be provided with an introduction to theoretical foundations and practical applications in financial decision-making. Topics covered in the course include analysis of financial and operating performance, assessment of financial health, financial planning, working capital and growth management, the time value of money, risk-return trade-off, valuation of financial and real assets, investment, funding and distribution decisions in the context of non-financial firms.

Methodology

We will use lectures, asynchronous and synchronous case discussions, group work, and reflections to create a rich learning environment in class. Online learning can be enriching when a group of committed learners is guided in a carefully structured course. In my teaching, I will emphasize theory and analytics, but always place concepts and tools into an applied perspective.

Course Requirements

Learning in an online environment requires engagement. You will work in groups and learn from your peers as much as from me. You will participate in asynchronous discussions and work on group projects that will prepare you for synchronous class sessions. Between synchronous sessions, you are expected to carefully review the assigned reading materials, diligently work on assignments, and contribute to the group and class discussions. The material we will cover in class will vary in complexity, but in general they are foundational concepts and relatively easy to grasp. However, learning requires repetition; you should allow yourself sufficient time to review material covered in the class and to reflect on what you learned. You should plan 6 to 8 hrs per week for class preparation and activities. Timely submission of the assigned work is critical. Late submissions will not be accepted.

Group work is an essential part of this course. It is therefore essential that each group member contributes equally to assigned group work. Throughout the semester group members will be asked to evaluate the performance of their fellow teammates and individual scores on assignments will be adjusted accordingly

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2 Best Preparation Method:

You should invariably read the assigned chapters and supplementary materials before the synchronous sessions. Each week, there will be general and group discussion questions that will prepare you for the web conference session. Discussion board questions are not intended to create busy work, they are intended to guide you and bring some focus on your learning. After the end of each session, you should review the suggested end of chapter questions, reflect on the material covered in the class and review your notes.

Textbook and Resources

 Analysis for Financial Management, Robert Higgins 11^th Edition McGraw-Hill (Required)

 HBS Publishing Online Course pack (Required//See the instructions below)

 Optional Financial Calculator (HPC12 or HPC12 OSX or Android app recommended);

however, for assignments you can use Excel

 Subscription to WSJ strongly recommended Assignments:

Pre-Course Assignment (not graded) [Due on Saturday, August 29^th 2020]

Please review Warren Buffet's letter to Berkshire Hathaway Inc. shareholders at the following URL:

https://www.berkshirehathaway.com/letters/2019ltr.pdf

Please write a two-page essay reflecting on the letter about the insights you gained. If there are any terms and concepts that you are not familiar with, please look up these terms and provide a brief explanation.

Case Analyses (Graded)

We will use 10 to 12 case studies in the class. You will be assigned to a group of four students. Each group will be assigned a case to present. The group members are expected to prepare a comprehensive analysis of the assigned case and make a 15 minute presentation.

After the presentation, other groups are expected to actively engage the presenting group with questions and additional comments. The group assignments, and presentation dates will be posted in Canvas Course Management System.

Each presenting group will receive constructive peer feedback from a designated group.

Groups providing the feedback will use the Case Analysis Rubric and be as thorough as possible in their feedback.

Case Analysis Guide:

Your write up should be analytical rather than descriptive of the contents of the case. Your analysis should begeared towards identification of critical 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

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3 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. A detailed grading rubric is available at the end of the syllabus. Please review the grading rubric and structure your analysis accordingly. I will also post sample case analyses in Canvas under "Course Logistics". Please review them before your first submission.

Problem Sets and End of Chapter Questions (Graded)

 I will assign problem sets to work on as a group. You are required to work on and submit solutions to these problem sets. Problems in these sets may also be used for class discussions or addressed in weekly review sessions.

 End of Chapter questions in the book are great resources to learn. I will provide a list of suggested problems and solutions.

Reflection Essays (Graded on a Complete/Incomplete basis)

The objective of the reflection essays is to revisit the class discussions and demonstrate your comprehension of salient issues, the key take away from the lectures, class discussions, and case analyses. You are expected to reflect on the session and write a maximum one-page reflection summarizing key takeaways from the session. You can emphasize what resonated with you and point to the issues that may require further clarification

Attendance & Class Participation:

Attendance to web conference sessions is a requirement. The absence in more than two web conference sessions is considered excessive. You are also expected to be present in the first web conference session on September 9^th , 2019. Class participation accounts for 15% of your grade. Your grade will be determined by the quality of your contributions to the class discussions. Exemplary contributions include thoughtful questions, insightful analysis of pertinent issues, offering perspectives that advance the conversation and show of respect and interest in others' perspectives.

Please note that some discussions may transcend the web conference sessions and may take place or continue in asynchronous discussion boards. I will use the following rubric to assign your participation grades:

A (9-10 points) B (6-8 points) C (5 points) D/R (<5 points) Frequency

and Quality

Attends class regularly and always contributes to the discussion by raising thoughtful

questions, analyzing relevant issues, building on others' ideas, synthesizing across readings and

Attends class regularly and sometimes contributes to the discussion in the ways mentioned above.

Attends class regularly but rarely contributes to the discussion in the ways mentioned above.

Misses classes, or attends classes regularly but never contributes to the discussion in the ways mentioned above.

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4 discussions,

expanding the class' perspective and advancing the conversation, and appropriately challenging assumptions and perspectives;

shows interest in and respect for others'

views; participates actively in small groups.

Exams:

There will be three take home quizzes. Quizzes will be a mixture of multiple-choice and short problems. Makeup exams are available only for officially documented cases. Late submissions of the take-home exam will not be accepted.

Grading:

Quiz-1 15

Quiz-2 20

Quiz-3 20

Case Write Up (Group) 10

Peer Analysis/Feedback 5

Problem Sets (Group) 15

Attendance & Participation¹ 15

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-

1 Attendance & Participation refers to consistent, constructive and creative engagement in the class with the instructor and your peers. In discussion boards and during class sessions 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. I will provide further guidance on discussion board protocol.

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5 Academic Honesty Policy

Students who enroll in courses for credit are expected to attend all classes, take the 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 Administrative Board. Disciplinary 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.

Official Harvard Extension School Policies

The Extension School is committed to providing an accessible academic community. The Accessibility Office offers a variety of accommodations and services to students with documented disabilities. Please visit

https://www.extension.harvard.edu/resourcespolicies/resources/disability-services-accessibility for more information.

You are responsible for understanding Harvard Extension School policies on academic integrity (https://www.extension.harvard.edu/resources-policies/student-conduct/academic-integrity) and how to use sources responsibly. Not knowing the rules, misunderstanding the rules, running out of time, submitting the wrong draft, or being overwhelmed with multiple demands are not acceptable excuses. There are no excuses for failure to uphold academic integrity. To support your learning about academic citation rules, please visit the Harvard Extension School Tips to Avoid Plagiarism

(https://www.extension.harvard.edu/resources-policies/resources/tips-avoid-plagiarism), where you will find links to the Harvard Guide to Using Sources and two free online 15-minute tutorials to test your knowledge of academic citation policy. The tutorials are anonymous open-learning tools.

How to purchase the HBS Course pack?

Course package link will be posted in Canvas

 First, click on the link and follow the instructions to register on the HBS site. You need to create a user name and password.

 When you are done, log out.

 After you complete the steps listed above, click on the link once more—this time login by using your user name and password.

 Follow the instructions to purchase the course pack. Your institution/school is "Harvard Extension School". The course title is "Managerial Finance Fall 2020". Instructor name is

"Bulent Aybar".

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6 The Following is a tentative schedule. Please login to Canvas regularly for

assignment schedules and announcements.

August 31^st

Session-1: Interpreting Financial Statements Topics Covered

 The objective of Financial Analysis

 Review of basic financial statements Required Readings

 Higgins Chp 1

Class Assignment for Next Session:

 Exercise: Wharf Computers Inc.

 Chapter 1 Question 14: Whistler Corporation

September 14^th Session-2: Evaluating Financial Performance Topics Covered

 Evaluation of financial statements using ratio analysis: Liquidity, Activity, Debt, Profitability and Market Ratios

 DuPont Analysis Required Readings

 Higgins Chp 2

 HBS Note: Assessing A Company's Future Financial Health

 Stanford GSB Case: Costco Wholesale Corporation Financial Statement Analysis (A)

Class Assignment for this Session

 Use Assessing Financial Health Case Spreadsheet to Answer Questions posed in pages 5 to 10

 Be prepared for Costco case discussion September 21^st

Session-3: Financial Forecasting Topics Covered

 Proforma Statements

 Sources and uses of cash

 Statement of cash flows

 Cash Budget Required Readings

 Higgins Chp 3

 HBS Case Jones Electrical Distribution Class Assignment for this Session

 Review Keith Corporation Example

 Review ACME Cash Budget Example

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7 September 28^th Session-4: Managing Growth

Topics Covered

 Review of Financial Planning and Funding Needs

 Sustainable Growth Concept

 Exploring implications of the gap between SGR and Actual growth rate

Required Readings

 Higgins Chp 4 Class Activity:

 HBS Case Jones Electrical Distribution Self-Study

Module

Time Value of Money 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

 Perpetuities,

 Deposits to accumulate a future sum

 Loan Amortization.

Required Readings

 Time Value Teaching Note

 Slide Deck Time Value Problems

 HBS Core Finance Reading: Time Value of Money

 Higgins Chapter 7

Complete Self Study Module Test

October 5^th Session-5: Time Value of Money Review of Key Concepts Topics Covered

 Annuity Problems

 Loan Amortization

 Effective Annual Return

 Annuities under inflation (Growth Annuities) Required Readings

 Time Value Teaching Note

 HBS Core Finance Reading: Time Value of Money

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8 Class Activity:

 Time Value Problems Quiz-1 is Released

October 12^th Indigenous People's Day (No Class Today) Review Recorded

Session:

Self-Study Module

Financial Instruments and Markets Topics Covered

 A Review of Financial System: Institutions, Markets and Instruments

 Bonds, Stocks, Preferred Shares

 Venture Capital and Private Equity

 IPOs

 The concept of Market Efficiency Required Readings:

 SIFMA Capital Markets Outlook 2020 (Optional) Complete Self Study Module Test

October 19^th Session-6: Bond Valuation Topics Covered

 Interest rates, yield curves, and required returns.

 Major types of bonds

 Bond Valuation Required Readings:

 Teaching Note on Bond Valuation and Duration

 Lecture Handout on Bond Valuation

 HBS Note Bond Valuation

 HBS Case Disney Sleeping Beauty Bonds Class Assignment for this Session

 Explore how to use the following Excel functions for Bond pricing and related analytics:

=PV, =Price, =PMT, =Rate, =Yield, =Duration, =MDuration, What if Analysis/Goal Seek

October 26^th Session-7: Stock Valuation Topics Covered

 Common Stock Valuation

 Constant and Variable Growth Models

 Dividend Discount Model and Free Cash Flow Models

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9 Required Readings:

 Teaching Note on DCF Valuations

 Lecture Handout: Stock Valuation

 Higgins Chapter 9 pages 349-362 (DCF Valuation Example)

 HBS Case Valuing Walmart Class Activity:

HBS Case Disney Sleeping Beauty Bonds Group Presentation

November 2^nd Session-8: Risk Analysis in Investment Decisions and Cost of Capital

Topics Covered

 Defining Risk & Diversification

 Estimating Investment Risk

 Risk Adjustment in Discount Rates

 Cost of Capital in Investment Analysis

 Asset Beta and Adjusted NPV Required Readings:

 Higgins Chapter 8 including Appendix p326-332

 Teaching Note: A Note on Asset Betas

 HBS Note: Financial Leverage, the Capital Asset Pricing Model and Cost of Equity (read very carefully)

 HBR Article: Do You Know Your Cost of Capital?

 HBS Case: Midland Energy Class Activity:

 Group Presentation: HBS Case Valuing Walmart Quiz-2 will be released

November 9^th Session-9: Discounted Cash Flow Analysis and 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 Required Readings:

 Higgins Chapter 7 (Re-read)

 Bobson Case: Sneaker 2013 Class Activity:

 Group Presentation: Nike

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10 November 16^th Session-10: Discounted Cash Flow Analysis and Capital

Budgeting Topics Covered:

 Replacement Projects

 Projects with unequal lives Required Readings:

 Chapter 7 Appendix 272-279

 Higgins Chapter 8 pages 308-326

 CB Integrative Case

 Bobson Case: Sneaker 2013 Class Activity:

 Group Presentation: Sneaker 2013

November 23^rd Session-11: Valuation & The Financing Decision Topics Covered:

 A Review of Firm Valuation

 Financial Leverage

 Leverage and Risk

 Leverage, Earnings and Value

 Financing and Growth Required Readings:

 Higgins Chapter 9 (Business Restructuring and Valuation)

 Higgins Chp 6 (Financing Decisions)

 Finance Core Reading: Capital Structure Theory Class Activity:

 Group Presentation: Mercury Athletics November 30^th Session-12: The Financing Decision

Topics Covered:

 Capital Structure Changes and Value Implications Required Readings:

 Finance Core Reading: Capital Structure Theory

 Optional Reading: How CFOs Make Capital Budgeting and Capital Structure Decisions, JACF (Optional)

 Optional Reading: Capital Structure Puzzle Revisited, JACF (Optional)

Class Activity:

 Group Presentation WM Wrigley Jr. Company: Capital Structure, Valuation and Cost of Capital

December 7^th Session-13: The Financing Decision

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11 Topics Covered:

 Review of Capital Structure Theories Class Activity:

December 14^th Quiz-3 (Take Home)

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12 Case Analysis Rubric

Criterion

4 A-level qualities

(90–100)

3 B-level qualities

(80–89)

2 C-level qualities

(70–79)

1 or 0

D- or F-level qualities (60–69 or below 60) Completeness Complete in all respects; reflects

all requirements

Complete in most respects;

reflects most requirements

Incomplete in many respects;

reflects few requirements

Incomplete in most respects; does not reflect requirements

Understanding Demonstrates a sophisticated understanding of the topic(s) and issue(s)

Demonstrates an accomplished understanding of the topic(s) and issue(s)

Demonstrates an acceptable understanding of the topic(s) and issue(s)

Demonstrates an inadequate

understanding of the topic(s) and issue(s)

Analysis, evaluation, and recommendations

Presents an insightful and thorough analysis of all issues identified; includes all necessary financial calculations

Presents a thorough analysis of most issues identified; includes most necessary financial calculations

Presents a superficial analysis of some of the issues identified;

omits necessary financial calculations

Presents an incomplete analysis of the issues identified

Makes appropriate and powerful connections between the issues identified and the concepts studied in the class; demonstrates complete command of the key concepts and analytical tools studied

Makes appropriate connections between the issues identified and the strategic concepts studied in the reading; demonstrates a good command of the strategic concepts and analytical tools studied

Makes appropriate but somewhat vague connections between the issues and concepts studied in the reading; demonstrates limited command of the strategic concepts and analytical tools studied

Makes little or no connection between the issues identified and the strategic concepts studied in the reading

Supports diagnosis and opinions with strong arguments and evidence; presents a balanced and critical view; interpretation is both reasonable and objective

Supports diagnosis and opinions with reasons and evidence;

presents a reasonably balanced view; interpretation is both reasonable and objective

Supports diagnosis and opinions with limited reasons and evidence; presents a somewhat one-sided argument

Supports diagnosis and opinions with few reasons and little evidence; the argument is one-sided and not objective

Presents detailed, realistic, and appropriate recommendations clearly supported by the information presented and concepts pertinent to the topic

Presents specific, realistic, and appropriate recommendations supported by the information presented and concepts pertinent to the topic

Presents realistic or appropriate recommendations supported by the information presented and concepts pertinent to the topic

Presents realistic or appropriate recommendations with little, if any, support from the information presented and concepts pertinent to the topic

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Writing mechanics Writing demonstrates a

sophisticated clarity, conciseness, and correctness; includes thorough details and relevant data and information; extremely well- organized

Writing is accomplished regarding clarity and conciseness and contains only a few errors;

includes sufficient details and relevant data and information;

well-organized

The writing lacks clarity or conciseness and contains numerous errors; gives insufficient detail and relevant data and information; lacks organization

Writing is unfocused, rambling, or contains serious errors; lacks detail and relevant data and information; poorly organized

Style guidelines Uses a consistent writing style (such as APA) to accurately and consistently cite sources

Uses a consistent writing style (such as APA) with minor violations to cite sources