Fin 320 ADVANCED FINANCIAL ANALYSIS Spring 1997
35537: Monday, Wednesday 5:40-7:30 p.m.
Prof. P.V. Viswanath Goldstein 108 (914) 773-3906
Office hours: Mon. 3:30 p.m. to 5:30 p.m., Wed. 1:00 p.m. to 3:00 p.m.and by appointment
Email: viswanat@pacevm.dac.pace.edu
The primary objective of this course is to provide the student with the theoretical background and analytical tools necessary to sound financial decision-making. Other objectives include: 1) preparing students for more advanced work in finance and investments; 2) an appreciation of financial and economic reasoning to provide the capability to read and understand advanced finance materials; 3) the ability to apply the lessons of finance in a practical context.
When you have completed this course successfully, you will be familiar with:
Corporate Finance: Theory and Practice, by Aswath Damodaran, John Wiley and Sons.
This is the first time that I am teaching this course, and this is the first time that I am using this textbook. The book itself is a first edition, and hence, there are some errors. This means that we need to try and understand critically what we read in the book (which is always a good trait to have), just in case we happen to have stumbled upon an error. On the other hand, this is one of the few books in the market that explain how to apply theory to practical situations. This is why I have chosen the book. To a great extent, I expect that we will use the book as a manual, using it in applications whenever we need it. I look upon this course as an opportunity to teach and to learn. The way I see it, there are three players in this course: the teacher, the students and the textbook. I expect that we will all be ready to capitalize on the different interactions possible between these three players.
Let me emphasize once again: this book is pure gold (tarnished in a very few spots). Read it thoroughly, if critically. You certainly won't be wasting your time if you did so.
Please obtain a mainframe computer account or an email address where I can send you e-mail, as soon as possible. A computer account can be obtained at the Academic Computing Lab upon production of a student ID with a Spring 1997 sticker, or some other valid proof of registration with a picture ID. You must also know how to use a Web browser like Netscape, so that you can read and/or download materials that I will periodically make available on the FIN320 Home Page. Check your e-mail periodically--at least thrice a week. You can do this by using Netscape; you do not have to log into the mainframe at all. Instructions on how to do this have been posted on the Web. You may want to designate a different person in your group to check the FIN320 Home Page on a frequent basis every week. This will allow you to share the load. I am available for consultation by e-mail at viswanat@pace.edu. I check my e-mail practically every day, and, in most cases, you should get a speedy response to any questions. Also, if you go to my home page, you will notice that you can communicate with me online (in real time), using your browser.
Before we address the details of course requirements, I want to emphasize that this course will be taught and learned with a lot of computer usage. If you are uncomfortable with using the computer, or are unwilling to learn, or do not want to use it intensively for any reason, you may not want to take this course. All students who wish to remain in this course must send me email, indicating that they have read this syllabus thoroughly, and that they are willing to abide by the teaching/learning methods indicated here. For those of you who are willing to take the plunge, I promise an enjoyable, though wild, drive through Finance country; and, equally importantly, I promise a lot of my own time.
Throughout the term, you should read each assigned chapter of the textbook before we begin it, while we are working through it, and also after we complete it; class sessions are meant to complement the text, rather than substitute for it. All students should also bring a calculator to all class meetings.
All students must be part of a group. Each group may consist of four or five members. To begin with, I will allow you to form your own groups. However, if need be, I will assign students to groups, depending upon the need, as I perceive it. Each group will be required to turn in projects and assignments as a unit. However, I expect all members of a group to participate equitably in the work involved in each assignment/project. You may also use groups for joint learning and study: that is up to the members of each group. Groups may also want to assign members on a rotating basis to keep track of whatever is posted on the Web. However, each student is separately responsible for the material that is put up on the Web. Failure of the designated group member to fulfil his/her duties will not absolve any group member of the responsibility to keep up-to-date vis-a-vis class activities on the Web, or off.
As mentioned above, projects must be done in groups. The following projects are required:
The analysis must be done using EXCEL. The report should be presented in any of the following ways: 1) an HTML document, capable of being uploaded to a Web site, 2) a Microsoft Word document, with the EXCEL file embedded. If you use any word processor, other than Word, you must either convert it to Microsoft Word, or convert it to ASCII. Unfortunately, ASCII documents do not look as good, and cannot support much formatting. The report must be submitted on a 3.5" diskette, or (preferably) emailed to me as an attachment. I would like for the groups to present a summary of the projects at the end of the term, using multimedia devices, such as Microsoft Powerpoint.
Class attendance is mandatory. Class attendance will be factored into the grade, and missing too many classes may lead to serious consequences for your final grade. If perchance you should miss a class, please check with other class members and/or other members of your group as to what was done during the class time that you missed, and collect handouts for that day's session, if any. Quizzes may be administered periodically. These quizzes will count at the margin in the determination of your grade.
There will be two exams in the course, a mid-term and a final. Exams are open book and open notes. Keep in mind, however,open-book exams can be more difficult because they are not designed to reward mechanistic skills. On the other hand, it also means that you don't have to spend a lot of time memorizing formulas. Examples of previous FIN 301 exams are available on the Web. I have also put up some previous exams that I gave in a graduate level Financial Management class at Rutgers. However, exams in previous terms and from other courses may not be an accurate indicator of how difficult your own exams will be, or of the content. Since I have not taught FIN 320 before, I cannot give you examples of my previous FIN 320 exams. I do not normally give makeup exams. If you cannot make an exam, you must let me know beforehand with a good excuse. If you miss an exam without being excused, I cannot give you any credit for that exam.
I have set up a FIN320 newsgroup/bulletin board. This uses a new program that has never before been used at Pace. I have seen a prototype and it seems to be very good; however, there may be some glitches. We have to be willing to work with the technology. I will give you more information on this, as I get it. 10% of your grade will depend on Newsgroup participation. So you can see, I think this is quite important. What can you post to the newsgroup? You can post your
Since this newsgroup will be on Netscape, you should be able to include weblinks in your posting. Hence, you may find it worthwhile to browse various on-line magazines, such as Financial Analysts Journal; newspapers such as the New York Times, Wall Street Journal, Barron's etc; magazines such as Fortune, Money, the Economist, Business Week, etc; In addition, you can find a multitude of other links at my Finance webpage.
In order to use all aspects of the newsgroup, you will need to know a minimal amount of HTML. For some useful links in this area, visit my home page at the teaching link. You may also contact the Academic Computing Lab at 914-773-3630 for more information. The Academic Computing Lab is located on the 2nd floor of Willcox Hall. Hours of operations are Monday-Friday: 8am-10pm and Saturday-Sunday: 9am-6pm. The general phone number of the Lab is 914-773-3642.
In order to access and use the newsgroup, you must login as a new user at the Webboard website. Once you get there, you will find instructions that should be relatively easy to follow. Why don't you try it right now, and post your first message?
In addition to the course requirements discussed above, you should try your hand at the problems at the end of each chapter. I have tried to select and list (see time-table) some problems from the back of each chapter that we will be studying. Some of these problems will be discussed in class; others have been assigned to be turned in periodically. See http://library.pace.edu/~viswanat/class/320/assign/spr97.html for assigned problems. These problems must be turned in on their respective due dates. Late assignments will not be accepted.
Consistent with what I have said above in the section on the Course Text, I would like to move the focus away from grades. If you look at the grades that I have given out in past courses, I have given very few low letter grades. In fact, if a student shows clearly that s/he is working, I do not give failing grades. Hence, let us keep the emphasis on getting the most out of the course, the text, and each other. Your final grade will be determined as follows:
| Factor | Impact on grade |
| Mid-term | 30 % |
| Final | 30 % |
| Quizzes | Taken into account at the margin |
| Assignments and home-work problems | 10 % |
| Attendance | Taken into account; may be significant in extreme cases |
| Projects | 20% |
| Class participation | Taken into account |
| Newsgroup Participation | 10% |
I try to be fair in my grading. This means fairness across students, and not necessarily comparability with grading standards across courses. Although I will try to assign numerical grades so that an A corresponds to 90, a B corresponds to 80, etc., this may not always work. In any case, I will attempt to provide you with a tentative grade as the term progresses, and, in particular, after each exam, so you have some idea of where you stand. In addition, I invite all students to set up appointments with me either to discuss class materials or grades.
Students must have satisfied all prerequisites for this course, viz. FIN 301 and FIN 307. I will presume complete familiarity with all topics taught in these courses. In particular, understanding of the following material will be presumed. To get an idea of what I expect you to know, you can look at my Fall 1996 syllabus for FIN 301.
To assure yourself that you are ready, you may want to attempt the assignments that I gave my FIN 301 class in the Fall 1996 semester.
On the index card handed out in class, please fill in the information requested below. Bring a passport-sized photograph of yourselves to the second class; this is strictly for identification purposes, so it doesn't matter how you look! (I will return it to you at the end of the term, upon request.)
Please leave space on the top right hand side for your photograph.
| Class Meeting | Chapter | Study Material | Problems |
| Jan. 22 | 1, 2 | Introduction; discussion of syllabus, etc. | None. |
| Jan. 27 | 2 | Firm Objectives | Concept Checks p. 12(1), 13, 17, 18, 25; Problems 6, 7. |
| Jan. 29 | 3 | Present Value; Separation Theorem | Problems 2, 3, 8, 16, 18, 20, 21. |
| Feb. 3 | 3 | Present Value | Assignment 1 |
| Feb. 5 | 5 | CAPM, Adjusting for non-diversifiable risk | Problems: 2, 3, 6, 8, 9, 11, 14, 15. |
| Feb. 10 | 5 | CAPM | Project: Portfolio Analysis with two assets |
| Feb. 12 | 6 | Practical Issues in Estimating risk premiums. | Problem 4, 8, 14, 20, 21, Concept Check p. 141. Assignment 2 |
| Feb. 19 | 6 | Practical Issues in Estimating risk premiums. | Project: Portfolio Analysis with more than two assets. |
| Feb. 24 | 7 | Capital Budgeting Decision Rules: a) Accounting Income based rules, Cash flow based rules, IRR. | Problems: 1, 3, 4, 7, 13, 14, 15 |
| Feb. 26 | 7 | Capital Budgeting Decision Rules | Project: Beta Computation. Assignment 3 |
| Mar. 3 | 8 | Problems in Estimating Cash Flows | Problems: 1, 6, 8, 13, 16, 17 |
| Mar. 5 | 10 | Midterm Decision Trees | Problems: 2, 4, 5, 8, 13, 16 |
| Mar. 17 | 27 | Option Theory; my notes | Problems: 1, 2, 4, 5, 9 |
| Mar. 19 | 10 | Option Theory | |
| Mar. 24 | 17 | Capital Structure: Tradeoffs and Theory; Chapter 28: p. 763-Conflict Between Bondholders and Stockholders. (Read chapters 15, 16 by yourself). | Chapter 17 Problems: 4, 6, 8, 10, 11, 14, 16. |
| Mar. 26 | 17 | Capital Structure | |
| Mar. 31 | 17 | Capital Structure | Assignment 4 |
| Apr. 2 | 18 | A Practical Framework for Analyzing Capital Structure: Cost of Capital Approach only | |
| Apr. 7 | 18 | A Practical Framework for Analyzing Capital Structure | Project: Capital Structure Analysis |
| Apr. 9 | 20 | The determinants of dividend policy | Problems: 2, 4, 10, 13, 19, 22. |
| Apr. 14 | 20 | The determinants of dividend policy | Assignment 5 |
| Apr. 16 | 21 | A framework for analyzing dividend policy | |
| Apr. 21 | No classes; alternative arrangements to be made in class | ||
| Apr. 23 | 21 | A framework for analyzing dividend policy; No class meeting on this date; alternative arrangements to be made in class. | Project: Analysis of Dividend Policy |
| Apr. 28 | 28 | Options in Capital Budgeting: the option to expand a project. No class meeting on this date; alternative arrangement to be made in class. | Problems: 6, 10, 13, 14, 17 |
| May 5 | 31 | Final Review | |
| Week of May 6 | Final Exam |