Hi Linda,

I hope you are well! I have started my next course which is followed by the “Course Description” so you have an idea what this course is about. I’ve been trying to complete the course myself but juggling my job, family, and other commitments have been difficult for me so…..

I will need your help with the following items numbered below.

1. Weekly Homework questions which I will type out and provide in a word document. Each weekly homework assignment is approx 4 or 5 problems. They will be due on Friday each week. I am at the end of week 2. Week 3 starts tomorrow. I will pay $25 per homework assignment but negotiable if you feel there is more work involved.

2. Quizzes. IMPORTANT NOTE: all quizzes have been locked from copy and pasting. In addition, the quizzes are every two weeks. So, for an 8 week course there are 4 quizzes (I’ve already taken 1 with 3 remaining quizzes occurring at the end of even weeks. Week 2 was quiz 1, so the next quiz is in week 4 for quiz 2. Currently, we are at the end of week 2, starting week 3 tomorrow Sunday, April 4, 2010. Each bi-weekly quiz are multiple choice and 40 questions in length with a two hour time limit. IMPORTANT: It will take too long for me to copy and paste screen shots of the questions; therefore, I recommend that I share my computer desktop with you over the internet. This way I can log into my student account from my desktop and you can view the questions directly from your PC or MAC and work the quiz directly from my desktop. I use a PC but I think you use a MAC right? Well this software works on both MACs and PCs. Please review the software which is completely FREE and available from this website. Team Viewer Website. Direct web address to download their software is http://www.teamviewer.com/download/index.aspx But I think this will save us considerable amount of time. We just need to communicate/coordinate before each quiz. I will pay $50 per quiz.

3. THE PROJECT – Highlighted below on page 14 with the expectations and project requirements. See if you are willing to work this project for me. Review the requirements below. I can provide copies of the text if you decide to take on this project. Please name your price for this project. I will pay a bonus for an A or B for the final class grade – $200 and $75 respectively. Please note THE PROJECT counts as 20% of the final grade. It is due during the end of week 7 of 8 of this course. That is approximately 4 weeks away. Let me know how much you want for the project. I’ve highlighted items below for the upcoming weeks in yellow that are important and summarizes the learning topics for each week. Remember week 3 is beginning Sunday April 4, 2010.

Look forward to hearing from you and I hope you decide to take on the project.

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Course Description

FINC 350: Business Finance

A study of the finance function in corporate decision-making.  Topics include financial statement analysis, risk and return, valuation, cost of capital, working capital management, time value of money, and capital budgeting.

I. Overview and Course Goals

Welcome to FINC 350 Business Finance, on line! Over the next few weeks we will deal with a number of subjects.   Upon completion of this course you should have and be able to demonstrate a working knowledge of theories, methods and procedures used in analyzing the financial management of a firm. In addition, when we are finished you should be cognizant of new developments and trends within the field of finance.

Each week we will focus on a different area of our subject. Using online conferencing discussions we will delve into the intricacies of our subject and expand upon and reinforce particularly relevant issues with readings from our text, Fundamentals of Corporate Finance and other sources.

During Week 1, we will become acquainted with the essential background material of our subject matter.  We will discuss how businesses are organized, take a look at how financial markets are organized and get an overview of the importance of the finance role in managing a business.  I will share with you my expectations of what I need from you during the weeks ahead and we will make our initial introductions as we get familiar with the process of learning on the web. Most importantly, we will get in touch with some of the valuable source material that you can access online through Columbia College’s, Stafford Library.

During Week 2, we devote a significant amount of time to the analysis of financial statements.  We look at such things as leverage ratios, liquidity ratios and efficiency ratios and their role in measuring company performance.  We look how we can put together a financial model for a business.  What are the requirements of an effective model? What are the pitfalls of financial modeling?  We consider issues other issues such as working capital and cash budgeting.

During Week 3, we will be dealing with issues of valuation.  We will talk about the time value of money.  We will relate to issues of our own personal finances as a way of coming to grips with issues that may be new to most of us.  We will look into the valuation of long-term flow of money, touch on the issue of inflation and spend considerable time on features of corporate securities and how these features impact their valuation.  We will introduce concepts such as internal rate of return, net present value, payback and return on equity.

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During Week 4, we will explore valuation of various types of financial instruments. Specifically, we will learn how to find the theoretical current value of stocks and bonds.

During Week 5, we will examine the principles that a firm would use in making investment decisions. We will explore net present value, internal rate of return, the profitability index and the various payback methods. In addition we spend some time on the methods and value of cash flow forecasting in investment decision making.

During Week 6, we deal with risk and return.  We calculate rates of return, measure risk in various ways and think about opportunity cost.  Concepts such as "variance," "standard deviation" and "CAPM" are discussed. 

During Week 7, we come to a classic long-term financing decision.  What should a businesses capital structure look like?  How does that structure affect the mix of equity and debt capital?  How does borrowing affect value?  How does the tax code affect the capital structure of a firm?  What should a firm’s dividend policy be?  Finally, what happens when everything goes wrong?

During Week 8, our final week, we will look back on what we have learned.  We will review and discuss again the most important concepts of business finance; the concepts that we can accept with a high degree of certainty and use with confidence.  We will also take a critical look at some areas of business finance where the theory is useful and important but the state of certainty less convincing.  Stated another way, is the real world the way we say it is?

II. Course Objective

The overall objective of the course is for you to be able to demonstrate a working knowledge of theories, methods and procedures used in analyzing the financial management of a firm. 

Measurable Learning Outcomes

Develop the analytical skills necessary of decision-making based on an understanding of the factors that impact financial decision-making, implementation and evaluation.

Analyze financial statements and interpret financial ratios to assess company performance.

Understand how a firm’s operating, financing, and investment decisions are reflected in their financial reports.

Understand the importance of effective working capital management. Understand the term structure of interest rates and the relationship between risk and

return. Apply the principles of the time value of money to single and multiple cash flows and

value corporate securities.

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Integrate expected rates of return and the firm’s capital structure to calculate and evaluate the firm’s cost of capital.

Understand the way in which investment projects are analyzed including the impact of risk, taxes, and inflation and apply techniques of capital budgeting.

IV. Grades

Our grading procedure is very simple.  During the eight weeks of the course you can score a maximum of 1000 points. This is a very quantitative course. The bi-weekly quizzes account for 60% of the grade. The project counts for 20% of the grade. The homework assignments count for 12% of the grade; discussion posts count for 8% of the grade.

WEEK ASSIGNMENT POINTS DUE DAY

Week 1 Discussion 1 5 points Tuesday

Discussion 2 5 points Saturday

Homework 15 points Saturday

Course Project – Financial Statements 25 points Friday

Week 2 Discussion 1 5 points Wednesday

Discussion 2 5 points Friday

Homework 15 points Friday

4/3/2010 Week Two Quiz 150 points Sunday

Week 3 Discussion 1 5 points Wednesday

Discussion 2 5 points Friday

Homework 15 points Friday

Project – History & Background 25 points Saturday

Week 4 Discussion 1 5 Points Wednesday

Discussion 2 5 points Friday

Homework 15 points Friday

Week Four Quiz 150 points Sunday

Week 5 Discussion 1 5 points Wednesday

Discussion 2 5 points Friday

Homework 15 points Friday

Project – Financial Analysis 50 points Saturday

Week 6 Discussion 1 5 points Wednesday

Discussion 2 5 points Friday

Homework 15 points Friday

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Week Six Quiz 150 points Sunday

Week 7 Discussion 1 5 points Wednesday

Discussion 2 5 points Friday

Homework 15 points Friday

Project – Summary & Recommendations 100 points Saturday

Week 8 Discussion 1 5 points Wednesday

Discussion 2 5 points Friday

Homework 15 points Friday

Week Eight Quiz 150 points Saturday

TOTAL 1000 POINTS   

GRADE CRITERIA FOR DISCUSSION POSTINGS

5  =  AOn-line posting is on time and model answers given for all questions.  Answers are complete and concise.

4  =  BAssignment is late, but has model answers for all questions or, assignment is on time, but answers are not model.

3  =  C Assignment is late, and answers are not model.

2  =  D Assignment is late, or on time, but incomplete.

Apply the percent rankings that appear above in Grading Policy to your weekly point score and your running accumulation of points and you will know where you stand in terms of a probable course grade.  Final Project RubricYou will receive feedback on the components of the project as they are submitted and can use this feedback to revise until your final submission of the project. Be sure to make a note of your revisions when you submit your final project so that I will know to review and revise my grading as appropriate. A full explanation of expected content of the final project submission appears at the very end of the syllabus.

CRITERIA PERCENT POINTSIdeas Central idea/thesis is clearly communicated; analysis is clear and logical

20% 40

OrganizationUses a logical structure; sophisticated transitional sentencesguide the reader through the chain of reasoning

20% 40

Supporting DataUses evidence appropriately and effectively, providing sufficient evidence and explanation to convince.

20% 40

Accuracy 25% 50

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Calculations are accurate.MechanicsAlmost entirely free of spelling, punctuation, and grammatical errors

5% 10

PunctualityEach component and the final project are submitted on time

10% 20

V. Required Texts

Stanley B. Block, Geoffrey A. Hirt and Bartley R. Danielson (2009), Foundations of Financial Management, McGraw-Hill Irwin, 13th edition, ISBN 0-07-338238-8.

Benjamin Graham and Spencer Meredith. (1998). Interpretation of Financial Statements, Harper Business, ISBN 0-88730-913-5.

Students: Please note that the use of an eBook carries certain risks: information may be missing due to copyright restrictions, the book cannot be resold to MBS, and an eBook purchase cannot be refunded.

Textbooks for the course may be ordered on-line from http://bookstore.mbsdirect.net/columbia.htm

Books may be ordered by phone at 1-800-325-3252 or by fax 1-800-499-0143

VI. Course Schedule

Week 1: Getting Acquainted, Getting Started Readings:  Read Chapters 1, 2 and 14 of the textbook. You will note that Chapter 1 deals

mainly with the goals of financial management, e.g. Maximizing Shareholder Wealth. In Chapter 2 you will be reviewing many of the topics you covered in your accounting courses. A good grasp of accounting is fundamental to the study of Finance. Now we jump to Chapter 14. This Chapter covers Capital Markets. Think of it this way Chapter 1 explained the object of the “game,” Chapter 2 reviewed the “rules of the game,” and Chapter 14 lays out the “playing field.” I admit that’s something of an over-simplification, but it will do for now. Visit a few of the web sites mentioned at the beginning of each chapter, but also take a look at www.financewise.com.  It is a search

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engine for finance related sites, and you will find it of great interest later in the course. Look in at www.bloomberg.com, www.bigcharts.com and www.yahoofinance.com.  They are useful and important sources of current and historical information relating to finance and cover thousands of publicly-owned companies.  Then take a good look at www.corpgov.net and www.business-ethics.com.

Course Overview. Visit the course Syllabus and get comfortable with what is expected of you.

Online Discussion Assignments: Post your response to this week’s discussion topic. Remember this is a discussion and that implies a give and take. I expect at least two substantive postings from each student to each topic that move the discussion forward.

Discussion One: This first week I want you to take the time to introduce yourself to the class in the discussion area of our "virtual classroom."  Please give us more than your name.  Include your occupation, hobbies, interests, and career objectives.

Discussion Two: What exactly does it mean to say that the goal is to maximize shareholder wealth? Obviously, we mean maximize shareholder wealth in a manner consistent with the law, but does a corporation have other stakeholders besides its shareholders?

Homework Problems. Problems 2-1; 2-4; 2-20; 2-30 and 2-31. Post your answers in the Dropbox by Saturday (this week only – Friday for all other weeks).

The Project: Decide which pair of companies you will be analyzing for your final project. You most pick from the four pairs of companies listed in the Project material at the end of the syllabus. Do some research on the two companies. In particular, look for their most recent financial statements. Next week we get into financial statement analysis in a much deeper way, but for now calculate a few simple ratios, like the book value per share, current ratio and profit margin on sales. Write a brief description of your findings and post it to the appropriate Dropbox.

Week 2: Financial Statement Analysis & Working Capital Management

Readings: Chapters 3 through 6. These chapters will prove crucial to the work you will be doing for the project. You got your feet wet with ratio analysis last week, but this week with Chapter 3 we really dive in. Then we move to financial forecasting (Chapter 4) and pro forma statements and budgeting. Along the way, we consider the effects of inflation. Accountants deal with historical numbers measured in dollars, but we have to recognize that the dollar is an elastic ruler. Unlike meters and yards, its value changes over time. In Chapter 5 we see what happens when we add leverage (borrowed capital) to a business and in Chapter 6 we deal with the issue of making sure the cash is there when we need it (working capital management)

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This Week's Virtual Tour:  Go to www.cfo.com and sign up for this free and very useful newsletter.  Now look in at www.ibm.com/investor/financialguide for a tour of a company's annual report to shareholders, www.ny.frb.org/education/addpub/credit.html for a primer on bank credit.

Online Discussion Assignments

Discussion One: Financial analysis (called security analysis on Wall Street) can be less than totally objective. How big a problem do you think this is? What can be done to manage potential conflicts of interest? Maybe we just have to live with it and search out the hidden agendas. What do you think? Before you post you might want to re-read the “Finance in Action” item on page 66.

Discussion Two: A significant part of the problem facing many financial institutions and hedge funds (you might want to look that up) today is a mismatch between the duration of their lending and borrowing activities. What are the consequences? How can the problem be dealt with? Is this a problem for businesses other than financial institutions? If so, why? You might want to look up something called the “carry trade” before you post.

Homework Problems. Problems 3-1; 4-5; 5-1; 5-2 and 6-7. Post your answers to the Dropbox by Friday.

Take and submit the Week Two Quiz to be found under the Quiz tab. Continue to work on the Project

Week 3: The Time Value of Money

Readings: Now we get down to some really serious work. Read Chapters 9 and 10. They cover an extremely important topic. The concept of the time value of money is at the very heart of finance. Chapter 9 will introduce you to some very complex formulas, so a financial calculator will be helpful (but not necessary). It’s really important to understand what formulas mean. That is far more important than remembering the formula. So, if you do use a calculator to do the heavy lifting, make sure you understand what the results mean (a decimal point in the wrong place is a dead give away that you don’t). In ye olden tymes when I was a student we used a slide rule and thick books of tables, and the tables in the back of the book and others you will find on the web are still a good way to go. Back in Week One, you read about capital markets and now in Chapter 10 we will deal with how the various capital instruments (bonds, stocks, preferred stocks, etc,) are valued. How much is too much to pay? What is the right price? That sott of stuff. Stuff that takes a theory and formulas of Chapter 9 and applies them to the real world of financial markets.

This Week's Virtual Tour: Go to www.bloomberg.com. It is a very useful source of business and financial news.  Get familiar with the range of information available on the site.  Also, look in on www.teachmefinance.co m and www.dividenddiscountmodel.com Also www.financialengines.com and www.stern.nyu.edu/~adamodar/. They are all very

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worthwhile sites and are especially useful in getting a handle on the material in Chapter 10.

Online Discussion Assignments:

Discussion One: Hopefully you all have, or will have, some type of retirement plan (401k, IRA, etc.) other than Social Security. With the knowledge you have acquired about the time value of money from reading Chapter 10, how would you structure it? How would you invest it? What impact does expected future inflation have on your plan?

Discussion Two: In 1965, Warren Buffett acquired control of a New England textile business called Berkshire Hathaway for about $10 a share. Today the stock sells for around $110,000 a share and Mr. Buffett is the wealthiest person in the United States. The stock has never paid a dividend. How does this amazing success fit the theory that the value of a stock is based on the present value of the expected future stream of dividends? Visit www.berkshirehathaway.com and get familiar with the company. Tell me what you think the future holds for the company.

Homework Problems. Problems 9-1; 9-8; 9-16; 10-1 and 10-14. Post in the Dropbox by Friday.

Continue to work on the Project: This week I want you to do some research on the history of the two companies and then write a paper that tells me what you have learned. What do they have in common? How are the businesses different? This will take some deep digging. Post your paper to the appropriate Dropbox.

Week 4: Bond & Stock Valuation

Readings: This week we stay with Chapter 10. The chapter provides a good explanation of why investments in stocks and bonds (at the right price) make sense. This chapter directly applies the tools of present and future value we learned in Chapter 9 to the valuation of various types of securities. It wouldn’t hurt to read Chapters 16 and 17.

This Week's Virtual Tour: Go to www.finpipe.com, where you will find a lot of information about bonds and bond markets and some useful links to related sites. Take another look at www.dividenddiscountmodel.com. This is a particularly interesting site. I would suggest that you plug in some numbers relating to your two project companies and see what comes up. You will find some useful software and downloadable spreadsheets for stock evaluation at www.exinfm.com/free_spreadsheets.html  

Online Discussion Assignments: Discussion One: A bond is a promise to pay, but as we learn early in life, not all promises are kept. Take a look at http://www.investinginbonds.com/learnmore.asp?catid=5&subc,atid=19 and relate it to what you have read in Chapter 10. Would you ever buy a “junk bond”? When? What is the difference between a “junk bond” and a “high yield bond”? If you did buy how would you know it represented good value?

Discussion Two: What is the right price for a stock? Is it book value, liquidation value or simply its market price at a given moment in time? Would you value a privately-owned

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company where there is no market value differently than a publicly owned company where there is a market price every day? Is there a difference between “price” and “value”? This is a deeper question than you think, so think deep. It will get even deeper in Week Eight if you are really curious.

Homework Problems. Problems 10-17; 10-21; 10-26; 10-28 and 10-31. Post your answers to the Dropbox by Friday.

Take and submit the Week Four Quiz. Continue to work on the Course Project.

Week 5: Capital Budgeting

Readings: Chapters 11, 12 and 13 provide the framework for making investment decisions within a firm. Chapter 11 introduces various quantitative techniques (based on the valuation concepts we covered last week) to assess the cost of capital. Chapter 12 deals with the capital budgeting decision and considerations such as accounting flows versus cash flows. You can’t do everything, so you have to make decisions on which projects to undertake within that overall goal we discussed in Week One, of maximizing shareholder value; and that’s not the end of it. The most appealing (potentially profitable) project may prove too risky and that’s where Chapter 13 comes into play.

This week’s Virtual tour: Look at http://www.citizensbank.com/calculators/default.aspx and http://www.dinkytown.net/java/Capital.html. Both have interesting calculators that will help you evaluate the risks and potential rewards of various projects. They are also fun to play with.

Online Discussion Assignments:

Discussion One: A frequent criticism of the management of publicly-owned American companies is that they are too short-term oriented, too focused on fast returns, and that this negatively impacts their long term capital budgeting. Can you suggest a company, or industry, where this appears to be true. Why? How?

Discussion Two: Many capital allocation decisions involve the decision to buy, or not, a new piece of machinery. Where the issue is cost savings, the decision is pretty straightforward. If the numbers pencil out, you do it. Unfortunately many of the really big decisions involve estimating an unknown. Take a look at some of the news about Pfizer’s write off of their investment in Exubera last fall. You will find plenty if you just “Google” Pfizer Exubera .

Let’s talk about this really big capital allocation mistake. How could Pfizer have prevented this? Could they have done so, or is this just a risk of innovation that comes with the territory?

Homework Problems. Problems 11-2; 11-11; 12-8; 12-12 and 13-16. Post your answers to the Homework Problems by Friday.

Course Project. Now is the time to do the detailed Financial Analysis of our two

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companies in preparation for submitting our recommendations in Week Seven. Make sure you calculate all of the ratios called for in the Project and be sure to use the Financial Statements for the most recent fiscal year filed with the SEC. They can be found on the company websites. Also, tell me what they mean to you. That will help you focus on the recommendation you are going to make in two weeks.

Week 6: Risk, Return, and the Cost of Capital

Readings: This week we dig deeper into the material we began dealing with last week. To get a good handle on the relationship of risk and reward to the cost of capital, we have to go back and read Appendix 11A in Chapter 11. While you are at it, read Chapter 13 again (it can’t hurt). That’s not quite as much reading as last week, but Appendix 11A deals with the capital asset pricing model and that gets quite technical. This will be tough going, so give it the time it demands.

This Week's Virtual Tour: Go to http://www.econ.yale.edu/~shiller/data.htm (that’s the Robert Shiller who wrote the best seller Irrational Exuberance). Take another look at www.stern.nyu.edu/~adamodar/.  Both sites will enable us to access some very useful material on market risk and return.  While it goes a bit further than we will have to go, I suggest that you also look in on the web site of William Sharp, one of the pioneers of modern portfolio management and the Theory of Risk www.stanford.edu/~wfsheets.htm. For some perspective on historical rates of return, look in at www.djindexes.com. For a counter argument, take a look at J. Sanford (2005). Why the Bell Curve Falls Flat, Canadian Business, 78 (3), 59-62. (You can access this through the Columbia College Stafford Library online.)

Online Discussion Assignments:

Discussion One: This will be a real challenge, but it should be an interesting challenge. Much of the way we measure risk relies on probability distribution (the Bell Curve as shown on page 411). For many things in life, and business, this is perfectly valid, but for others it is not. Can you come up with some illustrations of business risk measurement where the bell curve type analysis is inappropriate? This will take a little research on the internet.

Discussion Two: It’s not a valid criticism of a theory to say that it doesn’t describe the real world. A good theory strips away the clutter of reality so that we can get at the heart of the matter. We can than plug back in the specific clutter of the specific problem we are dealing with. When dealing with CAPM, what are the issues you feel would most often have to be plugged back in? Why?

Homework Problems. Problems 13-23; 13-24 and 11A-1 (Problem 11A-1 is on page 370). Post your answers to the Dropbox by Friday.

Take and submit the Week Six Quiz.

Continue to work on the Course Project.

Week 7: Cost of Capital and Common Stock

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Readings: Chapters 11, 13 (again, but this time we go deeper) and 17. This week we get into measuring the cost of capital and we introduce the concept of a firm’s weighted average cost of capital and examine the principles for determining how to measure the cost of capital for a specific firm. We will also explore some characteristics of common stock that should be of interest.

This Week’s Virtual Tour: Take another look at http://www.dinkytown.net/java/BusinessValuation.html, http://www.ft.com/lex/tools/costofcapital, and http://financescholar.com/wacc.html. You have been there before but they will be useful in helping you to get a handle on WACC.

Online Discussion Assignments:

Discussion One: In this week’s discussion we will touch lightly on EVA. Some major companies live and die by EVA. For example, at General Electric, more capital is allotted only to divisions that pass the EVA threshold, and divisions that regularly flunk are sold off. It’s a simple, but powerful, approach that looks at a company’s numbers from an economist’s point of view and factors in not just explicit costs but also implicit costs in measuring a firm’s profitability. Read “EVA Breathes New Life into the Concept of the Cost of Capital” on page 345. Tell us what you think. Take a look at http://26.8e.3845.static.theplanet.com/evaabout/whatis.php and http://www.valuebasedmanagement.net/methods_eva.html.

Discussion Two: When does a corporate bankruptcy make sense? What would happen if General Motors were to go bankrupt? Every major airline (except American Airlines) that existed at the time the airline industry was de-regulated in 1978 has either gone bankrupt (some more than once) or been merged into a company that subsequently went bankrupt.

Homework Problems: Problems 17-10; 17-18; 17-20 and 17-22. Post your answers to the Dropbox by Friday.

Course Project: You have finished the project and now it is time to bring it all together. I expect one final paper containing your recommendations, concerns, thoughts, and conclusions. Which is the more promising business? Which is the better buy? Post your project to the appropriate dropbox. If you have made any revisions to the initial pieces of the project, be sure to send me a note so that I will know to go review them and make adjustments to your grade.

Week 8: Why do Good CFOs Make So Much Money?

Readings: Chapters 14 through 18 and the Berkshire Hathaway Owners Manual. The Owners Manual, a guide to how Berkshire Hathaway is run to enhance shareholder value can be found on the Berkshire Hathaway website at www.berkshirehathaway.com .

This Week's Virtual Tour:  We have a few serious and practical sites to browse through this week, sites that will put you in touch with some of the cutting edge issues and controversies in finance that you will come across in subsequent courses.  For those of you who ask why all finance profs aren’t rich, a look at http://www.stanford.edu/~wfsharpe/mia/int/mia_int1.htm, http://www.education-online-search.com/articles/careers/business_careers/become_a_cfo, and

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http://www.nareit.com/portfoliomag/05mayjun/capital.shtml. They will give you a good idea of how tough it is and why very few really good CFOs are worth the big bucks.

Online Discussion Assignment

Discussion One: A company’s finances are not fixed in stone. Making the right move at the right time can be the key to a company’s long-term profitability and, indeed, to its very survival. After September 11, 2001, Southwest Airlines used futures contracts to lock in fuel prices into the early part of 2007. In recent years, that was the difference between profitability and the horrendous losses the rest of the industry experienced. Go to page 519 of your text and read about Mike Garcia’s problem. It’s not as tough a call as the CFO of Southwest had to make, but it is a more common sort of problem. What should he do? Let’s talk about it.

Discussion Two: There are disadvantages to going public (believe me, I have done it). Let’s talk about them before we go on to consider the Anton Corporation’s plan to go public (see page 488). Take a shot at the issues the underwriter is trying to get a handle on and tell the class what you think. While you are at it, should Anton go public or, all things considered, would they be better off as a private company?

Homework Problems: Problems 15-1; 15-5; 16-2; 16-10 and 18-4. Post your answers to the Dropbox by Friday.

Take and submit the Week Eight Quiz.

This week you will post your first installment of the term Project. You will choose a pair companies, YHOO/GOOG, TGT/JCP, etc. All that is required now is your choice of companies, a few simple numbers and a line or two stating why you picked the companies.

The first three parts of the Project should be regarded as the research for the final installment which will bring together all of the best evidence you have collected that supports your recommendation.

The Project

The Setting: You are employed as a Financial Analyst for the private equity firm Celash, Byrne & Moovon. They are considering approaching either the management of Company A or Company B (choose from the list below) to discuss with management their possible interest in selling out to CB&M. You have been asked to do a comprehensive analysis and evaluation of both companies and make a recommendation as to which of the two is the most desirable

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acquisition and at what price. You report directly to Mr. Moovon (pronounced “move on”). He is not a patient person and has a low tolerance for waffling and indecision. You have less than two months to complete the task and he will expect frequent updates. You can also expect that he will interrupt you with other projects. (Welcome to the real world.)

Choose one of these pairs of companies to compare.

Company A Company BGoogle (GOOG) Yahoo (YHOO)Target (TGT) J. C. Penney (JCP)Merck (MRK) Lilly (LLYMarathon Oil (MRO) Valero Energy (VLO)The highlighted companies are my pair of companies for the project.

Your Tools Are: a. The course textbook, especially Chapters 17, 18 and 19.b. The supplemental text The Interpretation of Financial Statements, Benjamin Graham.c. Detailed Financial Statements for your companies are filed with the Securities and Exchange

Commission and available on the company web sites.d. The Value Line Investment Survey (available online from the College Library).

I can email you a copy of the above tools with exception to ITEM d if you decide to take this project on.

What Your Will Report Look Like: He is not going to weigh your report, but a good guess would be that he would be disappointed by less than 15 to 20 pages and 2-3000 words of explanation.

What is Expected: A detailed comparison of the two companies using all of the relevant ratios and the calculations involved. The ratios should be accompanied by text explaining what each means and why they differ between the two companies. Chapter 17 of the Text and Part Two of the Graham book will be a help here.

You will not get away with data for one year. Here is his minimum expectation of ratios to be analyzed and explained. In each case he wants to see five years of data. (From the SEC filings and available from the Company website)

Mr. Moovon expects you to begin with the Balance Sheet.

1. Start with the Capital Accounts. How do they differ? How are they the same? Are they realistically presented? What are the Book Values, and what are the present Ratios of the stock Prices to Book Value.

2. Now look at the Fixed Assets (the Property Account). When you read Chapter Five of the little Graham book you will realize that assets are always what they appear to be. Do either of your companies show as Assets items that need explanation? What are they?

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How are they explained? You might have to go into the footnotes to the Financial Statement to find the answers.

3. Are the Non Current Assets material and how are they explained? Are there material Intangible Assets? (Chapter 8 in Graham) What would be material for companies as large as the ones you are working with?

4. Do your companies have Deferred Tax Accounts? How are they treating taxes?5. Now let’s look at the Current Assets. Are the companies maintaining adequate liquidity?

Mr. Moovon is going to want to see the relevant ratios, so you had better calculate them and have them ready. (You will find most of them in Chapter 17 of the text.)

6. Liabilities. As Mr. Moovon always says, “You can’t be sure about the Assets but the Liabilities are always real.” Does either company have too much debt? If so, CB&M won’t touch them. Can either company carry significantly more debt? How much more? CB&M always loads the companies it acquires with as much debt as they can carry. That’s how they finance the deal.

7. Are there any hidden assets?

Now move on to the Income Statement.

1. Are the companies as profitable as they should be? What ratios would tell us that? OK! Now calculate them. Let’s see those Efficiency Ratios.

2. Now that you have calculated the ratios, what can CB&M do to make them more profitable? What do you suggest?

As a double check let’s run a DuPont Analysis on both companies.

Put a value on both companies. Calculate some valuation ratios like Price/Book Value, Price/Earnings Per Share (make sure you use fully diluted share numbers), Price/EBITDA Per Share. If you chose JCP and TGR, how do these ratios compare with some other retail operations? You might want to compare these companies to others in their field or some other big box retailers. What is the current market value (debt and equity) of each of the two companies? Mr. Moovon will need to know this to formulate a reasonable bid (or walk away).

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