Financial Management is the basic course of Finance in the BBA and MBA programs. Its purpose is to equip students with the basic tools and techniques necessary to be a successful financial manager or a non-financial manager with a good understanding of the basic principles of finance. The core objective is to give students a comprehensive overview of how valuation is done in finance. We will first discuss the concept of present value in detail, and then apply the principles of valuation to value (a) financial Assets (stocks and bonds) and (b) real projects (or what is commonly referred to as capital budgeting). Since financial decision-making virtually always involves risk and uncertainty, we will then introduce the concept of (beta) risk, and the relation between risk and return. We will integrate our knowledge of cash flows with our understanding of risk to optimize capital budgeting techniques.
By the end of the course, students are expected to have a clear understanding of
How valuation is done in finance while appreciating the different value drivers
Develop awareness of the responsibilities of a financial manager while acquire the skills necessary to analyze typical business situations from a financial perspective
Understand finance as part of the overall strategy of the firm
Ability to value real projects and financial instruments like bonds and stocks.
Ability to assess drivers of corporate performance
Knowledge and understanding of shareholders value creation
PREREQUISITE(S): Any student admitted in the BBA or MBA program is eligible to take the course.
RECOMMENDED TEXT BOOKS AND ARTICLES:
Fundamentals of Financial Management, 10th Edition, South- Western.
Eugene F. Brigham
Joel F. Houston
Principles of Corporate Finance, 7th Edition, Tata McGraw-Hill
Richard A. Brealey
Stewart C. Myers
Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, Journal of financial economics, 3 (1976) 305-360.
Michael C. Jensen
William H. Meckling
Agency problems and the theory of the firm, Journal of Political Economy, Vol. 88 No. 2 (1980) pp. 288-307.
Eugene F. Fama
The Arithmetic of Capital Budgeting Decisions, Journal of Business, Vol. 29 No. 2 (1956) pp. 124-129.
Three Problems in Rationing Capital, The Journal of Business, Vol. 28 No. 4 (1955) pp. 229-239.
James H. Lorie
Leonard J. Savage
The Rate of Interest , Fisher’s Rate of Return over Costs and Keynes Internal Rate of Return , American Economic Review, Vol. 45 No. 5 (1955) pp. 938-943
Armen A. Alchian
Ch 6 (Book 1)
Time Value of Money
Interest rate and its determinants , Introduction to valuation , Simple/compound interest, Present and future values, Annuities and uneven cash flow streams, Semiannual and other compounding periods, Comparison of different types of interest rates, Amortized loans ,Time value of money applications, Exercise questions
Ch 7 (Book 1)
Bonds and their Valuation
Characteristics of bonds, Bond types , Bond yields, Bond valuation, Assessing the riskiness of bonds, Exercise questions
Ch 8 (Book1)
Stocks and Their Valuation
Types and markets for common stock, Common stock valuation, Expected rate of return on common stock, Zero growth and constant growth stocks , Supernormal growth stocks , Exercise questions
Ch 10 (Book 1)
Basics of capital budgeting
Project classifications and capital budgeting methods, Payback period and discounted payback period , Net present value, Internal rate of return and modified internal rate of return , Profitability index, Exercise questions
Ch 29 (Book1)
The Cost of Capital
The Logic of the Weighted Average Cost of Capital, Cost of Debt, Cost of Equity, Adjusting the Cost of Capital for Risk, Exercise Questions
Ch 11 (Book1)
Cash Flow Estimation and Risk Analysis
Estimating cash flows , Identifying the relevant cash flows, Evaluating Capital budgeting projects, Project risk analysis, Techniques for measuring stand-alone risk
Ch 9 (Book2)
Capital Budgeting and Risk
Company and the project cost of capital, Capital structure and the company cost of capital, Discount rates for international projects
Ch 10 (Book2)
Practical Problems in Capital Budgeting
Sensitivity Analysis, Monte Carlo Simulation
RECOMMENDED PRACTICAL MATERIAL
Pakistan Economic Survey, Ministry of Finance
Government of Pakistan (2008)
State Bank Annual Report, State Bank of Pakistan, Karachi
Government of Pakistan (2008)
There are several web sites that have interesting economic/business information and analysis. These are some useful international and Pakistani web sites/links for your interest and research in the course.