M4A - MANAGERIAL FINANCE

CANADIAN INSTITUTE OF MANAGEMENT HAMILTON BRANCH

COURSE OUTLINE

M4A - MANAGERIAL FINANCE

TEXT:	Foundations of Financial Management Sixth Canadian Edition Block, Hirt and Short McGraw-Hill Ryerson
INSTRUCTOR:	Martin McKenzie

COURSE OBJECTIVES & DESCRIPTION

This course is been designed to enable the student to acquire a broad familiarity with the field of financial management.

The student should:

1. Develop an awareness of the responsibilities of financial managers,

2. Become knowledgeable of the role that financial decision-making plays within a firm and within the economy,

3. Acquire the skills necessary to analyze typical business situations from a financial perspective, and

4. Develop the ability to make appropriate financial management decisions.

Important financial management concepts that are covered include financial analysis, planning and control; capital budgeting; cost of capital; long and short term financing, including lease financing; and management of working capital.

To expedite the mathematical analysis that is required in managerial finance, students are required to purchase a Texas Instruments BA11 plus financial calculator.

The following timetable is for reference only.
Actual course calendar will be distributed at the first class.

Class	Topical Emphasis	Text Reference
1.	Introduction to Financial Management The Financial Environment Define financial Management. Explain the role of the financial executive. Explain the goal of the firm. Explain the ten axioms that form the basics of financial management. Explain the five stages required in developing a financial marketing system. Explain the Fundamentals of interest rate determination. Explain the popular theories of the term structure of interest rates. Compare various legal forms of business. Explain why the corporate form of business is the most logical choice for a firm that is large or is growing. Identify the corporate tax features that affect business decisions.	Chapter 1 Chapter 2
2.	Time Value of Money Explain the mechanics of compounding. How money grows over time when it is invested. Determine the future or present value of a sum when there are Non-Annual compounding periods. Explain the relationship between compounding and and bring back to the present. Define an ordinary annuity and calculate its compound or future value. Calculate the annual percentage yield of effective annual rate of return and explain how it differs from the nominal or stated interest rates. Differentiate between an ordinary annuity and an annuity due and determine the future and present value of an annuity due.	Chapter 9
3.	Financial Analysis Financial Forecasting Examine the three elements which define the value of an asset. Define and measure the expected rate of return of an individual investment. Define and measure the riskiness of an individual investment. Explain how diversifying our investments affects the riskiness and expected rate of return of a portfolio of assets. Measure the market risk of an individual asset. Calculate the market risk of a portfolio of investments. Explain the relationship between an investor's rate of return and the riskiness of the investment. Explain recent criticisms of the capital asset pricing model. Compare the historical relationship between risk and rates of return in capital markets	Chapter 3 Chapter 4
4.	The Capital Budgeting Decision Risk and Capital Budgeting Explain the more popular characteristics of bonds. Distinguish among the various types of bonds. Distinguish among the various ways to measure value. Describe the basic process for valuing financial assets. Estimate the value of a bond. Compute the expected rate of return for a bondholder. Explain the five important relationships that exist in bond valuation. Identify the basic features of preferred shares. Value preferred shares. Calculate the features used to retire preferred shares. Identify the advantages and disadvantages of using preferred shares. Identify the basic features of common shares. Value common shares. Calculate a common shareholders rate of return Identify the advantages and disadvantages of using common shares. Value a right. Explain the nature of the relationship between a firm's earnings and the value of its common shares.	Chapter 11 Chapter 12
5.	Long Term Debt and Lease Financing Capital Markets Construct and analyze a firm's basic financial statements, including the balance sheet, the income statement, and the statement of changes in financial position Measure a firm's cash flow using information contained in a firm's reported financial statements Calculate a comprehensive set of financial ratios and use them to calculate the financial health of the company Explain the limitations of ratio analysis.	Chapter 16 Chapter 14
6.	Mid-Term Review
7.	Mid-Term Exam	Chapters 1 - 8 Chapters 20 - 21
8.	The Cost of Capital Understand the historical relationship between internally generated corporate sources of funds and externally generated sources of funds. Understand the financing mix that tends to be used by firms raising long term financial capital. Explain the financing process by which savings are supplied and raised by major sectors in the economy Describe the key components of the Canadian financial market system. Understand the role of the investment banking business in the context of raising corporate capital. Distinguish between privately placed securities and publicly offered securities. Explain the Concept of securities floatation costs and securities markets regulations. Understand the difference between business risk and financial risks. Use the technique of break-even analysis in terms of units produced and sold, and in sales dollars. Distinguish among the financial concepts of operating leverage, financial leverage and combined leverage. Explain why a firm with a high business risk exposure might logically choose to employ a low degree of financial leverage in its financial structure.	Chapter 11
9.	Investment Underwriting: Public and Private Placement Common and Preferred Stock Financing Understanding the concept of an optimal capital structure. Explain the main underpinnings of capital structure theory. Distinguish between the independence hypothesis and dependence hypothesis as these concepts relate to capital structure. Explain the moderate position on capital structure. Discuss the concepts of agency costs and free cash flow in the context of capital structure management. Apply the basic tools of capital structure management. Explain how corporate financing policies work in practice. Describe the trade-off between paying dividends and retaining profits within the company. Explain the relationship between a corporation's dividend policy and the market price of a common share. Describe practical considerations that may be important to a firms' s dividend policy. Distinguish between the types of dividend policy that corporations frequently use. Specify the procedures a company follows in administering the dividend payment. Describe why and how a firm might choose to pay non-cash dividends. (stock dividends and stock splits) instead of cash dividends. Explain the purpose and procedures related to share repurchases.	Chapter 16 Chapter 17
10.	Sources of Short-Term Financing Current Asset Management Calculate the effective cost of short-term capital List and describe the basic sources of short-term credit. Explain the concept and purpose of determining a firm's cost of capital. Describe the assumptions made in computing a firm's weighted cost average cost of capital. Calculate a corporation's weighted cost of capital. Explain how PepsiCo calculates its cost of capital. Compute the cost of capital for an individual project when a firm's weighted cost of capital is not appropriate as the discount rate.	Chapter 7 Chapter 8
11.	Derivatives, Convertibles and Warrants Explain what the appropriate measure of risk is for capital budgeting purposes. Determine the acceptability of a new project using both the certainty equivalent and risk adjusted discount methods of adjusting for risk. Explain the use of simulations and probability trees for imitating the performance of a project under evaluation. Explain the effect of inflation on the capital budgeting decision. Explain the bond refunding decision. Explain the factors used to estimate a firm's value. Explain the steps used to determine a firm's acquisition value. Explain the various types of leases. Explain the steps used to determine whether to lease or purchase an asset.	Chapter 10
12.	External Growth through Mergers Define net working capital Describe the risk-return trade-off involved in managing a firm's working capital. Describe the hedging principle or principle of self-liquidating debt and the relevance of permanent and temporary sources of financing. Explain why the firm holds cash. Explain why variations in liquid asset holdings occur. Explain various cash management objectives and decisions. Explain the different mechanisms for managing a firm's cash collections and disbursement procedures. Evaluate quantitatively the expected costs and benefits of cash managements services. Determine a prudent composition for the firm's marketable securities portfolio. Explain the logic behind some actual cash management practices. Discuss the determinants of a firm's investment in accounts receivable and how decisions regarding changes in credit are made. Discuss the changes that TQM and single sourcing have had on inventory purchasing.	Chapter 20
13.	FINAL EXAM REVIEW

EVALUATION

Final Examination

The final examinations will be written at the conclusion of the course, with alternative examination scheduled two weeks after the date of each final. Students writing these examinations may use their text book, notes and a non-programmable financial calculator.

Grades

The final grade is based on:

20% Assignments
30% Mid-Term
50% Final Examination

GRADES:

Final Grade	Grade Mark
I	75% - 100%
II	66% - 74%
III	60% - 65%
Failure	59% or lower
DNW	Did Not Write