Penn State University

Smeal College of Business

BA 531
Introduction to Finance

Professor Dennis Sheehan

Fall 2011

Course Outline
This course is an introduction to finance from the perspective of the firm. The objective is
to show you that basic financial principles can be useful no matter what kind of job you end up
doing. The two main topics of the course are how managers can use financial techniques to help
them do their jobs and how firms can use financial markets to solve their financial problems. To
cover these topics, we will discuss the time value of money, criteria for investment decisions,
capital budgeting, the operation of security markets, portfolio theory, asset pricing, and the firms
cost of capital.
A student who takes this course should be better equipped to make decisions that have
financial implications. Students should also have a better understanding of capital markets which
is essential not only for sensible personal investing, but also for rational corporate financial
policy.
The textbook for the course is:
Corporate Finance by Ross, Westerfield, and Jaffe, ninth edition, Irwin, 2010
The textbook is one of the standard textbooks in finance, and it does a good job of covering many
topics. We will use about half the book, but I think all MBA students should own a
comprehensive finance text. You never know when you might need to look something up later in
your career. And certainly if you are contemplating finance as a concentration, you will find the
book useful in many of your second-year classes.
The course grade will be based on a case write-up and presentation, quizzes, and a final
exam. Your class participation will count to the extent that you have had a positive impact on the
class atmosphere. The final exam will be cumulative. The case write-up and presentation is a
joint assignment with Leadership Communications, BA 517; it will be done in teams; the quizzes
and final exam are individual efforts. The weights for these will be as follows: case write-up and
presentation 35%; quiz #1 10%; quiz #2 10%; final exam 45%.
When you do work in a group, make sure you understand the solution to a problem; do
not simply free-ride off the knowledge of others. I will ask team members to give feedback about
each members contribution to the team deliverable. It goes without saying that any work that I
ask you to do alone should be only your work.

Students often ask if a calculator would be helpful. I dont think so; Excel on a laptop is
better than a calculator. Though the laptop isnt quite as portable, the power of Excel more than
offsets that disadvantage.
Everything we discuss in class will be available on the web site. If you want to talk with
me, my office and phone is: 366 Business, 8148633072; leave me a message if I am not there.
My email address is dps6@psu.edu.
I will hold review sessions on Wednesday evenings from 6:00 to 7:30. The review
sessions will not be lectures, rather we will try to solve problems. David Deluca is the TA for the
course, and you can also consult him for help in the class. David is located in room 362A; he will
hold office hours on Mondays from 5:30 to 6:30 and on Wednesdays from 1:00 to 3:00.
The following outline shows the topics to be covered and reading assignments. It is
followed by more detail about reading the book and the end-of-chapter problems.

Academic Honor Code

We, the Smeal College of Business Community, aspire to the highest ethical standards and will
hold each other accountable to them. We will not engage in any action that is improper or that
creates the appearance of impropriety in our academic lives, and we intend to hold to this
standard in our future careers.

I take the Academic Honor Code seriously. It was and remains a student initiative; it speaks
clearly to our aspirations; and it is vital to the success of the Smeal MBA programs.

Please use the following pledge on anything you hand in for the course:
I/We ________ affirm that I/We have neither given, utilized, received, nor
witnessed unauthorized aid on this deliverable and have completed this work
honestly and according to the professor's guidelines.

Please also see the following website for additional information about academic integrity:
http://mbastudents.smeal.psu.edu/honor

Class schedule
1. Introduction
Read: Ross/Westerfield/Jaffee, review Chapters 13
10/17: Course objectives and organization, overview, shareholder value, ethics cases
2. Present value concepts
Read: Ross/Westerfield/Jaffee, Chapter 4
Solve Problem Set 1 problems
10/19: Concepts and present value problems
3. Stocks, bonds, options
Read: Ross/Westerfield/Jaffee, Chapters 89, Chapters 2223
Solve Problem Set 2 problems
10/24: Valuing stocks and bonds: theory and problems
10/26: Options

Quiz #1: due Wednesday, October 26 by 8:00 am in the dropbox

4. Capital budgeting
Read: Ross/Westerfield/Jaffee, Chapters 57
Solve Problem Set 3 problems
10/31: Methods of analysis, calculating NPVs, calculating cash flows
11/2: Problems
11/7: Problems

Quiz #2: due Wednesday, November 9 by 8:00 am in the dropbox

5. Capital markets: risk and return

Read: Ross/Westerfield/Jaffee, Chapters 1012
Solve Problem Set 4 problems
11/14: Capital markets: calculating returns, historical results
11/16: Risk/return for a portfolio, diversification, CAPM

Presentation of case, joint assignment with BA 517

November 14-16, afternoon and evening

6. Capital markets: cost of capital

Read: Ross/Westerfield/Jaffee, Chapter 13
Solve Problem Set 5 problems
11/28: Calculating the cost of capital

7. Capital markets: efficient markets

Read: Ross/Westerfield/Jaffee, Chapter 14
Solve Problem Set 6 problems
11/30: Market efficiency: definition and evidence
8. Financing the firm
Read: Ross/Westerfield/Jaffee, Chapters 1517
Solve Problem Set 7 problems
12/5: Overview of the financing decision

Final exam, Thursday, December 8

Readings and end-of-chapter problems

More information on reading the textbook and suggestions for end-of-chapter problems.

Chapter 4:
Readings: the whole chapter
Problems: all the problems are fine, some are easy, some are more difficult
Chapter 5:
Readings: the whole chapter
Problems: all the problems are fine
Chapter 6:
Readings: the whole chapter (but 6.5 will not be covered)
Table 6.3 has some useful depreciation schedules
Problems: all except 26
Chapter 7:
Readings: the whole chapter; this chapter is more advanced and isnt required material
Problems: all the problems are fine
Chapter 8:
Readings: the whole chapter
Problems: all the problems are fine
Chapter 9:
Readings: the whole chapter; we wont cover 9.4 and 9.5 is background material
Problems: all the problems are fine
Chapter 10:
Readings: the whole chapter
Problems: all the problems are fine
Chapter 11:
Readings: the whole chapter
Problems: all the problems are fine, but there are some that I dont think are very
enlightening such as 610; they arent bad, but they arent problems you would
see.
Chapter 12:
Readings: Should be read just to get a feeling for an alternative to the CAPM; dont pay too
much attention to equations.
Problems: dont bother
Chapter 13:
Readings: the whole chapter except for 13.11
5

Problems: dont bother

Chapter 14:
Readings: the whole chapter
Problems: all of them; these are more like true/false and essay questions rather than
calculation questions
Chapter 15:
Readings: the whole chapter; this is just background material, easy to read
Problems: dont bother
Chapter 16:
Readings: the whole chapter, but dont get bogged down in formulas; try to extract ideas.
Problems: all of them, but realize that many of these problems require you to go into the
formulas in the chapter. If you are comfortable with that, fine, but dont get
bogged down in things.
Chapter 17:
Readings: the whole chapter; pay attention to 17.10
Problems: dont bother
Chapter 22:
Readings: 22.122.8, 22.11, the rest is optional
Problems: the problems are all decent, but some of them are difficult and beyond what we
need in an introductory course.
Chapter 23:
Readings: try the whole chapter if you want a flavor of applications
Problems: all of them