FINC 302 Managerial Finance II Course Guide

Course Description

Managerial Finance II continues where Managerial Finance I ends. Students begin by analyzing more complicated capital budgeting decisions that include changes in risk, changes in capital structure, and real options. Students continue by examining how the firm’s financing choices (both short and long-term financing) affect firm value. Students are introduced to special situations facing the firm that include global expansion, mergers and acquisition, leasing vs. buying fixed assets, and bankruptcy procedures.

Common Text

In an effort to reduce complexity and cost for students seeking to switch sections and/or instructors we are moving towards using a single text for all sections. This text is currently:
Ross, Westerfield, & Jordan, Fundamentals of Corporate Finance Alternate Edition, 8th Edition ©2008, ISBN-13 9780073282114

Specific, Assessable Learning Outcomes

Students should both understand the underlying principles and concepts of these subject areas, and be able to employ the appropriate analytical processes used to make well-reasoned decisions.

  1. Understand and use the concepts of capital market efficiency
  2. Calculate, understand, and use financial, operating and combined leverage
  3. Understand and explain capital structure policy. Be able to explain how taxes, financial distress costs, and agency costs affect investor’s required returns, and in turn change the value of the firm by changing the WACC
  4. Be able to understand and use the concepts of raising capital
  5. Be able to discuss the different types of dividend policies and the reasons different types of firms would choose a particular dividend policy
  6. Evaluate working capital needs and short-term financing
  7. Be able to understand the concepts & methods of credit & inventory management
  8. Be able to understand the concepts and methods of mergers and acquisitions, and be able to value merger and acquisition
  9. Be able to understand and value leases, including the decision to lease or buy
  10. Communicate effectively in written and oral form
  11. Use technology to manage and manipulate financial data
  12. Be able to recognize the ethical issues involved in various business situations, and should be able to evaluate the ethical implication of their decisions.

Required Course Outline

Capital Structure & Dividend Policy
    Capital Budgeting and Risk
    Cost of Capital
    Debt/Equity Trade-offs
    Dividend Policies and Procedures

Working Capital Management and Financial Forecasting
    Percent of Sales Approach and External Funds Needed
    Aggressive vs Conservative Working Capital Policy
    The Management of Cash and Marketable Securities
    Management of Accounts Receivable and Inventories
    Short-term and Intermediate-Term Funding Alternatives

Advanced Topics
    Lease Financing
    Financing with Derivatives
    Corporate Restructuring—Mergers and Liquidations

Required and Recommended Teaching Methodology

  • The teaching methodologies employed will depend to a large degree on the preferred teaching style of the instructor and the size of the class. The size of these classes is usually limited to 25 and the students are almost all finance or accounting majors. The students should already be familiar with the fundamental concept of pricing assets to reflect the risk and time value of the assets’ future cash flows. Lectures and class discussion may play an important role in efficiently conveying knowledge to the students. It is very helpful to incorporate a lot of questioning of the students into the lecture or discussion in order to keep the students engaged in the learning process. Other methodologies which may be utilized include small group work, written and/or oral case analyses, and current events analysis/discussion.
  • Case analyses and the analyses of Wall Street Journal articles are very beneficial because they help the students to develop their higher-order learning skills such as application, analysis, and synthesis. They also allow the students to develop and/or reinforce their oral and written communications skills, and their computer skills. Each instructor should include at least one case analysis within their curriculum. The use of the internet and finance-based websites is also beneficial for students. Textbooks often provide information on useful websites. The instructor may want to develop specific web-based assignments, or at least encourage the students to utilize the websites cited in the textbooks to further enhance their learning experience.
  • The readings for the course will come primarily from the course textbook, and can be supplemented by additional readings assigned by the instructor, such as specific finance articles or the Wall Street Journal. We should seek to develop the student’s ability to discover the key issues, identify the tools/methodologies most appropriate to formulate appropriate responses, collect the necessary data, and then formulate policy.

Required and Recommended Assessment Measures

  • Within the course, the learning outcomes listed above must be assessed. Assessment should focus on both the students’ ability to master the more basic levels of learning (identify, understand), as well as higher level learning skills (application, analysis, and synthesis).
  • What seems to work well is two mid-term exams and one final exam, along with several take-home assignments that are “case-like” in nature. The take-home assignments should involve, at a minimum, the use of Excel. Somewhere within the course the learning outcomes listed above must be assessed. In addition, the instructor should also assess the students’ written communications skills.
  • Exam questions and problems may be utilized to assess the relevant learning outcomes and skills. Open-ended problems, questions, and essay-type questions may be utilized to assess the higher levels of learning. The final exams for all sections of this course will contain common questions to be used in assessing the students’ abilities. (An individual professor can determine the emphasis these questions will receive in calculating a student’s grade.) These questions should be developed by the faculty teaching this course.
  • Case analyses are also a tool that an instructor can use to assess any of the learning outcomes listed above. In addition, a case analysis allows an instructor to evaluate the students’ skills in the areas of application, analysis, and synthesis. A case analysis can also be used to evaluate written and/or oral communications skills. Each instructor should try to incorporate at least one case analysis into the course, and preferably two or more if time and class size permit. Textbooks often have end-of-chapter integrative problems that can serve this purpose, as well. Instructors may not substitute case assignments for the common assessment questions and problems of the department; however, they can provide additional information very useful in assessment, especially the assessment of the higher level learning skills. Other types of assignments may also be used by the instructor to assess students’ abilities.

Assessing Written Communications Skills

All FINC-302 courses must assess students’ written communications skills with at least one graded written assignment. The specific assignment is up to the instructor. For example, a written analysis of a Wall Street Journal article, a case analysis, a discussion of the pros and cons of an ethical issue, or a take-home essay question from an exam would meet this requirement. In-class test questions cannot be used. We are trying to evaluate the students’ ability to formulate well organized and clearly articulated thoughts and arguments; we are not trying to evaluate the students’ ability to write under a time constraint.

In addition, it is required that the assignments be typed using word processing software. This reinforces the students’ basic computer skills, and also will make it easier on the professors evaluating these assessment assignments at the end of each semester. The students’ responses must be at least one page in length. The quality of the writing itself (spelling, grammar, clarity, organization, proper use of business terminology, etc.) must receive a separate grade, in addition to any grade assigned to the project reflecting content or knowledge. If practical, the professor may want to use several assignments which specifically assess written communications skills.

Coverage of Ethical Issues

As part of the School’s policy of integrating ethics into the core courses, each FINC-302 class will discuss at least two ethical issues, and preferably more as time permits. Because FINC 302 covers the theory of capital structure (which is fundamentally affected by the agency and bankruptcy costs) there are usually many real-life topical examples available.

The ethical issues can come from whatever source the professor chooses, including textbooks, magazines, the Wall Street Journal, etc. In addition to making excellent discussion topics for class discussion, the analyses of ethical issues can also make excellent projects for assessing written communication.

Statement of Expectations

This course is a required core course for all finance majors. It provides the students with a foundation in the functional areas of corporate finance, and the concepts and analytical techniques will be utilized in higher level courses, as well as national certification testing after graduation (CPA and CFA exams).
Therefore, students should have an inherent interest in mastering the material of this course. Students are expected to thoroughly prepare for class by completing any readings, homework problems, or other assignment given by the instructor. Students are expected to attend all classes and to actively participate in any class discussion or other class activity. Students are expected to fully complete any assignments given, and to turn in all assignments on time.

Prerequisite Knowledge

Students should have a basic understanding of the various functional areas of a firm: accounting, marketing, and management. Usually, this knowledge will be obtained through the core business classes.
In addition, students should understand the basic features of the income statement and balance sheet. Students should understand how the activities of the firm are represented on the financial statements. Students should understand basic accounting concepts such as depreciation, book values vs. market values, the accrual principle, and the matching principle. . Usually, this knowledge will be obtained through the core accounting class, ACCT-200.
Students should also understand the basic principles and concepts of microeconomics. Students should understand the characteristics of the various market structures (perfect competition, imperfect competition, oligopoly, and monopoly.) Students should understand the objective of the firm (and its managers.) Microeconomics develops the operations of a firm and its managers in a simple, one-period model. Managerial Finance I builds on this initial framework by extending the analysis to a more realistic multi-period framework. Usually, this knowledge will be obtained through the pre-core Microeconomics ECON-102 course.
Students should have successfully completed FINC301, and be able to value bonds, stocks, and capital projects.

Statement of Academic Integrity

(This section is based in part on the “Academic Integrity” section of the Siena College Catalog.)
Academic dishonesty of any sort will not be tolerated. Academic dishonesty includes, but is not limited to: cheating on an exam, working with other students in violation of the instructor’s policy, plagiarism, and computer abuse. Unless specifically stated by the instructor, all course work is to be completed independently. If a student is unsure of what specific activities may constitute academic dishonesty, the student must clarify this with the instructor. It is the student’s responsibility to be familiar with the student guidelines on academic integrity, “Academic Integrity and the Siena Student”, in the Siena Life handbook.
The penalties for academic dishonesty are severe, and can range up to expulsion from the College. If a case is referred to the Siena Committee on Academic Integrity, the Committee will determine the appropriate penalty, and a statement of the incident will be placed in the student’s academic file.

Institutional Mechanism for Providing Feedback for Continuous Quality Improvement

At the end of each semester, the Finance Department will review the responses to the assessment questions to determine if the students are achieving the specified learning outcomes. The department, and/or individual professors, may also review other exam questions, case analyses, or other assignments to determine if the learning objectives are being met. If they are not being met, the department will take actions to help ensure that the objectives are met in the future.

Concepts and principles to be stressed throughout the course

  1. The debt/equity tradeoff in capital structure.
  2. The various methods to model systematic risk.
  3. The relationship of the firm’s various financial policies to its investors.