MGSM835 Financial

MGSM835

Financial Management 2014 Term 3

Professor Andrew Lepone

UNIT GUIDE

North Ryde FMBA Tuesday 9am 1pm Email: [email protected] Phone: + 61 2 9850 9975 Fax: + 61 2 9850 9019

MACQUARIE GRADUATE SCHOOL OF MANAGEMENT

MGSM835 Financial Management

____________________________________________________________________________________________________ Updated 16 June 2014 Page 2 of 12 NB This Unit Guide is subject to change. For latest version refer to Student Website

1. About this unit

Credit Points: 4 Contact Hours: Total: 40 hours

2. Unit Description

The fundamentals of financial management are introduced from the perspective of the finance manager in a firm, namely those making investment, financing and dividend decisions. Finance theory is applied with the aim of providing a coherent framework and insights to assist in forming reasoned judgements. Case studies and financial planning models are used to provide context. The unit covers methods used in evaluating investment projects, assessing risk for competing projects, valuation and capital structure.

3. Unit Objectives

To provide students with an understanding of the fundamentals of financial management from the perspective of the finance manager

To provide students with a basic knowledge of financial securities and their use by the firm in raising finance for the firm

To provide students with an understanding of capital budgeting enabling the effective and efficient allocation of financial resources within a firm

4. Unit Alignment with MGSMs Mission-Driven Attributes

Leadership: The unit develops skills required of leaders with respect to the synthesis of a wide array of financial information in order to make well-informed and financially robust strategic decisions

Global mindset: The unit enables learners to assess the implications of strategic decisions from a whole of entity perspective, across a wide spectrum of stakeholders

Citizenship: The unit supports learners to conduct decisions taking into account the implications for all stakeholders and without abusing power or privilege

Creating sustainable value: The unit encourages adoption of a forward-looking perspective on the impact of decisions on the financial position and performance of the entity




5. Classes

Students are required to attend all classes. The unit will be presented over 10 weeks as follows:

Session Date Topic Textbook Chapter

Workshop Questions

1 24 June 2014 Introduction/Time Value of Money Chapter 1

Chapter 1 (PQ 2, 3, 5, 14 & 15)

2 1 July 2014 Financial Mathematics Chapter 2 Chapter 2 (PQ 8, 10, 16, 18 & 25)

3 8 July 2014 Capital Budgeting and

Investment Evaluation Chapter 4 & 5

Chapter 4 (PQ 4 & 15)

4 15 July 2014

Capital Budgeting and

Investment Evaluation continued

Chapter 4 & 5 Chapter 5 (PQ 2, 6 & 9)

5 22 July 2014 Business Valuation: Part 1 Chapter 3 Chapter 3 (PQ 10, 11 & 14)

6 29 July 2014 Risk and Return Chapters 6 & 7

Chapter 6 (PQ 7, 9 & 11) Chapter 7 (PQ 2 & 8)

7 5 Aug 2014 Business Valuation: Part 2 Chapter 8 Chapter 8 (PQ 3 & 4)

8 12 Aug 2014 Capital Structure Decisions Chapter 12 Chapter 12 (PQ 1 & 9)

9 19 Aug 2014

Management of Equity:

Dividend Decisions and Equity Buybacks

Chapter 11 Chapter 11 (PQ 1, 13 & 14)

10 26 Aug 2014 Revision

1 6 September 2014 Final Exam

6. Unit Requirements

Students are required to:

a) Prepare for and participate in seminars

b) Complete a mid-semester exam and an assignment through the unit (20% and 30% each, respectively)

c) Complete a three-hour, closed-book examination (50% of total unit mark)




7. Assessment Tasks

The unit mark will be made up of three parts:

Assessment Component Due Weighting

1. Mid-Semester Exam In class during Session 6 20%

2. Syndicate Assignment In class during Session 10 30%

3. Final Examination Exam week: 1 6 September 2014 50%

Total 100%

7.1 Mid-Semester Exam

Due: In class during Session 6

Weighting: 20%

One hour in class exam (closed book).

7.2 Syndicate Assignment The Valuation of a Company

Due: In class during Session 10

Weighting: 30%

The Syndicate Project is due in the last session of term, in class during Session 10. Please include email addresses of all syndicate group members on the cover as comments and grade will be emailed to you upon completion. How to present your report and the number of words required: The report for the group assignment should include a one page executive summary. All appendices, etc should be clearly referenced in the main body of your reports. Do not include an appendix that you do not refer to in the main body of your report. Ensure that you footnote your work clearly and show the sources of material used. Also, you should include a bibliography. There is no page or word limit on either of the reports. However, you will be marked down for inclusion of irrelevant discussion, padding, etc. Be clear and succinct, ensuring that you state your arguments clearly and justify any assumptions made in your analysis. Page limit: 20 (excluding appendices)




7.3 Final Examination

Duration: 3 hours plus 10 minutes reading time

Format: Closed book exam

Date: Exam week: 1 6 September 2014

Weighting: 50%

The exam format will be closed book. More details on the exam will be provided in class.

Please note that to pass the subject, students must pass the final examination and perform satisfactorily in each of the remaining components.

The MGSM Examination period in Term 3 2014 is from 1 6 September 2014.

You are expected to present yourself for examination at the time and place designated in the MGSM Examination Timetable. The timetable will be available on 16 July 2014 at https://students.mgsm.edu.au/sydney-students/study/exams/ The only exception to not sitting an examination at the designated time is because of documented illness or unavoidable disruption. In these circumstances you may wish to consider applying for Special Consideration. Information about unavoidable disruption and the special consideration process is available at https://students.mgsm.edu.au/sydney-students/resources/forms/ If a Supplementary Examination is granted as a result of the Special Consideration process the examination will be scheduled after the conclusion of the official examination period. You are advised that it is Macquarie University policy not to set early examinations for individuals or groups of students. All students are expected to ensure that they are available until the end of the teaching term that is the final day of the official examination period. Practice Questions Weekly practice problems and answers will be made available via iLearn. Extension and Special Consideration Request Extension requests for assignments must be made to your lecturer with appropriate evidence to support the request. Each request will be treated on its merits. MGSM is committed to equity and fairness in all aspects of its learning and teaching. In stating this commitment, MGSM recognises that there may be circumstances where a student is prevented by unavoidable disruption from performing in accordance with their ability. MGSM has a policy on special consideration requests that may be found at https://students.mgsm.edu.au/assets/PDF/Student-Website/Exam-APScons.pdf/ MGSM recognises at times that an event or set of circumstances may occur that:

Could not have reasonably been anticipated, avoided or guarded against by the student AND;




Was beyond the students control AND;

Caused substantial disruption to the students capacity for effective study and/or completion of required work AND;

Substantially interfered with the otherwise satisfactory fulfilment of unit or program requirements AND;

Was of at least three (3) consecutive days duration within a study period and/or prevented completion of a formal examination.

This policy is instituted to support students who experience serious and unavoidable disruption such that they do not reach their usual demonstrated performance level.

8. Required and Recommended Texts and/or Materials

Prescribed Text Frino, A., Hill, A. & Chen, Z., 2013 Introduction to Corporate Finance, 5th edition, Pearson, ISBN: 9781442542488 Additional Recommended Text Berk, J., Ford, G., DeMarzo, P., Harford, J., Finch, N. & Mollica, V., 2014, Fundamentals of Corporate Finance, 2nd Edition, Pearson, ISBN: 9781442564060 Textbook lists for Sydney classes are available at https://students.mgsm.edu.au/sydney-students/study/textbooks/

For information on textbook prices and online ordering, please refer to the Co-Op Bookshop webpage at http://www.coop.com.au

MGSM iLearn The web page for this unit can be found at: https://ilearn.mq.edu.au/login/MGSM




9. Policies

Academic Honesty Policy

It is a fundamental principle that all staff and students act with integrity in the creation, development, application and use of ideas and information. This means that:

all academic work claimed as original is the work of the author making the claim

all academic collaborations are acknowledged

academic work is not falsified in any way

when the ideas of others are used, these ideas are acknowledged appropriately You should be familiar with the: University Policy on Academic Honesty http://www.mq.edu.au/policy/docs/academic_honesty/policy.htm University Statement on Ethics http://www.mq.edu.au/ethics/ethic-statement-final.html The policies and procedures explain what academic honesty is, how to avoid it, the procedures that will be taken in cases of suspected dishonesty, and the penalties if you are found guilty. Penalties may include a deduction of marks, failure in the unit, and/or referral to the University Discipline Committee. Examples of dishonest academic behaviours are:

Plagiarism

Deception

Fabrication

Sabotage Grading Policy

The University operates on the premise that through assessment students are encouraged to engage in their education, rather than merely pursue grades. The grades that you achieve at MGSM reflect assessment of the extent to which you have met the learning outcomes of a unit. Marks awarded in the continuous assessment items will not automatically guarantee a specific grade. Final grades for this unit are formally determined at the Examiners' Meeting, in accordance with University assessment procedure. The following grade descriptors are university-wide standards used to determine your final grade for this unit. High Distinction

Provides consistent evidence of deep and critical understanding in relation to the learning outcomes. There is substantial originality and insight in identifying, generating and communicating competing arguments, perspectives or problem solving approaches; critical evaluation of problems, their solutions and their implications; creativity in application as appropriate to the discipline.




Distinction

Provides evidence of integration and evaluation of critical ideas, principles and theories, distinctive insight and ability in applying relevant skills and concepts in relation to learning outcomes. There is demonstration of frequent originality in defining and analysing issues or problems and providing solutions; and the use of means of communication appropriate to the discipline and the audience. Credit

Provides evidence of learning that goes beyond replication of content knowledge or skills relevant to the learning outcomes. There is demonstration of substantial understanding of fundamental concepts in the field of study and the ability to apply these concepts in a variety of contexts; convincing argumentation with appropriate coherent justification; communication of ideas fluently and clearly in terms of the conventions of the discipline. Pass

Provides sufficient evidence of the achievement of learning outcomes. There is demonstration of understanding and application of fundamental concepts of the field of study; routine argumentation with acceptable justification; communication of information and ideas adequately in terms of the conventions of the discipline. The learning attainment is considered satisfactory or adequate or competent or capable in relation to the specified outcomes. Fail

Does not provide evidence of attainment of learning outcomes. There is missing or partial or superficial or faulty understanding and application of the fundamental concepts in the field of study; missing, undeveloped, inappropriate or confusing argumentation; incomplete, confusing or lacking communication of ideas in ways that give little attention to the conventions of the discipline. Grades awarded will be aligned to the following numerical ranges:

GRADE High

Distinction Distinction Credit Pass Fail

% 85-100 75-84 65-74 50-64 0-49

Attendance Policy

The interactive environment of the classroom is central to the MGSM experience. Students are required to attend all classes for the duration of each class. We recognise that exceptional circumstances may occur circumstances such as unavoidable travel on behalf of your organization or the serious illness or injury of you or a close family member. Special consideration may be given for a maximum of 20% non-attendances for such circumstances as long as, where possible, lecturers are notified in advance and supporting documentation provided. Failure to abide by these conditions may result in a Fail grade being recorded. Planning Your Time

The unit is based on an average student workload of 160 hours; made up of 40 hours face to face contact and 120 hours unsupervised private study and group work.




Disclaimer

These unit materials and the content of this unit are provided for educational purposes only and no decision should be made based on the material without obtaining independent professional advice relating to the particular circumstances involved.




10. Session Topics and Readings Please note that the program is listed in order of the topics to be covered, and not lecture time-slots. Consequently, some topics may run over the class period, whereas others will be shorter than the class period. Topic 1: Introduction Covers corporate objectives, corporate financial decisions and potential conflicts when setting financial objectives Textbook: Frino: chapter 1 Topic 2: Financial Mathematics Covers the basic mathematics used in financial valuation, including the present value of different cash flow structures and accumulated future cash positions for different cash flow structures. Textbook: Frino: chapter 2 Topic 3: Capital Budgeting and Investment Evaluation Covers investment evaluation techniques and issues in applying the net present value technique and special applications of the net present value technique Textbook: Frino: chapters 4 & 5 Topic 4: Business Valuation: part 1 Covers forecasting performance and techniques for valuing companies, including the free-cash flow approach and earnings multiples approaches Textbook: Frino: chapter 3 Supplementary Materials: see iLearn Topic 5: Risk and Return Covers the pricing of equity market risk using the capital asset pricing model Textbook: Frino: chapters 6 & 7




Topic 6: Business Valuation: part 2 Covers sustainable growth and valuing the financing (debt and equity) components of a company Textbook: Frino: chapter 8 Topic 7: Capital Structure Decisions Covers the criteria and considerations for deciding the optimal capital structure of a company and calculating the weighted average cost of capital Textbook: Frino: chapter 12 Topic 8: Management of Equity: Dividend Decisions and Equity Buybacks Covers dividend policy, the impact of dividend imputation and capital gains tax, equity buybacks and share option schemes Textbook: Frino: chapter 11




SYNDICATE ASSIGNMENT A FINANCIAL VALUATION OF A COMPANY In a syndicate of 3 or 4 people you are required to undertake a financial valuation of a company listed on the Australian Stock Exchange. You are required to value the equity of the company and provide a buy, sell or hold recommendation based on your analysis. You will be advised of the company in class. The objective of the assignment is not to achieve the current share price. Rather it presents an opportunity for you to apply your valuation skills and knowledge of financial management issues to an actual company. This assignment brings together most aspects of the course, including cash flow analysis, capital structure issues, estimating the cost of capital and valuation techniques. Your report should include the following components:

1. A one-page executive summary that outlines your main findings and recommendations.

2. A summary of the company and its markets:

Products

Markets, market share and growth

Competition

Management and other resources

3. A summary of key financial ratios and examination of factors that have driven the performance of the company over recent years.

4. A summary of future prospects for the company and an outline of the key assumptions that you will use for your financial valuation. Please ensure that you articulate the basis for your assumptions.

5. A description of the financial valuation methodologies that you will use in your project.

6. A summary of your valuation results and your recommendations.

7. Appendices: valuation spreadsheets, ratios and calculations.

The main objective of the assignment is to demonstrate your understanding of the valuation of the equity of companies. Parts 2 to 4 are used to build your financial model. Part 5 demonstrates your understanding of the theoretical and practical aspects of the various valuation methods. In Parts 6 and 7 you will need to draw together the information from Parts 2 to 5 to obtain the valuation required which will support your recommendation.

MGSM835 Financial Management1. About this unit2. Unit Description3. Unit Objectives4. Unit Alignment with MGSMs Mission-Driven Attributes5. Classes6. Unit Requirements7. Assessment Tasks7.1 Mid-Semester Exam7.2 Syndicate Assignment7.3 Final Examination

8. Required and Recommended Texts and/or Materials9. PoliciesAcademic Honesty PolicyGrading PolicyAttendance PolicyPlanning Your TimeDisclaimer

10. Session Topics and Readings

Documents

MGSM835 Financial