Introduction to Financial Management

Course Number: FIN 765

Semester: Fall 2017B (30OCT2017 14DEC2017)
Meeting: (LEC 005) Mon/Wed 9:30AM 10:45AM; Thu 8:00AM 9:15AM
(LEC 006) Mon/Wed/Thu 11:00AM 12:15PM
Grainger 2335

Instructor: Dr. Adam R. Smedema

Address as (in order): Adam ; Dr. Smedema
Office Hours / Teleconf: Thu 1:00PM 6:00PM AND by appointment
Office: TBD
Email: arsmedema@wisc.edu
Telephone: TBD

Course Materials
o Corporate Finance, 2016, 11th Ed., by Ross, Westerfield, Jaffe, and Jordan in a format that
includes access to the McGraw-Hill Connect course for the text
Note: The access key for Connect (ISBN: 978-1-25-929586-7) includes a six-month access to
the electronic copy of the readings that is printable. So, students may wish to purchase
access to the Connect course and print the readings as needed. For students who wish to
purchase a print copy of the text (e.g., those in a finance specialization) in addition to the
electronic copy, Dr. Smedema recommends the loose-leaf version that includes the Connect
registration key (ISBN: 978-1-25-972414-5).
o Selections from Case Studies in Finance, 2014, 7th Ed., by Bruner, Eades, and Schill (A custom
printing of the selections will be available)
o Financial Calculator. Texas Instruments BAIIPlus preferred; HP 10bII+ acceptable. All other
calculators must be explicitly approved by Dr. Smedema.

Course Description
Introduction to financial management of firms and investment decision making; both theory and
practice are emphasized. Topics covered include the financial environment and securities
markets, financial statements and analysis, working capital management and capital budgeting,
cost of capital, dividend policy, asset valuation, investments, decision making under uncertainty
and selected topics such as mergers, options, futures.

Prerequisites
MBA students only
Communication
Dr. Smedema will communicate to the class through email. He promises to not spam
you, so please read them, as he will only send them out with critical information (when
grades are posted, emergency class cancellation, etc.) Important documents, such as
course notes, presentations, etc. will be made available through our Canvas page.

Homework
Homework problems will be assigned throughout the semester through McGraw-Hill Connect.
These are to assist students in studying for the tests, but are NOT graded. Through Connect,
step-by-step solutions are also provided.

Case Write-Up
Assignment: Students, working in their core groups, will write up one case (greater
details will follow). The write-up is worth 10 points towards students
semester total.

Case: Target Corporation (BES Case 20)

Due: Before class on Monday, December 4th

Testing
Tests: Students will take three in-class tests during the semester. The tests will
each be 20 multiple choice questions and worth 30 points towards the
semester grade.

Test Dates: Test Date

1 Monday, November 13th
2 Wednesday, November 29th
3 Thursday, December 14th

Testing Procedures:On test days, students will gather outside of the classroom. As they enter,
students will receive a test with a randomly assigned seat. Dr. Smedema will
discuss this process more thoroughly in class. Students are only to have
available to them pencils and previously approved calculators (generally,
nothing that stores text). Cell phones are not permitted. Once a student
enters the room with a test, they will not be allowed to leave without first
completing and turning in the test.

Students will not be allowed to return while the test is in progress. They
should work with Dr. Smedema beforehand for any illness-related issues.
 Test Make ups: Make-up tests are given only after the regular test time. Students must
provide documentation for any missed test (e.g., doctors note, etc.). The
test dates (see above) are fixed, so students should check their schedules as
soon as possible to identify any conflicts.

Early Exams: Except for scheduling restrictions due to disability accommodations, no

early exams will be given.

Test Retakes: Retakes of previously taken tests will not be offered.

Accommodations: Students requiring disability accommodations must have the

accommodation documented through the McBurney Disability Resources
Center. Dr. Smedema will work with students to ensure their
accommodations are met.

Grading
Semester Grade: Students semester grades will be determined only by their test scores and
case study write-up. Students will take 3 30-point midterm tests and turn in
1 10-point case write-up. Letter grades will be assigned based on the total
number of points earned during the semester.

Homework and attendance are not graded and do not factor into the
semester grade.

Extra Credit: No extra credit or additional work will be awarded this semester.

Letter Grade: A letter grade will be assigned based on the following standard scale:
Semester Grade Letter Semester Grade Letter
[100,92] A (78,70] C
(92,88] AB (70,60] D
(88,82] B (60,0] F
(82,78] BC
Note: ] means greater than or equal to and ( means less than.

McGraw-Hill Connect
Students will need a registration key (available on a card at the bookstore or purchased on the
Connect website) to access the McGraw-Hill Connect site. This will be accessible through Canvas.

Connect homework assignments are not graded and do not factor into a students semester
score.

Once they submit an assignment in Connect, students will receive feedback on the assignment,
including step-by-step solutions to all problems. Many problems use randomly generated
numbers, so students may rework problems with different values and answers.
Videos Supplements
Throughout the semester, Dr. Smedema will post videos (streaming from the course Canvas
page). These videos represent additional practice problems and extensions and variations of in-
class examples. Dr. Smedema expects students to use these videos in preparation for the tests.

Policy Statements
Nameplates: Students have been given nameplates by the College. Dr. Smedema requests
students display these to assist him in learning students names.

Technology policy: Students can use laptops and tablets for notetaking purposes only. Students
should be respectful to their peers and refrain from using their phones. Students are prohibited
from taking photos or recordings of lecture without explicit permission from Dr. Smedema.

Academic Integrity: By enrolling in this course, each student assumes the responsibilities of an
active participant in UW-Madisons community of scholars in which everyones academic work
and behavior are held to the highest academic integrity standards. Academic misconduct
compromises the integrity of the university. Cheating, fabrication, plagiarism, unauthorized
collaboration, and helping others commit these acts are examples of academic misconduct,
which can result in disciplinary action. This includes but is not limited to failure on the
assignment/course, disciplinary probation, or suspension. Substantial or repeated cases of
misconduct will be forwarded to the Office of Student Conduct & Community Standards for
additional review. For more information, refer to https://students.wisc.edu/student-
conduct/academic-integrity/

Disability Accommodation Policy: The University of Wisconsin-Madison supports the right of all
enrolled students to a full and equal educational opportunity. The Americans with Disabilities
Act (ADA), Wisconsin State Statute (36.12), and UW-Madison policy (Faculty Document 1071)
require that students with disabilities be reasonably accommodated in instruction and campus
life. Reasonable accommodations for students with disabilities is a shared faculty and student
responsibility. Students are expected to inform faculty [me] of their need for instructional
accommodations by the end of the third week of the semester, or as soon as possible after a
disability has been incurred or recognized. Faculty [I], will work either directly with the student
[you] or in coordination with the McBurney Center to identify and provide reasonable
instructional accommodations. Disability information, including instructional accommodations
as part of a student's educational record, is confidential and protected under FERPA.

Questions regarding classroom accommodations or working with individual students can be

directed to the student's accommodation specialist listed on the student VISA (McBurney
accommodation plan) or to the McBurney Disability Resource Center
(mcburney@studentlife.wisc.edu, 608/263-2741).
 Class Schedule for FIN765 Fall 2017 Subject to change with notice

Date Topic RWJJ Readings

Part 1: The Basic Framework for Financial Decision-Making
M 10/30 Introduction to Financial Management: What is Finance? 1.1
Introduction to Financial Management: The Firm & the Financial Manager 1.2, 1.3
Introduction to Financial Management: The Goal of Financial Management 1.4
Introduction to Financial Management: Agency Problems 1.5
W 11/1 Long-Term Financing: Equity 15.1
Long-Term Financing: Long-term Debt 15.2, 15.4
Long-Term Financing: The Capital Structure Decision 15.6, 15.7
h 11/2 Discounted Cash Flow Valuation I: Value none
Discounted Cash Flow Valuation I: The One-Period Case 4.1
Discounted Cash Flow Valuation I: Net Present Value 4.1
Discounted Cash Flow Valuation I: The DCF Value of a Lump Sum 4.2
Discounted Cash Flow Valuation I: The DCF Value of a Stream of Cash Flows 4.2
Discounted Cash Flow Valuation I: The DCF Value of a Non-Annual Compounding 4.3
M 11/6 Discounted Cash Flow Valuation II: The DCF Value of a Perpetuity 4.4
Discounted Cash Flow Valuation II: The DCF Value of a Growing Perpetuity 4.4
Discounted Cash Flow Valuation II: The DCF Value of an Annuity 4.4
Discounted Cash Flow Valuation II: The DCF Value of an Annuity Due 4.4
Discounted Cash Flow Valuation II: The DCF Value of a Growing Annuity 4.4
W 11/8 Bond Valuation: Bond Valuation 8.1
Bond Valuation: Interest Rate Risk 8.1
Bond Valuation: Zero-Coupon Bonds 8.1
Bond Valuation: Bond Types 8.2, 15.3
Bond Valuation: Bond Markets & Quotes 8.3
h 11/9 Interest Rates: Promised vs. Expected Returns none
Interest Rates: Credit Risk none
Interest Rates: Inflation 8.4
Interest Rates: Other Determinants of Bond Yields 8.5
M 11/13 Test 1
 Class Schedule for FIN765 Fall 2017 Subject to change with notice

Date Topic RWJJ Readings

Part 2: Capital Budgeting & Equity Valuation
W 11/15 Financial Statements: The Balance Sheet 2.1
Financial Statements: The Income Statement 2.2
Financial Statements: Cash Flow of the Firm 2.4, 2.5
h 11/16 Investment Rules: DCF Value-Based Rules 5.1, 5.4, 5.6
Investment Rules: Payback Period 5.2
Investment Rules: Internal Rate of Return 5.4
Investment Rules: Problems with IRR 5.5
Investment Rules: The Practice of Capital Budgeting 5.7
M 11/20 Capital Budgeting: Incremental Cash Flows 6.1
Capital Budgeting: Expansion Projects 6.2, 6.3
Capital Budgeting: Cost-Cutting Projects 6.5
Capital Budgeting: Setting the Bid Price 6.5
W 11/22 Capital Budgeting: Evaluating Projects with Unequal Lives 6.5
Capital Budgeting: Sensitivity Analysis 7.1
Capital Budgeting: Scenario Analysis 7.1

h 11/23 No Class (Thanksgiving)

M 11/27 Equity Valuation: Dividend Discount Models 9.1, 9.2

Equity Valuation: Comparables 9.3
Equity Valuation: Free Cash Flow Models 9.4
Equity Valuation: The Stock Market 9.5
W 11/29 Test 2
 Class Schedule for FIN765 Fall 2017 Subject to change with notice

Date Topic RWJJ Readings

Part 3: The Cost of Capital
h 11/30 Lessons from Market History: Single-Period Returns 10.1
Lessons from Market History: Holding Period Returns 10.2
Lessons from Market History: Risk & Returns 10.3, 10.4, 10.5
Lessons from Market History: The Equity Risk Premium 10.6
M 12/4 Portfolios: Individual Securities 11.1, 11.2
Portfolios: Portfolio Allocations 11.3
Portfolios: Portfolio Returns & Expected Returns 11.3
Portfolios: Portfolio Variance 11.3
Portfolios: The Relation of the Risk of a Portfolio and the Risk of its Assets 11.3
W 12/6 The Capital Asset Pricing Model: Efficient Sets 11.4, 11.5
The Capital Asset Pricing Model: Diversification 11.6
The Capital Asset Pricing Model: Market Equilibrium 11.8
The Capital Asset Pricing Model: The Relation between Risk and Expected Return 11.9
h 12/7 The Cost of Capital: Definition 13.1
The Cost of Capital: Cost of Equity 13.2-13.5
The Cost of Capital: Cost of Debt 13.7
The Cost of Capital: The Weighted Average Cost of Capital 13.8
The Cost of Capital: Divisions & Projects 13.6
The Cost of Capital: Flotation Costs 13.11
M 12/11 Capital Structure: Definition 16.1
Capital Structure: M&M Irrelevance 16.2-4
Capital Structure: Irrelevance of M&M Irrelevance (Taxes) 16.5
W 12/13 Capital Structure: Irrelevance of M&M Irrelevance (Bankruptcy Costs) 17.1-3
Capital Structure: Optimal Capital Structure 17.4
Capital Structure: Signaling & the Pecking Order Theory 17.5, 17.7
h 12/14 Test 3