Dr. P.V. Viswanath

pviswanath@pace.edu

MBA 673: Applying Financial Theory to Strategic Decision-Making Fall 2012

73182: Thursdays 1:25 pm to 4:10 pm at the New York Campus, Room E303
Email: pviswanath@pace.edu Tel: (212) 618-6518
Webpage: http://www.pviswanath.com
Blackboard: http://blackboard.pace.edu

Course Objectives

Students in an MBA program take a variety of courses in the different functional areas.  Often, they have no way to tie everything together.  Capstone courses manage this to some extent; however, the insights of finance are often left out.  This course will provide students with the knowledge as to how to translate these insights into superior strategic decisions in areas such as marketing, human resource management, supply chain management and competitive strategy. In this course, we will look at several areas where financial decision choices impact in important ways about decisions in the other functional areas of the firm.

The term strategic in the title of this course refers to the contrast between strategic and tactical thinking. Strategic thinking deals with long-term considerations, it is broader, covers many functional areas and goes to the ultimate goals of the organization. In this course, we will be looking at some corporate decisions that involve several functional areas (with one of them being finance) and addresses the ultimate goal of the firm, broadly defined as value maximization. Thus, when we consider a financial decision like hedging from a tactical point of view, we can talk about how to implement an effective hedge, what financial instruments to use, how long the hedge should be, etc. But when we look at hedging in a strategic way, we need to ask how hedging impacts the other functional areas in the firm and how the interaction affects firm value. The answers to these questions not only allow a better conceptualization of investment policy, advertising policy, pricing policy, etc., but also affects the rationale for hedging itself. Tactical solutions optimize locally, while strategic solutions optimize globally.

When you have completed this course successfully, you will be better aware of the importance of financial decision-making in the firm and how it interacts with other corporate decisions. You will have a better understanding of the basic truth that no decisions in the firm are taken in a vacuum. Topics such as marketing, human resource management and finance are taught in separate courses primarly for convenience; the truth is that to be a good manager it is important to apply the techniques taught in these different courses in an integrated fashion.

Here are some of the areas that you are likely to learn in this course (taking time constraints into account):

• Dupont Analysis and how to use it to make better marketing decisions.
• The use of how Capital Structure affects and can be used in personnel, product quality and pricing decisions
• How Risk Management affects corporate decisions.

We may also look at the use of Real Options in evaluating strategic alternatives, time permitting.

Course Text

We will be using some chapters (chapters 7, 16, 17 and 18) from the text-book, Financial Markets & Corporate Strategy, by Mark Grinblatt and Sheridan Titman, Irwin McGraw-Hill 2001. The book is out-of-print, but you may be able to get used copies online. If you can't get one of these copies, you can buy an e-book, containing only the chapters that we will be using. Instructions to access this e-book can be found here. (Make sure to use my name, Viswanath, in searching for the book.) We will also be doing a few cases. One of them is Risk Management at Apache, HBS case 9-201-113. This case can be purchased by going to http://cb.hbsp.harvard.edu/cb/access/15548300. We may discuss some other cases, well. Details of these other cases will be provided later.

How to Study for this Course:

• At the beginning of the course, read my notes on Recurring Themes in Finance.
• Read the business sections of newspapers with a critical eye.
• When you read general non-finance business news, look in the article for mentions of financial policies, such as capital structure, hedging and other financial risk management, working capital management, use of options and futures both in hedging and in managerial compensation, choice of debt maturity, covenants in borrowing agreements, bankruptcy agreements. Think of how they are relevant to the main subject of the article.
• When you read finance-related business news, look in the article for mentions of impact on employees, product pricing, competitive strategy, advertising etc.
• Think of how the non-finance mentions relate to the main topic of the article.

Computer Use and E-mail Policy:

You should obtain a Pace e-mail address as soon as possible, so that I can send you e-mail. Any student's Pace e-mail address can be obtained by going to http://appserv.pace.edu/WhitePages/Students.cfm or by going to the main Pace Home Page and clicking on White Pages from the IntraPace section towards the bottom of the page (the default password is the student’s Pace Identification Number).  More information about e-mail address, etc. can be obtained from the DoIT website and clicking on Computer from the left-hand side menu panel.  Even if you have another e-mail address where you wish to get your e-mail, you should still get a Pace e-mail address.  Once you have your Pace e-mail account and password, you can go to the Pace University Student E-Mail Server at http://stmail.pace.edu and have your e-mail forwarded to your preferred e-mail address.  You can find information on how to have your mail automatically forwarded at the DoIT website.  The only way that I can communicate with you is through your Pace e-mail account.  So please get your Pace account information as soon as possible.

Check your e-mail and the MBA 673 website on a regular basis.  This will enable you to get the maximum from the course. I am available for consultation by e-mail at pviswanath@pace.edu. I check my e-mail practically every day, and, in most cases, you should get a speedy response to any questions.  

We will also be using Blackboard as a gateway for some aspects of the course.  Please log in to Blackboard at the earliest opportunity.    Blackboard login procedures can be found on the appropriate Blackboard site.  Essentially, your login ID for Blackboard will be your email ID, and your password will be your 9-digit social security number.  

Course Requirements

Class Attendance and Participation

Class attendance is mandatory.  This is for two reasons. One, I believe that you will understand the material much better if you attend the class sessions; two, modifications to the class schedule will be announced in class and/or on the BlackBoard website.  More importantly, classroom participation is an essential part of this course. By participation, I mean answering questions and making intelligent comments. Furthermore, students will work in groups on at least half of the class meetings. On occasion, I will also conduct classroom exercises, give short quizzes, or assign additional work. If you miss a class session during which we have such a classroom exercise, or additional work is assigned, your grade will be adversely affected for this reason as well. In any case, you should consult fellow students on what was done during the class time that you missed, and collect handouts for that day's session.

I also require that you read the Wall Street Journal and/or the business section of the New York Times on a regular basis. Some exam questions will be based on current newspaper and magazine articles that are related to course material. Hence you should cultivate and improve your ability to read newspaper articles critically.  If you do not already subscribe to the Wall Street Journal, you can do so online from the MBA 673 Home Page.

Working with Teams

We will be doing class exercises in groups. Please form groups on the first day of classes. It is important that there be diversity in class groups; this is very important for student learning. If I believe that a group is overly homogenous, then I may reassign students to other groups. Make sure you bring a laptop to class since you will be using web resources for some of these assignments. Make sure also that your laptop is charged; unfortunately, there are not many electrical outlets in our classroom to plug in and charge your laptop. (Please do not use classtime to read your email or do other things unrelated to the class.)

Each group will be required to research and make a presentation (if there is time) on a topic related to the interaction of finance with a non-finance management decision area.

Academic Integrity

Educational institutions should aspire to instill in their students an appreciation for and the practice of ethical conduct.  All students are required to adhere to the statement of academic integrity outlined in the Pace University catalog.  Academic integrity infractions can include, but are not limited to, copying and presenting the work of another as your own, collaborating with others on assignments intended to be done individually, using unauthorized resources such as an instructor's manual to complete assignments, copying the work of others during an exam, and failing to reference the work of others or creating fake references in your assignments.  You may receive a failing grade in any assignment, exam, or course in which an infraction takes place, and you may be suspended or expelled from the school.  When in doubt about what might be considered an academic integrity infraction, the best course of action is to ask your instructor for clarification.

If you're not sure what plagiarism is, take a look at the Purdue Online Writing Lab wesbite. Here is some concise, useful advice from that website: Bottom line, document any words, ideas, or other productions that originate somewhere outside of you. If you need more information on how to avoid plagiarism, you can find it on the Library's website.

Any student taking this course is presumed to agree to abide by the school policy on academic integrity, as described in the Lubin Graduate Catalog. Please obtain a copy of the catalog and familiarize yourself with the policy.

Disability Policy

Pace University believes that it is important for students receive appropriate accommodation for any disability.  To receive accommodation for any disability, students must contact the campus Counseling Center (Pace Plaza, 212-346-1526; Westchester, 914-773-3710).  The Coordinator of Disability Services will:

• Evaluate the student's medical/learning/psychological documentation
• If further documentation is necessary, refer the student for appropriate tests
• Make recommendations for a plan of accommodation
• Prepare letters for the student arranging for the recommended accommodations.

Course instructors are not authorized to provide any accommodation prior to your arranging for it through the Counseling Center.

School policy regarding disabilities is described in the Lubin Graduate Catalog. Information can also be found on the University webpage.

Assignments

I am likely to give you assignments over the course of the term. The main purpose of these assignments is to make sure that you understand the material, and to prepare you for the exams. Assignments can be found on the website on the Assignments Page.

Exams

There will normally be a midterm exam and a final; any modifications to this will be announced in class. Exams are usually closed book, but I will allow you to bring in one 8.5" x 11" sheet of paper containing only formulas -- nothing else (two sides). More details on the nature of the exams can be found on the FAQ page.  If you miss an exam without being excused, I cannot give you any credit for that exam.  University policy allows make-ups only for serious personal illness or death in the family, for which documentation may be required.  You can look at past exams and solutions on my website; however, the actual format of the exams this term will differ substantially from those of other exams. Please bring your own calculators to the exams; however the use of computers, PDAs, graphing calculator, phone calculators or other instruments that can communicate and/or are able to store alphanumeric information is strictly prohibited during the exam. It is your responsibility to verify whether your calculator is allowed, otherwise you will end up in an exam without a calculator. Get in touch with me regarding any question you may have regarding the exams, or the course in general.

Short Quizzes

There may, in addition, be short quizzes. 

Media Articles

On my webpages, you will find recent media articles.  From time to time, I will add to this list.  There are several reasons why you should look regularly at these pages.  

• I will be posting interesting and recent articles to this directory.  As such, it will be a useful way for you to keep abreast of topical issues (in addition to your regular perusal of the Wall Street Journal.)
• I will pose questions on the subject matter of several of the articles.  These questions will be good preparation for the media article based questions on the exams.
• You can draw on the articles for classroom discussions.
• These articles and the appended questions are useful preparation for job interviews.

The password, necessary to access the Media Articles section, will be announced in class and can also be found at the Blackboard website. In case of emergency, you can contact me for the password.

If you have difficulty in accessing the site and you're using Internet Explorer, you may want to try the following fix: Go to Tools on the Main menu, then choose Internet Options. Then choose Security; after that select Trusted Sites. Then click on sites and add "http://webpage.pace.edu/pviswanath" (make sure that you have unchecked the "Require Server Verification for all sites in this zone").
This should allow you to access the articles by using the correct password.

Grades

Note that the minimum and maximum quantitative scores for plus and minus refinements to the letter grades will be at my discretion. These will be partly determined by the distribution of student scores within each letter grade category.   I place a high value on effort; at my discretion, I will raise your grade one notch if I feel that you have tried hard to satisfy all the requirements of the course.

Prerequisites:

Students must have satisfied the prerequisite for this course, viz. MBA 648. I will presume complete familiarity with all topics taught in this course.

Data Cards

On the index card handed out in class, please fill in the information requested below.  Make sure to number the item that you are responding to.  Leave space on the top right hand side for a photograph.

1. Name
2. Home and Work Phone number; Fax number, if any
3. Email address, other than at pace.edu (for my convenience).  (Note that I will send you email only to your Pace email address)
4. Functional expertise/interest in business administration (e.g. accounting, finance, personnel administration)
5. Work experience, if any (provide particulars of what your duties were)
6. Previous knowledge of finance (if any)
7. Interests outside of business management (such as languages, music, etc.)