INSTITUTE of BUSINESS MANAGEMENT

College of Business Management

Department of Accounting and Finance
Financial Management FIN 202

Overall aims of the course

The objective of the course is to introduce fundamental concepts underlying financial

management. The main concepts examined include financial planning & forecasting
financial statements, risk & return, time value of money, bond and stock valuation, cost of
capital, capital budgeting, capital structure decisions and dividend policies.

Objectives

Students will be able to understand the specific techniques and decision rules that are
used to help maximize the value of the firm. Another objective is to provide the student
with the tools to understand and solve the basic financial problems confronting business
today.

Intended learning outcomes of course (ILOs)

Knowledge and understanding:

Students should be able to:
 provide an overview of financial management
 understand the key issues in financial management
 interpret financial statements
 understand the financial planning process
 define risk and understand how it relates to investments
 examine procedures managers use to measure risk
 discuss relationship between risk and return
 understand the time value of money and its impact on stock prices
 comprehend how timing of cash flows affects asset values and rates of return
 understand types of bonds
 highlight the types of risks to which both bond investors and issuers are exposed
 discuss procedures for determining the values of and rate of return on bonds
 demonstrate how the cost of capital is used to help make many important
decisions, especially the decision to invest or not invest in shares
 understand the basics of stock valuation
 determine the cost of debt and cost of equity capital using various methods
 comprehend capital budgeting techniques
 determine optimal capital structure
 assess dividend policy issues

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Intellectual skills
Students should be able to
 forecast financial statements
 quantify investment risk and returns
 calculate present and future value of annuities
 calculate value of bonds and stocks
 estimate cost of capital
 use various capital budgeting techniques to take financial decisions
 decided the optimal mix of debt and equity capital
 determine the dividend policy in the light of investor preferences

Professional and practical skills

After completion of the course the students should be able to:
 analyze the financial strengths and weaknesses of any business entity
 understand the risk and return associated with a particular asset, business or
project
 take calculated investment decisions as financial managers of an organizations

General and transferable skills

Knowledge obtained in the course will:
 enhance understanding of key factors underlying financial management
 facilitate personal financial decision making
 be applied in professional life

Course Content

Session Topic

Chapter 1
1
Overview of the Financial Management

This topic will give the student an overview of the financial markets in
which corporations operate. It gives details about financial markets,
institutions and intermediaries and options available to finance
graduates. In the end we will discuss the goals of the organizations and
managements and how it leads to agency problems; and how this
problem is resolved.

Learning Outcomes
1. To understand finance in the organizational structure of the firm
2. Describe the responsibilities of the CFO, treasurer, and
controller.
3. Explain why maximizing market value is the logical financial
goal of the corporation.
4. Explain why value maximization is not inconsistent with ethical

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 behavior.
5. Explain how corporations mitigate conflicts and encourage
cooperative behavior.

Pedagogy
1. Pre class independent study
2. Lecture discussion
3. Problem solving
4. Assignment

Chapter 2
2,3
Modifying Accounting Data for Managerial Decision

Here we will look at the Managerial decision. It will be assumed that

students have taken the basic accounting course and are well aware of
the four basic financial statements, namely, income statement, balance
sheet, statement of retained earnings and the cash flow statement. We
discuss the main items of the statements and how the information
contained within the statements should be interpreted. We will discuss
the important differences between profits and cash flows and market and
book values. In the following discussions we will explain how the
financial statements are used to evaluate the performance of the
business. For this, we will learn to calculate some ratios and use them to
comment on the company’s performance.

Learning Outcomes

1. Distinguish between market and book values.

2. Explain why income differs from cash flow.
3. Understand the essential features of the taxation of corporate and
personal income.
4. Calculate and interpret market value and market value added for
a public corporation.
5. Calculate and interpret some key measures of firm performance,
including economic value added, and the rates of return on
equity, assets, and capital.
6. Compare the company's financial standing with its main
competitors and with its own position in earlier years.

Pedagogy
1. Pre class independent study
2. Lecture discussion
3. Problem solving
4. Class activity on ratio analysis of any local listed company

Chapter 3
4,5,6,7,8,9
Financial Planning & Forecasting Financial Statement

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 In initial chapters we discussed that the financial managers need to
decide between investment opportunities and plan how to raise finances
for those investments. The decision must add value to the whole
organization and increase shareholders wealth. Therefore these decisions
are taken after thorough discussions and planning. That’s why financial
planning is required. The financial plan allows managers to think about
the implications of alternative financial strategies and how to ease out
any inconsistencies in the firm’s goal. We will first of all discuss the
components of a typical financial plan and then the use of financial
model and finally firm’s need for new financing.

Learning Outcomes
1. To understand financial statement forecasting using various
methods
2. Understand strategic, operating and financial plans
3. Make financial plans
4. Understand how to forecast sales and other items in the financial
statements
5. Understand percentage of sales method and learn how to make
pro-forma income statement and balance sheet

Pedagogy
1. Pre class independent study
2. Lecture discussion
3. Problem solving

Chapter 4
10,11,12,13
Risk and Return

This topic explores the risks and returns associated with a project.
Financial Managers need to know how to calculate risk and understand
the relationship between risk and cost of capital. Project’s cost of capital
is the rate of return that shareholders expect to earn of they invest in
equally risky securities.

Intended Learning Outcomes

1. To estimate investment returns and risk
2. To comprehend the relationship between risk and rates of return
3. Understand why diversification reduces risks
4. Distinguish between unique and market risk

Pedagogy
1. Pre class independent study
2. Lecture discussion
3. Problem solving

Chapter 5
14,15,16
Free Cash Flow Valuation

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 This study session presents additional valuation methods for estimating
a company’s intrinsic value. The free cash flow model, which takes
available cash flows for distribution as the basis for valuation, is
presented as an alternative to the dividend discount model which uses
actual dividends distributed.

Learning Outcomes
1. Introduction to Free Cash Flows
2. FCF and FCFE Valuation Approaches
Defining Free Cash Flow
Present Value of Free Cash Flow
Single-Stage (Constant-Growth) FCF and FCFE Models
3. Forecasting Free Cash Flow
Computing FCFF from Net Income
Computing FCFF from the Statement of Cash Flows
Noncash Charges
Computing FCFE from FCFF
Finding FCFF and FCFE from EBIT or EBITDA
FCFF and FCFE on a Usage-of-free-Cash-Flow Basis
Forecasting FCFF and FCFE
Other Issues in Free Cash Flow Analysis
4. Free Cash Flow Model Variations
An International Application of the Single-Stage Model
Sensitivity Analysis of FCFF and FCFE Valuation
Two Stage Free Cash Flow Model
Three-Stage Growth Models
ESG Considerations in Free Cash Flow Models
5. Non-operating Assets and Firm Value
6. Practice Problem

Pedagogy
1. Pre class independent study
2. Lecture discussion
3. Problem solving

Chapter 6
17,18
Market-Based Valuation: Price and Enterprise Value Multiples

This topic help in to distinguish between the method of comparable and

the method based on forecasted fundamentals as approaches to using
price multiples in valuation and explain economic rationales for each
approach. Evaluate a stock by the method of comparable and explain the
importance of fundamentals in using the method of comparable.

Learning Outcomes

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 1. Introduction
2. Price and Enterprise Value Multiples in Valuation
The method of Comparable
The Method Based on Forecasted Fundamentals
3. Price Multiples
4. Enterprise Value Multiples
Enterprise Value to EBITDA
Other Enterprise Value Multiples
Enterprise Value to Sales
Price and Enterprise Value Multiples in a Comparable Analysis
5. Practice Problem

Pedagogy
1. Pre class independent study
2. Lecture discussion
3. Problem solving

19,20,21 Chapter 7

Capital Budgeting

Investment decisions aka capital budgeting decisions are critical to any

firm’s success. These decisions may involves substantial cash flows and
have long term consequences. Company’s shareholders expect managers
to only invest in that project that adds value to the company and
increases shareholders’ wealth. Therefore the managers must invest in
projects whose costs are less than their revenues. The difference
between the project’s cost and revenues is called net present value;
which is one of the techniques of project appraisal. NPV, with other
techniques, helps the management to evaluate projects and select the
one that adds maximum value to the firm. The techniques discussed are
NPV, IRR and profitability index.

Learning Outcomes

1. Introduction
2. The Capital Budgeting Process
3. Basic Principles of Capital Budgeting
4. Investment Decision Criteria
Net Present Value
Internal Rate of Return
Payback Period
Discounted Payback Period
Average Accounting Rate of Return
Profitability Index
NPV Profile
Ranking Conflicts between NPV and IRR
The Multiple IRR Problem and the NO IRR Problem

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 Popularity and Usage of the Capital Budgeting Methods
5. Practice Problem

Pedagogy
1. Pre class independent study
2. Lecture discussion
3. Problem solving
Chapter 8
22,23
Mergers And Acquisition

1. Introduction
2. Mergers and Acquisitions: Definitions and Classifications
3. Motives for Merger
Synergy
Growth Increasing Market Power
Acquiring Unique Capabilities and Resources
Diversification
Bootstrapping Earnings
Managers Personal Incentives
Tax Considerations
Unlocking Hidden Value
Cross-Border Motivations
4. Transaction Characteristics
Form of Acquisition
Method of Payment
Mind-Set of Target Management
5. Takeovers
Pre-Offer Takeover Defense Mechanisms
Post-Offer Takeover Defense Mechanism
6. Regulation
Antitrust
Securities Laws
7. Merger Analysis
Target Company Valuation
Bid Evaluation
8. Who Benefits from Mergers?
9. Corporate Restructuring
10. Practice Problem

Pedagogy

1. Pre Class independent study

2. Input session (students centered – through oral questioning)
3. Lecture with discussion followed with some calculation exercises.
4. Students to solve the problems given towards end of the chapter as
part of their

Chapter 9
24,25
Dividends and Share Repurchases: Analysis

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 1. Introduction
2. The Capital Structure Decision
Proposition I without Taxes: Capital Structure Irrelevance
Proposition II without Taxes: Higher Financial Leverage Raises the Cost of
Equity
Taxes, The Cost of Capital, and the Value of the Company
Costs of Financial Distress
Agency Costs
Costs of Asymmetric Information
The Optimal Capital Structure According to the Static Trade-Off Theory
3. Practical Issues in Capital Structure Policy
Debt Ratings
Evaluating Capital Structure Policy
Leverage in an International Setting
4. Practice Problem

Pedagogy
1. Pre class independent study
2. Lecture discussion
3. Problem solving

26 Final Report and Presentations

Teaching and learning methods

The course isinteractive between the class and the instructor. Through power point lecture
presentations, problem solving, and specific class room activities, students will have the
opportunity to use the concepts, ideas, and strategies presented in class. Problem-solving
sessions occur in both individual (primarily) and team (occasionally) settings.

This introductory undergraduate course will incorporate a lecture and assignments-based

approach to the concepts of financial management. Students are encouraged to read the
book and chapters beforehand in order to develop a better understanding.

Lectures, class discussions, home exercises and quizzes, case studies, and presentations
will be conducted. The lectures are designed to reinforce and expand upon, not to
substitute for, what students learn from the assigned readings and study. Article
presentations will also be incorporated so that students get the idea of what is currently
happing in the global financial environment.

ASSESSMENT

Assessment Method Objective Week Weight

Quiz Knowledge and 2, 4, 8,13 10%
understanding
Assignments Knowledge and 3, 5, 7 10%
understanding
Knowledge and 9, 14 5%
Article Presentation understanding
1st Mid Term Knowledge and 6 30%

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 understanding
Final Knowledge and 16 40%
understanding

Formative assessment:
 In class support behavior
 Punctuality
 Attendance

RUBRICS FOR MARKING

SKILLS Advanced Proficient Basic Minimal

Always Frequently Usually Unsatisfactory
understands the understands understands knowledge of
Comprehension key issues in the key issues the key issues key issues in
and Analysis financial in financial in financial financial
management. management. management. management.
Accurately Able to Familiar with Inadequate
interprets interpret financial understanding
financial financial statements but of financial
statements and statements and sometimes statements.
demonstrates demonstrates faces difficulty Generally
excellent good in financial unable to
analytical skills analytical analysis analyze
skills financial data
due to weak
concepts
Planning and Excellent Good Satisfactory Unsatisfactory
Forecasting understanding understanding understanding understanding of
of the financial of the financial of the financial the financial
planning planning planning planning
process. Able process. Able to process. process. Finds
to conduct conduct high Occasionally difficulty in
financial level financial faces difficulty financial
forecasting forecasting in financial forecasting
using various forecasting
techniques
Decision Always Frequently Usually Rarely
Making understands the understands the understands the understands the
techniques techniques techniques techniques
required to take required to take required to take required to take
calculated calculated calculated calculated
investment investment investment investment
decisions as decisions as decisions as decisions as
financial financial financial financial
managers of an managers of an managers of an managers of an
organization organization organization organization

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Problem Always finds a Frequently Usually seeks Rarely seeks out
Solving number of seeks out other out other ways other ways to
ways to solve ways to solve to solve the solve the
the problem on the problem, problem, but problem and
own initiative and rarely needs occasionally frequently needs
support or needs support or support and
guidance guidance guidance
Personal Always Frequently Usually Rarely
Management demonstrates demonstrates demonstrates demonstrates
personal personal personal personal
management management management management
skills, and is skills skills skills
eager to learn
Team work Always Frequently Usually Rarely
demonstrates demonstrates demonstrates demonstrates
effective effective effective effective
teamwork skills teamwork skills teamwork skills, teamwork skills,
and often takes and rarely needs and and frequently
initiative in a support or occasionally needs support
group setting guidance in needs support or and guidance.
that exceeds teamwork guidance Often wants to
required skills activities work
independently
Participation in Always Frequently Usually Rarely
projects and participates in participates in participates in participates in
tasks required required required required projects
projects and projects and projects and and tasks.
tasks. tasks. tasks. Completes few
Completes all Completes most Completes some assignments and
assignments assignments and assignments and projects
and projects projects projects.

PRESCRIBED TEXTBOOK

Financial Management. Theory &Practice Authors: Eugene F. Brigham and Micheal C.

Ehrhardt 10th Edition

RECOMMENDED READING

 Fundamentals of Financial Management by Eugene F. Brigham and Joel E. Houston

10e
 Fundamentals of Financial Management by Ramesh K. S. Rao
 Any book that discusses fundamental concepts of finance

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