TMGT K4115 Finance for Technology Managers

Readings Assignments

I. Introduction
Over the course of the semester, we will begin a detailed study and analysis of three basic valuation techniques that are commonly used in the valuation of projects faced by technology managers. The goal is to gain an understanding of the various methods and an appreciation of the circumstances under which each method is most appropriately used. This introductory unit provided an overview of accounting, economic, and real options. Required Reading: Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset. New York: Wiley. Chapters 1-3. Electronic course reserves. Recommended Reading: Wang, A., & Halal, W.. (2010). Comparison of Real Asset Valuation Models: A Literature Review. International Journal of Business and Management, 5(5), 14-24. Retrieved January 12, 2012, from ABI/INFORM Global. (Document ID: 2224235661).

II. Section One Accounting Evaluation This unit leverages the knowledge that gained from the study of the online accounting module and begins a discussion about relative valuation. Ratios, multiples, and the role of pricing using comparative projects will be discussed and analyzed. The unit concludes with a case study provides an opportunity for the student to apply these ideas in the analysis of an actual business, Bed, Bath, & Beyond. Special consideration is given to current affairs in the technology industry and the ways in which accounting methods are used to value firms in transition such as Netflix, Inc..

Accounting Module

Description: The accounting module is a online program produced by Harvard Business Publishing that introduces the basic ideas necessary to understand the financial statements of a corporation. The module is self-paced and takes students on average of 10-15 hours to complete. There are two exams that must be passed in order to gain credit for completing the module. You may take these exams as many times as necessary in order to pass with no penalty. If you need an exam reset, simply send me an email at cda3@columbia.edu with "Exam Reset" in the subject heading. You will be asked to pay a $35 fee upon registration for the module.

COURSE SECTION

Financial Accounting Online Course: Introductory Section

Paul M. Healy; David F. Hawkins English Web Based HTML | 6002-HTM-ENG Harvard Business Publishing 2011 http://cb.hbsp.harvard.edu/cb/access/10220026

Required Reading Text:

Parrino, R., Kidwell D. (2009) Fundamentals of corporate finance. John Wiley & Sons, Inc. 1st Edition Chapters 1-4

Required Reading Other: Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78-93. Luehrman, T.A. (2009) Corporate valuation and market multiples. Harvard Business Publishing. Background Note # 206039-PDF-ENG

Recommended Reading:
Palepu, K. G., Healy, P. M., & Bernard, V. I. (2007). Business analysis and valuation: Using financial statements (4 ed.). Mason, OH: Thomson South-Western.

Liu, j. N. (2002). Equity valuation using multiples. Journal of Accounting Research , 40 (1), p. Retreived from http://www.jstor.org/stable/3542433 .

135-172.

Jonathan Moynes. (1999, February). Valuation of the information technology industry. Weekly Corporate Growth Report,(1033), 10037-10039+. Retrieved January z12, 2012, from ABI/INFORM Global. (Document ID: 39222676). Netflix. (2011, October 25). Financial Times,12. Retrieved January 12, 2012, from ABI/INFORM Global. (Document ID: 2494289381). Feng Hui; , "Research on the Valuation Types and Contents of IT Project," Computational Intelligence and Software Engineering, 2009. CiSE 2009. International Conference on , vol., no., pp.1-4, 11-13 Dec. 2009doi: 10.1109/CISE.2009.5364078 URL: http://ieeexplore.ieee.org/stamp/stamp.jsp?tp=&arnumber=5364078&isnumber=5362501

Case Material: Bed, Bath, & Beyond - A Case Study Harvard Business Publishing, Prod. #: 196123-PDF-ENG

II. Section Two Economic Evaluation The second major valuation technique is that of economic or intrinsic valuation. This Unit introduces the concepts necessary to build upon fundamental idea of the time value of money in evaluating decision criterion for the firm's choice of projects. The discussion begins with a review of the PV and NPV and compares them with other acceptance measures such as the book rate of return, the IRR, the payback period, and the profitability index. In doing so, the groundwork is established for an in-depth study of the application and use of the NPV in valuation settings. The Unit concludes with a look at the uses of economic valuation in technology related companies and projects.

Required Reading Text:

Parrino and Kidwell (2008), Chapter 5, 6, 7, 10, 11, 13

Reccomended Reading : McNulty, J.J.; Yeh, T.D.; Schulze, W.S.; Lubatkin, M.H. (2003) What's your real cost of capital?, Engineering Management Review, IEEE , vol.31, no.1, pp.76. doi: 10.1109/EMR.2003.1201444 URL: http://ieeexplore.ieee.org/stamp/stamp.jsp?tp=&arnumber=1201444&isnumber= 27047 Anonymous, .Beyond Diversification. (2010, May). Pensions & Investments, 38(9), S9,S12-S13. Retrieved from ABI/INFORM Global. Verhoef, C. (2005, May). Quantifying the value of IT-investments, Science of Computer Programming, Volume 56, Issue 3 Pages 315-342, Retrieved from http://www.sciencedirect.com/science/article/pii/S0167642304001418 (2006). The State of IT Investment ROI. United States Banker, Inside Front Cover. Retrieved from Business Full Text database Case Studies:

Super Project
Richard F. Vancil, Harold E. Wyman Revision Date: May 27, 2004 Publication Date: Dec 01, 1967 Discipline: Accounting Source: HBS Premier Case Collection Product number: 112034-PDF-ENG Length: 16p

Alex Sharpe's Portfolio

Colette Southam Publication Date: Jul 11, 2008 Discipline: Finance Source: Richard Ivey School of Business Foundation Product number: 908N20-PDF-ENG Length: 4p

Marriott Corp.: The Cost of Capital

Richard S. Ruback Revision Date: Mar 18, 1998 Publication Date: Feb 10, 1998 Discipline: Finance Source: HBS Premier Case Collection Product number: 298101-PDF-ENG Length: 11p

American Chemical Corp.

William E. Fruhan, John P. Goldsberry Revision Date: Dec 01, 1995 Publication Date: Mar 01, 1980 Discipline: Finance Source: HBS Premier Case Collection Product number: 280102-PDF-ENG Length: 11p

II. Section Three Valuation Using Real Options This unit introduces the basic concepts behind real option valuation. Real Option Valuation is consistent with the Net Present Value approach but allows for the valuation of projects whose outcomes depend on the occurrence of specific events in the future. This strategy applies options pricing theory to the valuation of nonfinancial assets and allows for the valuation of dynamic projects in which more than one potential outcome can be measured. This type of valuation allows the analyst to address many of the unique facets of projects in the field of information technology.

Required Reading Text:

Parrino and Kidwell (2008), Chapter 20

Reccomended Reading: Benaroch, M., Shah, S., & Jeffery, M. (2006). On the Valuation of Multistage Information Technology Investments Embedding Nested Real Options. Journal Of Management Information Systems, 23(1), 239-261.

Lawson-Body, A. (2005). Investment Strategy for Integrating Wireless Technology into Organizations. In M. Pagani (Ed.), Encyclopedia of Multimedia Technology and Networking (pp. 500-506).

Luehrman, T. A. (1998). Investment Opportunities as Real Options: Getting Started on the Numbers. Harvard Business Review, 76(4), 51-67.

Luehrman, T.A. (1998). Strategy as a portfolio of real options. Harvard Business Review. 76, (5), 89-99, 187

Case Study

Laura Martin: Real Options and the Cable Industry

Mihir A. Desai, Peter Tufano Revision Date: Jul 10, 2001 Publication Date: Aug 23, 2000 Discipline: Finance Source: Harvard Business School Product number: 201004-PDF-ENG Length: 15p