Financial Management

Financial Management (hereinafter, the Course) is the course delivered by Vaughn College of Aeronautics and Technology as Vaughn College MGT230 and Shanghai Jian Qiao University as a part of its Aviation Maintenance Management Program in order to cover financial management concepts. Calculus and Principles of Accounting are the prerequisites to the Course.

Description

This Course provides a working knowledge of the tools and analytical techniques used in the theory and practice of corporate finance. The emphasis is on establishing an understanding of the basic elements of financial theory to be use in the application of analytical reasoning to business finance problems. Accordingly, it is geared to students of Management rather than students who intend to follow a career specializing in financial matters.

The Course is taught using a variety of techniques including lecture, text readings, class examples and discussions, case analysis, supplemental article readings, problem simulations.

Course objectives

After successful completion of this Course, students shall be able to:

1. Understand how financial markets and institutions work
2. Exhibit a working knowledge of the analysis of financial statements
3. Understand how interest rates affect the time value of money
4. Understand stocks, bonds and how they are valued
5. Understand the quantitative relationship between risk and rate of return
6. Understand the Capital Budgeting process

Course outcomes

As the Course outcomes, the students shall be able to:

1. Explain how financial markets and institutions work
2. Apply a working knowledge of the analysis of financial statements to a business
3. Calculate the effect of interest rate changes on the time value of money
4. Explain the value of a balanced portfolio comprised of stocks and bonds
5. Explain and demonstrate the quantitative relationship between risk and rate of return
6. Explain and apply the Capital Budgeting process to business problems

Course requirements

1. Individual Assignment. Read and present (i.e., summarize, discuss, critique) an article from a current publication on a management issue. Students are required to make this presentation on the notified date. If you do not present on that date, you will not have a chance to make up this assignment.
2. Group Assignment. This assignment requires work in groups of 4 to 5 members. You will study either a specific company choosing one or more of the topics discussed in class, or choose a topic and do a comparative analysis of two or three companies for that topic. Present your complete project as a group. Presentations should last 15 to 20 minutes and will be followed by questions from your classmates.
3. Examinations. An examination is given for each chapter covered in the text.

Required text

• Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition), ISBN: 978-1-337-39525-0

Suggested texts

• Lectures, tests, videos, and other materials tend to be posted on CNM Digital at https://friendsofcnm.org/
• Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition), ISBN 13: 978-1-4390-7810-5

Required materials

Textbook(s) as noted above, pen and notebook or a computer device running the standard office suite with a document processor, presentation program, spreadsheet editor, and (optionally) colored highlighter pens. No additional materials required unless specified by the instructor or directed by the assignments.

Grading policy

Area	Percentage
Examinations	65%
Group case / discussion / presentation	15%
Critical Review of a Financial Management Article	10%
Class participation	5%
Attendance	5%
Total	100%

Late work policy

If a student turns in an assignment following the scheduled due date, the student will receive minimal feedback and a lower grade. Assignments turned in late will be assessed with a grade penalty. Late work will not be accepted if overdue by more than seven days.

Academic honesty

The College is committed to ensuring quality and integrity in all its academic and evaluative activities. A learning environment that promotes high academic standards is beneficial to students and faculty alike. Academic dishonesty such as cheating and plagiarism is in opposition to the values and mission of the institution and will not be tolerated.

Disability support services

It is the policy and practice of the College to promote inclusive learning environments. If you have a documented disability, you may be eligible for reasonable accommodations in compliance with the College policy, the Americans with Disabilities Act, and/or Section 504 of the Rehabilitation Act. Please note, students should not negotiate accommodations directly with professors; however, professors may assist students in providing information about the self- identification process and the College-based services.

Absences and lateness

Regular attendance is essential for satisfactory academic performance. Institutional policy mandates students missing more than three classes are subject to an overall grade decrease. Students are also advised that additional attendance requirements may be mandated depending on the faculty member and/ or the department from which a particular course is taken. The final grade in any subject may be reduced in proportion to the number of unexcused absences.

Discrimination and harassment

The College does not discriminate on the basis of age, race, color, creed, religion, national origin, citizenship status, gender, sexual orientation, marital status, disability, or status as a military veteran, or for any other category recognized by local, state or federal law. In the programs, activities, and services offered, including but not limited to admissions, recognition of performance, and achievement, which the College provides to students, staff, and applicants, it continually strives to maintain a nondiscriminatory environment.

Course modules

The course schedule established for this semester is a guide. The schedule is subject to change and will vary accordingly. After the 15-module schedule all required material will be covered and reviewed for the final exam.

Module 1. Overview of Financial Management

Sarbanes-Oxley Act, proprietorship, partnership, [corporation]], S corporation, limited liability company (LLC), limited liability partnership (LLP), intrinsic value, market price, equilibrium, corporate governance, shareholder wealth maximization

Module 2. Financial Markets and Institutions

Spot markets, futures markets, money markets, capital markets, primary markets, secondary markets, private markets, public markets, derivatives, investment bank, commercial bank, financial services corporation, mutual funds, money market funds, physical location exchange, over-the-counter market (OTC market), dealer markets, closely held corporation, publicly owned corporations, initial public offering market (IPO market).

Module 3. Financial Statements and Analysis

Annual report, Stockholders' equity, Retained earnings, Working capital, Net working capital, Net operating working capital, Income statements, Operating income, Depreciation, Amortization, EBITDA, Statement of cash flows, Statement of stockholders' equity, Free cash flow (FCF), Net operating profit after taxes (NOPAT), Market Value Added, Economic Value Added (EVA), Progressive, Marginal tax rate, Average tax rate, Capital gain, Capital loss, Traditional IRAs, Roth IRAs, Alternative minimum tax (AMT), Carryback, Carryforward, Liquid asset, Liquidity ratios, Current ratio, Quick ratio (acid test ratio), Asset management ratios, Inventory turnover ratio, Days sales outstanding ratio (DSO ratio), Fixed assets turnover ratio, Total assets turnover ratio, Debt management ratios, Total debt to total capital, Times-interest-earned ratio (TIE ratio), Profitability ratio, Operating margin, Profit margin, Return on total assets (ROA), Return on invested capital (ROIC), Basic earning power (BEP), Market value ratios, Price/earnings ratio (P/E ratio), Market/book ratio (M/B ratio), Enterprise value/EBITDA ratio (EV/EBITDA ratio), DuPont equation, Benchmarking, Trend analysis, "Window dressing" technique.

Module 4. Time Value of Money

Time line. An important tool used in time value analysis; it is a graphical representation used to show the timing of cash flows.

• Future value. The amount to which a cash flow or series of cash flows will grow over a given period of time when compounded at a given interest rate.
• Present value (PV). The value today of a future cash flow or series of cash flows.
• Compounding. The arithmetic process of determining the final value of a cash flow or series of cash flows when compound interest is applied.
• Compound interest. Occurs when interest is earned on prior periods' interest.
• Simple interest. Occurs when interest is not earned on interest.
• Opportunity cost. The rate of return you could earn on an alternative investment of similar risk.
• Discounting. The process of finding the present value of a cash flow or a series of cash flows; discounting is the reverse of compounding.
• Annuity. A series of equal payments at fixed intervals for a specified number of periods.
• Ordinary annuity (differed annuity). An annuity whose payments occur at the end of each period.
• Annuity due. An annuity whose payments occur at the beginning of each period.
• Future value of annuity, FVAN. The future value of an annuity over N periods.
• Present value of annuity, PVAN. The present value of an annuity of N periods.
• Perpetuity. A stream of equal payments at fixed intervals expected to continue forever.
• Uneven cash flows (nonconstant cash flows). A series of cash flows where the amount varies from one period to the next.
• Payment (PMT). This term designates equal cash flows coming at regular intervals.
• Cash flow, CFt. This term designates a cash flow that's not part of an annuity.
• Annual compounding. The arithmetic process of determining the final value of a cash flow or series of cash flows when interest is added once a year.
• Semmiannual compounding. The arithmetic process of determining the final value of a cash flow or series of cash flows when interest is added twice a year.
• Nominal interest rate (APR), INOM. The contracted interest rate.
• Effective annual rate (equivalent annual rate), EFF% or EAR. The annual rate of interest actually being earned, as opposed to the quoted rate.
• Amortized loan. A loan that is repaid in equal payments over its life.
• Amortization schedule

Module 5. Interest Rates

Production opportunity. The investment opportunities in productive (cash generating) assets.

• Time preference for consumption. The preferences of consumers for current consumption as opposed to saving for future consumption.
• Risk. In a financial market context, the chance that an investment will provide a low or negative return.
• Inflation. The amount by which prices increase over time.
• Real risk-free rate of interest, r*. The rate of interest that would exist on default free U.S. Treasury securities if no inflation were expected.
• Nominal risk-free rate (quoted risk-free rate), r/RF. The rate of interest on a security that is free of all risk; rRF is proxied by the T-bill rate or the T-bond rate; rRF includes an inflation premium.
• Inflation premium. A premium equal to expected inflation that investors add to the real risk-free rate of return.
• Default risk premium (DRP). The difference between the interest rate on a U.S. Treasury bond and a corporate bond of equal maturity and marketability.
• Liquidity premium (LP). A premium added to the equilibrium interest rate on a security if that security cannot be converted to cash on short notice and at close to its “fair market value.
• Interest rate risk. The risk of capital losses to which investors are exposed because of changing interest rates.
• Maturity risk premium (MRP). A premium that reflects interest rate risk.
• Reinvestment rate risk. The risk that a decline in interest rates will lead to lower income when bonds mature and funds are reinvested.
• Term structure of interest rate. The relationship between bond yields and maturities.
• Yield curve. A graph showing the relationship between bond yields and maturities.
• Nominal yield curve. An upward-sloping yield curve.
• Inverted yield curve (abdominal yield curve). A downward-sloping yield curve.
• Humped yield curve. A yield curve where interest rates on intermediate-term maturities are higher than rates on both short and longterm maturities.
• Pure expectations theory. A theory that states that the shape of the yield curve depends on investors' expectations about future interest rates.
• Foreign trade deficit

Module 6. Basics of Capital Budgeting

• Capital budgeting. The process of planning expenditures on assets with cash flows that are expected to extend beyond 1 year.
• Strategic business plan. A long-run plan that outlines in broad terms the firm's basic strategy for the next 5 to 10 years.
• Net present value (NPV). A method of ranking investment proposals using the NPV, which is equal to the present value of the project's free cash flows discounted at the cost of capital.
• Independent projects. Projects with cash flows that are not affected by the acceptance or nonacceptance of other projects.
• Mutually exclusive projects. A set of projects where only one can be accepted.
• Internal rate of return (IRR). The discount rate that forces a project's NPV to equal zero.
• Multiple IRRs. The situation where a project has two or more IRRs.
• Modified IRR (MIRR). The discount rate at which the present value of a project's cost is equal to the present value of its terminal value, where the terminal value is found as the sum of the future values of the cash inflows, compounded at the firm's cost of capital.
• Net present value profile. A graph showing the relationship between a project's NPV and the firm's cost of capital.
• Crossover rate. The cost of capital at which the NPV profiles of two projects cross and, thus, at which the projects' NPVs are equal.
• Payback period. The length of time required for an investment's cash flows to cover its cost.
• Discounted payback. The length of time required for an investment's cash flows, discounted at the investment's cost of capital, to cover its cost.

Program-level requirements

Assessment plan

X	Assessment requirements	Reference answers and scoring criteria	Proportion
X1	Group case / discussion / presentation		25%
X2	Attendance, class participation, critical review of management article, refreshment quizzes		20%
X3	Exam	For the answers, please see the attachment and score according to the correct answer rate on the test paper.	55%

Note: The order of X is consistent with the syllabus.

Assessment requirements

In-class examination will be given according to the correct rate of examination paper.

• Quiz 1 -- Textbook Chapters 1-4
• Quiz 2 -- Textbook Chapters 5-8
• Final Exam -- Textbook Chapters 1-12

Calculus prerequisite

This first calculus course will begin with the study of limits and continuity. It will continue with a study of techniques to differentiate algebraic, transcendental and rational functions. Applications of differentiation will be included. The course will end with an introduction to integration.