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Introduction to Financial Management

Introduction to Financial Management. Administrative Issues and Course Overview . Today’s plan. administrative issues syllabus prerequisite add, drop and withdraw three quizzes three cases final final grade course overview. The instructor. My name is George Li

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Introduction to Financial Management

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  1. Introduction to Financial Management Administrative Issues and Course Overview FIn 351: Lecture 1

  2. Today’s plan • administrative issues • syllabus • prerequisite • add, drop and withdraw • three quizzes • three cases • final • final grade • course overview FIn 351: Lecture 1

  3. The instructor • My name is George Li • Call me George, not professor • Office: BUS 315 and DTC 582 • Website: http://online.sfsu.edu/~li123456 • Email: li123456@sfsu.edu • Office hours: • Monday (Bus 315): 1:30 to 3:30 p.m. • Thursday ( DTC 582) 3:30 -5:30 p.m. • Research interest: • Corporate finance: real options, technological innovations, and valuations • Asset pricing: information and stock prices FIn 351: Lecture 1

  4. Textbook • fundamentals of corporate finance, by Brealey, Myers and Marcas (6th edition) • sorry about the cost • this is a standard textbook used in many major schools for the first course in corporate finance FIn 351: Lecture 1

  5. Prerequisite • You are required to take FIN 350 with a grade of at least C-. • It is the school’s policy that all the students in this course must satisfy this requirement and there is no exception FIn 351: Lecture 1

  6. Add, drop and withdrawal policy • The business school has the policy for add, drop and withdrawal • In the first four weeks, you have to get enrolled in the class, if you want. • Students can withdraw once • Please read the bulletin for detail information FIn 351: Lecture 1

  7. Pass or no pass grade • Fin 351 is a letter graded course. • Please don’t change to pass or no-pass grade course; otherwise you will get a no-pass grade. FIn 351: Lecture 1

  8. Homework • To help you understand the concepts taught in class, and prepare for the quizzes and the final exam, there is a weekly homework set, which is not graded, but its solution will be posted in my website. The best way to learn is to do a lot of problems. FIn 351: Lecture 1

  9. Quizzes • There are three quizzes, which are in the form of multiple choice questions and take about 45-65 minutes each. • There are no makeup or in-advance quizzes. • Two highest quizzes count for the final grade ( each 20 pts). If you miss one, that is the quiz you will drop. • You are supposed to allocate your time to take all the quizzes FIn 351: Lecture 1

  10. Three cases • There are three cases to be discussed in class. • You are asked to read the case before coming to the case discussion. • Case problems are related to some problems in the final. • It is very important that you bring in a calculator and a pen at every lecture FIn 351: Lecture 1

  11. Class attendance and performance • It is required that you come to each lecture and case discussion. • If you miss one lecture or are late for two lectures without a legitimate reason, talk or speak to disturb the whole class, your score in the class attendance and performance will be reduced at the instructor’s discretion. FIn 351: Lecture 1

  12. The final exam • The final exam will be in class (closed book), with a form of multiple choice questions. • There are no makeup or in-advance exams. • The final exam is cumulative, based on the lectures, quizzes, homework and three cases. • The final exam will be at the same classroom and start at the same time. The final exam takes 150 minutes. FIn 351: Lecture 1

  13. Final grade • Your overall course grade will be based on your performance in the class, the quizzes, homework problem sets, the team project, and the final exam. • Class attendance: 10 pts • Quizzes (2 of 3 total) 40 pts • Final exam: 50 pts • Total 100 pts FIn 351: Lecture 1

  14. Grading policy • Your grades are based on the distribution of the scores of the class. Specifically, your final grade is based on the following table. Ranking Grade 0%-10% A range 10%-50% B range 50%-85% C range 85%-95% D range 95%-100% F FIn 351: Lecture 1

  15. Motivation for taking Fin 351? • Why are you taking Fin 351? • nothing better to do today ? • become a millionaire overnight? • the instructor is a nice guy for a good grade? • get a “stamp of approval” to get a job ? • learn finance for fun ? • simply a required course ? • learn finance to be more successful? FIn 351: Lecture 1

  16. My objective in this course • I want everyone in the room to learn finance very well this semester • i want you to feel more comfortable talking about finance and answering finance questions. • i want you to have a better understanding of a set of concepts and ideas that will help you look at the world in a slightly different way. • What is standing in the way of those objectives? • Over-confidence • Under-confidence FIn 351: Lecture 1

  17. Two ways of learning • Positive • Can be a fun, since it is an opportunity to improve your future career, open your mind and broaden your vision • Look at each difficulty as an opportunity to learn new things • Good performance • Negative • Can be boring, since it is regarded as a burden, a task • Look at each difficulty as a “torture” or pain • Bad performance FIn 351: Lecture 1

  18. My approach of teaching Fin 351 • Focus on several fundamental, important concepts, • Applications and economic intuitions • Avoid too many materials • Help understand finance better. FIn 351: Lecture 1

  19. Corporate finance: what is it? • A set of concepts, theories and approaches that help the firm make financial decisions FIn 351: Lecture 1

  20. Financial decisions • Capital budgeting (use of the capital) • Real investments • Mergers; acquisitions • Financing (capital structure decision) • Equity • Debt FIn 351: Lecture 1

  21. FIN 351: course organization FIN 351 Module 1 Fundamentals of valuation Module 2 Valuing risky investments Risk and return Module 3 Corporate financial decisions Module 4 Market efficiency and options Fundamentals of PV Financial decision Interest rates Portfolio theory Diversification and covariance Types of securities Stocks, bonds and other Weak, semi-strong and strong form efficiency Information and stock prices Perpetuities and annuities calculation Tangency portfolio, CAPM risk and return Modigliani-Miller theorem 1 Pizza size is independent of how sliced Options and Black-Scholes Valuing stocks and bonds NPV and other criteria Effect of leverage WACC and discount rate Modigliani-Miller theorem 2 WACC Binomial model, replication Risk-neutral probabilities FIn 351: Lecture 1

  22. Course organization (2) • This course is broken-down into four modules • Module 1: time value of money • Module 2: risk and return • Module 3: capital structure • Module 4: financial markets FIn 351: Lecture 1

  23. Time value of money • This module is a “skill building” block in this course • We will soon have the necessary skills needed to value stocks and bonds • In this module, we don’t consider risk • It is assumed that future cash flows are riskless • It is assumed that the discount rate is riskless FIn 351: Lecture 1

  24. Risk and return • This part teaches us about uncertainty • How do we measure risk? • How much is a risky cash flow in the future worth (today)? • There are both: • skill building sections • conceptually more difficult sections FIn 351: Lecture 1

  25. Financing decisions • If you are the CEO of an industrial company • you can make your company more valuable by choosing “better” projects • we want to know if you (and the CFO) can make your company more valuable by changing the mixture of your financing (i.e. the ratio of debt to equity) FIn 351: Lecture 1

  26. The efficiency of financial markets • We will look at how information gets into security prices • We will learn three forms market efficiency • We will examine the implication of market efficiency on financing FIn 351: Lecture 1

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