Introduction to Financial Management Administrative Issues and Course Overview FIn 351: Lecture 1

Today’s plan administrative issues course overview syllabus prerequisite add, drop and withdraw three quizzes three cases final final grade course overview FIn 351: Lecture 1

The instructor My name is George Li Office: BUS 315 and DTC 582 Call me George, not professor Office: BUS 315 and DTC 582 Website: http://online.sfsu.edu/~li123456 Email: li123456@sfsu.edu Office hours: Monday (Bus 315): 1:30 to 3:30 p.m. Thursday ( DTC 582) 3:30 -5:30 p.m. Research interest: Corporate finance: real options, technological innovations, and valuations Asset pricing: information and stock prices FIn 351: Lecture 1

Textbook fundamentals of corporate finance, by Brealey, Myers and Marcas (6th edition) sorry about the cost this is a standard textbook used in many major schools for the first course in corporate finance FIn 351: Lecture 1

Prerequisite You are required to take FIN 350 with a grade of at least C-. It is the school’s policy that all the students in this course must satisfy this requirement and there is no exception FIn 351: Lecture 1

Add, drop and withdrawal policy The business school has the policy for add, drop and withdrawal In the first four weeks, you have to get enrolled in the class, if you want. Students can withdraw once Please read the bulletin for detail information FIn 351: Lecture 1

Pass or no pass grade Fin 351 is a letter graded course. Please don’t change to pass or no-pass grade course; otherwise you will get a no-pass grade. FIn 351: Lecture 1

Homework To help you understand the concepts taught in class, and prepare for the quizzes and the final exam, there is a weekly homework set, which is not graded, but its solution will be posted in my website. The best way to learn is to do a lot of problems. FIn 351: Lecture 1

Quizzes There are three quizzes, which are in the form of multiple choice questions and take about 45-65 minutes each. There are no makeup or in-advance quizzes. Two highest quizzes count for the final grade ( each 20 pts). If you miss one, that is the quiz you will drop. You are supposed to allocate your time to take all the quizzes FIn 351: Lecture 1

Three cases There are three cases to be discussed in class. You are asked to read the case before coming to the case discussion. Case problems are related to some problems in the final. It is very important that you bring in a calculator and a pen at every lecture FIn 351: Lecture 1

Class attendance and performance It is required that you come to each lecture and case discussion. If you miss one lecture or are late for two lectures without a legitimate reason, talk or speak to disturb the whole class, your score in the class attendance and performance will be reduced at the instructor’s discretion. FIn 351: Lecture 1

The final exam The final exam will be in class (closed book), with a form of multiple choice questions. There are no makeup or in-advance exams. The final exam is cumulative, based on the lectures, quizzes, homework and three cases. The final exam will be at the same classroom and start at the same time. The final exam takes 150 minutes. FIn 351: Lecture 1

Final grade Your overall course grade will be based on your performance in the class, the quizzes, homework problem sets, the team project, and the final exam. Class attendance: 10 pts Quizzes (2 of 3 total) 40 pts Final exam: 50 pts Total 100 pts FIn 351: Lecture 1

Grading policy Your grades are based on the distribution of the scores of the class. Specifically, your final grade is based on the following table. Ranking Grade 0%-10% A range 10%-50% B range 50%-85% C range 85%-95% D range 95%-100% F FIn 351: Lecture 1

Motivation for taking Fin 351? Why are you taking Fin 351? nothing better to do today ? become a millionaire overnight? the instructor is a nice guy for a good grade? get a “stamp of approval” to get a job ? learn finance for fun ? simply a required course ? learn finance to be more successful? FIn 351: Lecture 1

My objective in this course I want everyone in the room to learn finance very well this semester i want you to feel more comfortable talking about finance and answering finance questions. i want you to have a better understanding of a set of concepts and ideas that will help you look at the world in a slightly different way. What is standing in the way of those objectives? Over-confidence Under-confidence FIn 351: Lecture 1

Two ways of learning Positive Negative Can be a fun, since it is an opportunity to improve your future career, open your mind and broaden your vision Look at each difficulty as an opportunity to learn new things Good performance Negative Can be boring, since it is regarded as a burden, a task Look at each difficulty as a “torture” or pain Bad performance FIn 351: Lecture 1

My approach of teaching Fin 351 Focus on several fundamental, important concepts, Applications and economic intuitions Avoid too many materials Help understand finance better. FIn 351: Lecture 1

Corporate finance: what is it? A set of concepts, theories and approaches that help the firm make financial decisions FIn 351: Lecture 1

Financial decisions Capital budgeting (use of the capital) Real investments Mergers; acquisitions Financing (capital structure decision) Equity Debt FIn 351: Lecture 1

FIN 351: course organization Module 1 Fundamentals of valuation Module 2 Valuing risky investments Risk and return Module 3 Corporate financial decisions Module 4 Market efficiency and options Fundamentals of PV Financial decision Interest rates Portfolio theory Diversification and covariance Types of securities Stocks, bonds and other Weak, semi-strong and strong form efficiency Information and stock prices Perpetuities and annuities calculation Tangency portfolio, CAPM risk and return Modigliani-Miller theorem 1 Pizza size is independent of how sliced Options and Black-Scholes Valuing stocks and bonds NPV and other criteria Effect of leverage WACC and discount rate Modigliani-Miller theorem 2 WACC Binomial model, replication Risk-neutral probabilities FIn 351: Lecture 1

Course organization (2) This course is broken-down into four modules Module 1: time value of money Module 2: risk and return Module 3: capital structure Module 4: financial markets FIn 351: Lecture 1

Time value of money This module is a “skill building” block in this course We will soon have the necessary skills needed to value stocks and bonds In this module, we don’t consider risk It is assumed that future cash flows are riskless It is assumed that the discount rate is riskless FIn 351: Lecture 1

Risk and return This part teaches us about uncertainty How do we measure risk? How much is a risky cash flow in the future worth (today)? There are both: skill building sections conceptually more difficult sections FIn 351: Lecture 1

Financing decisions If you are the CEO of an industrial company you can make your company more valuable by choosing “better” projects we want to know if you (and the CFO) can make your company more valuable by changing the mixture of your financing (i.e. the ratio of debt to equity) FIn 351: Lecture 1

The efficiency of financial markets We will look at how information gets into security prices We will learn three forms market efficiency We will examine the implication of market efficiency on financing FIn 351: Lecture 1