WIUU | Semester: Spring 2012 |
COURSE: Business Finance - II (45 hours)
INSTRUCTOR:Andrei Zaporozhetz, MBA, CPA
E-MAIL:andriyzatz@gmail.com
CLASS HOURS: Thursdays, 15:20 - 17:50
PREREQUISITE COURSES: Business Finance - I
COURSE DESCRIPTION:
This course covers many advanced finance topics, with the emphasis on valuation techniques and managing financial and real investments. It is corporate-oriented and includes practical applications and problem-solving techniques.
After some introductory coverage, we are going to learn how to diversify and manage stock portfolios, and how to apply various valuation models and techniques to projects and businesses. Other topics will include working capital management, derivative instruments, M&A, and foreign exchange management.
The course team project is a real-time stock trading contest, where students will manage their stock portfolios on the US financial markets.
LEARNING OBJECTIVES:
1. understand and apply methods and techniques of stock portfolio management;
2. understand and apply the 5 traditional evaluation techniques of capital budgeting projects;
3. understand and apply business valuation techniques, including M&A cases;
4. understand and apply the models and techniques of working capital management;
5. understand the concepts of cost of capital and financial leverage, and apply those in the determination of the optimal capital structure;
6. understand and apply FX management techniques.
COMMUNICATIONS:
Outside the class, students should communicate with the instructor via e-mail. In the subject line, please put WIUU.BF2.FamilyName. E-mail messages will normally be answered within 24 hours.
ATTENDANCE POLICY:
Class attendance is not obligatory and will not be considered as part of the course grade. The student, however, is responsible for coverage of all the materials of the class and the homework. Moreover, if a student misses the class, he/she will automatically receive zero points for the test given at the beginning of the missed class.
Class participation is important and can favorably affect your grade. There might be bonus points granted by the instructor for active participation in class and/or answering instructor’s questions. The number of those extra points will remain at the instructor’s discretion. The maximum number of such points received by one student, however, shall not exceed 20.
HOMEWORK:
will consist of reading the required (main) textbook and/or additional materials, as well as problem solving tasks, usually, end-of-chapter Questions, Problems, as well as MCQ and Review Problems from the Study Guide (as stated in brackets under “Assignments” below). Please mind that the class tests and exams are going to be based upon those.
EXAMINATIONS AND TESTS:
Examinations will be based on the lectures materials/slides, the textbook, and additional materials. Exams will be closed book and closed notes. Students are allowed to have a two-page formulas sheet and a financial calculator. No cell phones are allowed as calculators. Students are not allowed to unstaple their examination papers. Taking the staple off shall be penalized with 20% of the test points. All the above refers to test administration, too.
No make-up examinations will be given, except force-majeure circumstances, in particular, student’s illness. In order to be accepted, a force-majeure case has to be duly certified.
Class (scheduled) tests and Surprise tests might be given to test familiarity with financial concepts and problem-solving techniques. Points earned with Surprise tests will be applied as extra credit. The quizzes are NOT group work. You cannot consult with, talk to, communicate with, or pass telepathic messages to anyone else in or out of the classroom.
GRADING POLICY:
|
4 Tests Trading Project Midterm Exam Final Exam Total: Bonus points | Maximum of: 40 points 60 points 50 points 50 points 200 points 20 points MAX
|
| A + A A - B + B B - C + C C - |
> 196 186 - 195 180 - 185 176 - 179 166 - 175 160 - 165 156 - 159 146 - 155 140 - 145 | D + D D - F |
136 - 139 126 - 135 120 - 125 < 120 |
REQUIRED TEXTBOOK:
Corporate Finance / Ross, Westerfield, Jaffe. – 4-th edition, McGraw-Hill/Irwin, 1996, (RWJ).
The text includes some material beyond the scope of this course. We will omit some chapters from our coverage and we will be selective with the material included in the chapters assigned for studying. Besides, you will find it important to study additional materials provided by the instructor.
A financial calculator (e.g., “Casio FC-100”) capable of computing n√, PV, FV, NPV, IRR, etc, is highly recommended to have in class.
MINI-PRESENTATIONS:
are optional, and will be assigned for a particular topic to present in class. MAX of 15 slides. Each student is welcome to choose 1 mini-presentation topic during the course, for extra points of 10 maximum. Please provide your instructor with a printout of your presentations prior to the class, and e-mail your presentation after the class for grading.
Pls make sure that your presentations (slides) are properly named (course; date; family name; title) and numbered. The list of used sources shall include no less than three good sources.
NB: the number of mini-presentations is limited by the instructor; the students will have to compete for reserving a topic out of the available ones.
TOPICS:
CLASS SCHEDULE:
DATE TOPIC ASSIGNMENTS TESTS
Class 1 Course overview Syllabus
Risk and return. CAPM Z. Bodie, Quantitative Analysis (optional)
Class 2 Diversification. Ch. 9, 10.
Portfolio MGT Slides
Z. Bodie, EI, 6e, Ch.19 (optional)
Class 3 Capital Budgeting Ch. 6, 7. TEST 1 Portfolio MGT
Class 4 Capital Budgeting Ch. 6, 7
Class 5 Capital Structure. WACC. Ch. 13-16 TEST 2 Cap Budgeting
Class 6 Business Valuation, DCF Slides
Midterm review
Class 7 MIDTERM EXAM
Class 8 MINI-PRESENTATIONS
Class 9 Inventory MGT Slides
Cash MGT Ch. 26, 27
Class 10 Mergers & Acquisitions Ch. 29 TEST 3
Working Capital MGT
Class 11 Options Ch. 21
Class 12 Foreign exchange MGT Ch. 31 TEST 4 Options
Class 13 Final review
Project Q&A
Class 14 FINAL EXAM
Class 15 Trading Projects Presentations Project Papers Due
The above schedule is a tentative one and is subject to change as we proceed through the semester.
STOCK TRADING PROJECT:
Please team up by 4-5 students. The team lists stating the name of the team shall be available by the second class.
The projectis a stock contest game, located at: www.WallStreetSurvivor.com
The class name is: WIUUBBA3CF. In order to sign up, please go directly to:
http://www.wallstreetsurvivor.com/Public/Members/Register.aspx?promo=WIUUBBA3CF
The last day to register is Friday, 16 March.
After having registered, please go to “Survivor University” to study the basics of stock trading. Obtain an initial portfolio of at least 3 stocks up to the market value of $100,000. During the course, you are to trade stocks in order to maximize your portfolio’s value. You have to make 10-20 trades MIN-MAX (= 20-40 transactions).
The cut-off trading day is Friday, 27 April, 23:59 New York time. By that day, please close all of your positions, but DO NOT close (delete) your account in WSS until further notice.
The report should include:
1. An initial portfolio construction considerations and strategy.
2. A fairly complete description of the investment activities and the decision making process to manage the portfolio. Please use the table format for recording your transactions as advised by your instructor.
3. Tables including: (a) daily balances, (b) daily returns, (c) daily returns adjusted for risk-free rate, (d) cumulative returns of your portfolio. Mean returns, standard deviations and CV. Conclusions.
4. Two Tables including: (a) daily balances, (b) daily returns, (c) daily returns adjusted for the risk-free rate, (d) cumulative returns of the 2 indices: S&P500 (market index) and NASDAQ Composite. Mean returns, standard deviations and CVs for the above 2 indices. Conclusions.
5. Your portfolio performance as compared to S&P500, NASDAQ indices (cumulative; on a daily basis) on one chart.
6. Your Portfolio’s Characteristic Line (PCL) chart against the market index (assuming a daily risk-free rate of 0.01%), showing your beta and alpha on the equation. Make conclusions.
7. CAPM formula, using your beta from the PCL. Estimated alpha. (Hint: your PCL/graphical alpha and analytical alpha should be of the same value.)
8. Your portfolio’s position against SML (chart). Calculate and show on the chart your portfolio’s Treynor’s measure. Conclusions.
9. Find and interpret the correlation coefficient between your portfolio’s returns and the market index’ returns. Explain its relations to your portfolio’s beta.
10. Conclusions and Lessons learned.
NB: Keep track of your trades, portfolio adjustments, and your balances at the end of each trading and calendar day. For each trade, pls indicate the team member name responsible for the trade.
The project will be evaluated based on:
(a) your portfolio returns,
(b) the quality of your project paper,
(c) the quality of your project presentation (all the team members to present).
Students are encouraged to use Internet and other publicly available sources for their research, e.g.:
www.investopedia.com
www.finance.yahoo.com
www.zacks.com
www.reuters.com
www.marketwatch.com
www.morningstar.com
The project papers (printed, 15-20 pages MIN-MAX) are due by Class 15 and e-mailed to me after the presentation. GOOD LUCK!
Version: 1
March 1, 2012.
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