Trident fin301 full course

Trident fin301 full course

Required Reading

Banking and Finance (2015) Pearson Learning Solution, New York

Financial Statements (2015) Pearson Learning Solution, New York

Financial Managers (n.d.) Retrieved fromhttp://www.ncbuy.com/careers/blsj/job010.html

Kowalski, R. B., & Campbell, M. W. (2000). Leadership skills help financial managers achieve career success. Healthcare Financial Management, 54(4), 50-52.

Optional Reading

Finance and Accounting. Retrieved from MBA.COM/US. This website provides descriptions of finance careers. Click the links below:

http://www.mbs.ac.uk/masters/courses/accounting-finance/

http://businessmajors.about.com/od/specializations/a/BizMajorsFinanc.htm

A British description of the role of the financial manager. Retrieved fromhttp://www.prospects.ac.uk/sectors.htm

Gray, C. (2000). What does it take to become a CFO? Journal of Accountancy. Retrieved fromhttp://www.journalofaccountancy.com/Issues/2000/Dec/WhatDoesItTakeToBecomeACfo.htm

About.com. Glossary of Financial Terms. Retrieved fromhttp://bizfinance.about.com/od/glossaryoffinanceterms/

Financial Managers: Occupational Outlook Handbook (2012). Bureau of Labor Statistics. Retrieved fromhttp://www.bls.gov/ooh/management/financial-managers.htm

Why Finance Matters: Chapter 1 (n.d.). Retrieved fromhttp://www.public.asu.edu/~atmxh/fin361/ch1.pdf

Picker, I. (Aug 1989). Do CFOs Really Make Good CEOs, Institutional Investor, 23(9), 47.

Abstract:

With the proliferation of corporate takeovers, leveraged buyouts, and restructuring in the US, it would seem that chief financial officers (CFO) hold the keys to executive wisdom. Recruiters report a growing trend of grooming CFOs for chief executive officer (CEO) positions, with some estimating that nearly 25% of top corporate leaders are former CFOs. Analysts, academics, and headhunters agree that the ideal CEO communicates well, is adept at managing managers, understands the company's product and operations, and provides a consistent vision. A recent survey by Management Practices Quarterly reveals that, of 83 new CEOs appointed in 1988, more than 18% came from operations-production backgrounds, some 23% had technical training, while only 14.4% had a financial background. D. Wayne Calloway, who became CEO of PepsiCo in May 1986, was formerly the company's CFO and is probably the best example of the valuable experience CFOs can bring to the CEO position.

Leadership skills help financial managers achieve career success

Healthcare Financial Management; Westchester; Apr 2000; Robert B Kowalski; Manie W Campbell;

Abstract:

Financial managers who want to distinguish themselves and their organizations need to demonstrate their leadership ability. Because financial managers sometimes overlook the need for leadership skills, cultivating mentors who can teach them specific leadership skills, such as improved communications and entrepreneurship, may be necessary.

Health-care financial managers can sharpen their leadership skills by distinguishing between leadership and management, adopting a new mentoring model, evaluating the usefulness of new management techniques, understanding the connection between technology and leadership, looking for the solution beyond the problem, and being seen and heard within the organization.

Module 1 - Case

The Role of the Financial Manager

Assignment Overview

Due to the increasingly complex nature of corporate finance, more and more corporations are tapping their chief financial officer to become their chief executive officer. The CFO brings substantial financial expertise to the position of CEO. However, there may be other reasons why the CFO is not necessarily the best person to become the CEO.

Please note that the CFO must have an external orientation: After all, the company is owned by its shareholders and if the company is to operate so as to raise the value of the shares it must consider not only the internal structure of the organization, its products, competitors etc., but it must consider the interaction between what the company 'does', and the way the 'market' evaluates its performance. It is the combination of the two that plays a role in affecting the market price of the shares and shareholders value. The individuals who must have an eye on this are usually the CEO and the CFO.

Please read the articles below, which are both available in Proquest. You need to click ‘ADDIONAL LIBRARY RESOURCES’ under the title of Online Library in the TLC Portal in order to access the links.

How a CFO can graduate to CEO

Corporate Finance; London; Jun 1999; Janine Brewis

Abstract:Positions of power within corporates are highly sought after, and today's chief financial officers and finance directors are increasingly becoming aware that they now have a realistic opportunity of becoming CEO. Part of the reason for the trend towards recruiting CFOs who can behave as strategic partners is that the investor community looks much more critically at the business performance and management strengths and weaknesses of corporates. This strategic positioning gives them an opportunity to buff up their image, and make themselves seen as a more credible candidate to take over the CEO role.

Do CFOs Really Make Good CEOs

Institutional Investor; New York; Aug 1989; Picker, Ida

Abstract:With the proliferation of corporate takeovers, leveraged buyouts, and restructuring in the US, it would seem that chief financial officers (CFO) hold the keys to executive wisdom. Recruiters report a growing trend of grooming CFOs for chief executive officer (CEO) positions, with some estimating that nearly 25% of top corporate leaders are former CFOs. Analysts, academics, and headhunters agree that the ideal CEO communicates well, is adept at managing managers, understands the company's product and operations, and provides a consistent vision. A recent survey by Management Practices Quarterly reveals that, of 83 new CEOs appointed in 1988, more than 18% came from operations-production backgrounds, some 23% had technical training, while only 14.4% had a financial background. D. Wayne Calloway, who became CEO of PepsiCo in May 1986, was formerly the company's CFO and is probably the best example of the valuable experience CFOs can bring to the CEO position.

Assignment Expectations

Read the two articles above, look for newer articles on the subject by browsing the web and then write a two-page paper answering the following question:

Do you think finance departments are the best place to train future CEOs? Provide two actual examples of CFOs of publicly-traded companies who became CEOs of publicly-traded companies within the past 5 years. Do these individuals have the CPA and/or CFA designations?

Include a discussion of both the pros and cons of hiring a CFO to be CEO. Try to cite at least three articles in your paper in support of your arguments in favor of and against hiring a CFO to be a CEO. Remember to include a reference list and to refer to the articles you use in the body of your paper.

Module 1 - SLP

The Role of the Financial Manager

For this assignment, go to theYahoo Stock Screener and use this page to find a publicly traded company that you find interesting and would like to study for this class. The company should not be a bank or a financial institution of any kind including insurance companies.

SLP Assignment Expectations

Write a two to three page paper discussing what you find interesting about this company, and whether or not you think this company will have a successful future. Get to the company's web site, into the "investors relations" section and provide some financial highlights of your company for the past year. Indicate which stock exchange the company is listed on and what was the past 12 month rate of return (% gain or loss) to investors who bought shares of this company a year ago and sold the shares yesterday. This rate of return is called the one-year Holding Period Return, or HPR. Also state what is the most recent price of the shares on the company?

In addition discuss briefly some information about the top management team including the CEO and CFO. If there are any issues involved with the company that relate to the issues discussed in the case assignment, mention them briefly as well.

Module 1 - Outcomes

The Role of the Financial Manager

· Module

o Describe the importance of financial management in the larger corporate structure and daily operations.

· Case

o Describe the role of the financial manager in the larger corporate structure.

o Explain how the financial manager leads in terms of capital financing.

o Discuss the important personal characteristics for a financial manager.

o Discuss how the financial manager leads in terms of operational financing.

· SLP

o Describe the role of the financial manager in the larger corporate structure.

o Discuss the important personal characteristics for a financial manager.

· Discussion

o Describe the role of the financial manager in the larger corporate structure.

o Discuss the important personal characteristics for a financial manager.

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1. Table of Contents

2. Module 1: The Role of the Financial Manager

3. CFO to CEO

DISCUSSION1

CFO to CEO

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There has been a trend across corporate America of promoting financial officers to CEO. What are some advantages and disadvantages of this practice? (Based on the article of Financial Managers and other reading you may have done)

Do research on the Internet and show the reference for the information. Don't forget to respond to a colleague's posting also.

Professor’s Note: In addition to searching the Internet for text related to this threaded discussion, please watch the following videos (click on the following link to access these videos) and post your comments.

http://www.youtube.com/watch?v=E2GxuhDRVYg David Mudrick - CFOs Becoming CEOs

http://www.youtube.com/watch?v=y5HkWah-bfs Ron Gaboury - CFOs Becoming CEOs

Grading Criteria: Try to add information not previously discussed by others. Please, provide factual information (not merely opinions) backed up by details or examples. Your comments should be in your own words and include references.

Rubrics

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• BSBA/BSHRM/BSL Undergraduate Discussion Grading Rubric - Timeliness v1

Module 2 - Background

Present Value

Required Reading

One of the most common questions I get concerns "Where can I find the present value formula?". While almost all of the links in this Module include the formula, here is a link where the formula is presented very prominently:

Present Value/Rate of Return. Retrieved fromhttp://www.moneychimp.com/articles/finworks/fmpresval.htm

However, do not just fixate on the formulas. While you need to know the formula for the assignments, you also need to understand the logic and intuition behind the formulas. The following links are important not only for the formulas but also to help you understand the material.

Time Value of Money: Self Paced Overview. (n.d.). Retrieved from:http://www.studyfinance.com/lessons/timevalue/index.mv

McCrary, Stuart A. (2010). Mastering Corporate Finance Essentials : The Critical Quantitative Methods and Tools in Finance, Wiley (read chapter 1)

Valuation of Money(2015) Pearson Learning Solution, New York

Optional Reading

Econedlink.org. Time Value of Money. Retrieved fromhttp://www.econedlink.org/lessons/index.php?lid=37&type=educator

Present Value, Rate of Return and Opportunity Cost of Capital: Chapter 2 (n.d.). Retrieved fromhttp://www.public.asu.edu/~atmxh/fin361/ch2.pdf

Sambaker.com. Discounting Future Income and Present Value. Retrieved fromhttp://sambaker.com/econ/dis/dis.html

Module 2 - Case

Present Value

Assignment Overview

NOTE: This assignment is in two parts, one is quantitative problem, the other a short paper. You need to turn in both Part I and Part II to receive full credit for this assignment.

Part I: This part of the assignments tests your ability to calculate present value.

A. Suppose your bank account will be worth $15,000.00 in one year. The interest rate (discount rate) that the bank pays is 7%. What is the present value of your bank account today? What would the present value of the account be if the discount rate is only 4%?

B. Suppose you have two bank accounts, one called Account A and another Account B. Account A will be worth $6,500.00 in one year. Account B will be worth $12,600.00 in two years. Both accounts earn 6% interest. What is the present value of each of these accounts?

C. Suppose you just inherited an gold mine. This gold mine is believed to have three years worth of gold deposit. Here is how much income this gold mine is projected to bring you each year for the next three years:

Year 1: $49,000,000

Year 2: $61,000,000

Year 3: $85,000,000

Compute the present value of this stream of income at a discount rate of 7%. Remember, you are calculating the present value for a whole stream of income, i.e. the total value of receiving all three payments (how much you would pay right now to receive these three payments in the future). Your answer should be one number - the present value for this gold mine at a 7% discount rate but you have to show how you got to this number.

Now compute the present value of the income stream from the gold mine at a discount rate of 5%, and at a discount rate of 3%. Compare the present values of the income stream under the three discount rates and write a short paragraph with conclusions from the computations.

Part II: Read the following three sample business plans:

Ice Dreams

R J Wagner & Associates Realty

Interstate Travel Center

Which of these three projects do you think should have the highest risk from the point of view of investors (potential providers of funds) and would therefore be evaluated using the highest discount rate? Which one do you think should have the lowest? Write a paper explaining your reasoning.

In your assessment of the business plans consider the possible risk of each plan. Risk is one of the main considerations when deciding whether a plan should be evaluated and discounted to present value using a high or a low discount rate.

Note: you are not expected to fully analyze the numbers and financial statements in these business plans. There are only forecasts and projections. Nobody really believes them anyway. Use your intuition rather than calculations to assess risk and potential of each of these plans.

Assignment Expectations

Turn in both Part I and Part II in one Word document when completed. Part I should be two pages long and contain your calculations. Part II should be two pages long.

Module 2 - SLP

Present Value

One specialized type of security is called an equity futures. This is a contract that guarantees you a share of a particular company to be delivered to you not today, but sometime in the future, at a price that is determined by the market right now. This price is usually called the futures price of the stock (note - the term is plural - "futures"). If you 'buy' this futures, you don't pay for the shares now. You are actually signing a contract whereby you are committed to pay that price in a particular date in the future, and you are guaranteed to receive one share of the company at that time, irrespective of its actual market price at that future date. Suppose for example that the futures price of the XYZ company is $40. Suppose you 'buy' a 6-months futures contract. If six months later the share price is $45, you gain $5 per share. If the market price in 6 months is only $35, then you lose $5.

Using theYahoo Finance take a look at the five year chart for your reference company (the one you chose for SLP1). Using this chart and other information you can find on this company, write a paper answering the following question:

What do you think would the futures price of 100 shares of your reference company to be delivered to you in one year be right now?

SLP Assignment Expectations

The paper is to be two pages long. You DO NOT need to use complex mathematical formulas for this assignment. Instead, think about how much do you think the market value of 100 shares of your company will be in one year? In considering the possible answer please reflect also on the following:

Do you expect the price of the shares in one year to be much higher? Or lower? Or only a little bit higher?

How risky the stock is. Is its price prone to wild swings up and down? Or has the price been relatively stable the last few years?

What alternative investments you have access to. What rate does your bank give you on a savings account or certificate of deposit? The greater return you can get on other investments, the less you would be willing to pay for an equity future.

Module 2 - Outcomes

Present Value

· Module

o Explain the concept of present value and its determinants and calculate present values.

· Case

o Explain the concept of present value.

o Calculate the present value of a future stream of income.

o Describe the determinants of the discount factor.

o Explain the determinants of present value.

· SLP

o Explain the concept of present value.

o Describe the determinants of the discount factor.

o Explain the determinants of present value.

· Discussion

o Explain the concept of present value.

o Describe the determinants of the discount factor.

DISCUSSION 2

Present Value

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What is your personal discount rate or rate of preferences? I.e. how much would you pay for a promise of $1000 to be received one year from now? Would you discount it by 10%, 5%, etc?

Do research on the Internet and show the reference for the information. Don't forget to respond to a colleague's posting also.

Professor’s Note: In addition to searching the Internet for text related to this threaded discussion, please watch the following videos (click on the following link to access these videos) and post your comments.

http://www.youtube.com/watch?v=ks33lMoxst0 Introduction to Present Value

http://www.youtube.com/watch?v=4LSktB7Pk_c Present Value 2

http://www.youtube.com/watch?v=nScQsMmohZ0 Time value of money calculations using the TI BAII Plus calculator – part 1

http://www.youtube.com/watch?v=EocymirVokM Lesson TVM-10-060 - Clip 06 - PV of an Annuity Due - TI BAII Financial

Grading Criteria: Try to add information not previously discussed by others. Please, provide factual information (not merely opinions) backed up by details or examples. Your comments should be in your own words and include references.

Module 3 - Background

The Capital Asset Pricing Model

Required Reading

I personally recommend reading up on the basic concepts behind the Capital Asset Pricing Model first before worrying about the formula. But still many of you are eager to learn the formulas first, so here are a few links below. But don't fixate on the formulas, spend an equal if not greater amount of time reading up on the basic concepts:

Investopedia (n.d.). Capital Asset Pricing Model, retrieved from:http://www.investopedia.com/terms/c/capm.asp

MoneyChimp, (n.d.) CAPM calculator, retrieved from:http://www.moneychimp.com/articles/valuation/capm.htm

QFinance, (n.d.) Capital Asset Pricing Model, retrieved from:http://www.financepractitioner.com/asset-management-calculations/capital-asset-pricing-model

Value Based Management, (n.d.) Capital Asset Pricing Model, retrieved from:http://www.valuebasedmanagement.net/methods_capm.html

To gain a deeper understanding of the CAPM and associated concepts beyond just the formula, read:

Damodaran, A. (n.d). Picking the right projects: Investment analysis. Retrieved from:
http://pages.stern.nyu.edu/~adamodar/pdfiles/cfovhds/inv.pdf

Risk and Return (1991). The Economist, 318, 72-73

This Article on Investment Analysis is a highly comprehensive overview on measuring risk and the use of the CAPM. This article is a good place to start because it will give you an idea of how the CAPM is used in the "real world" as well as demonstrate the basic concepts of this Module.

Financial Markets(2015) Pearson Learning Solution, New York

Managing Risk and Return(2015) Pearson Learning Solution, New York

Optional Reading

Financial Concepts:Capital Asset Pricing Model. (n.d.). Retrieved fromhttp://www.investopedia.com/university/concepts/concepts8.asp

Teachmefinance.com. CAPM – The Capital Asset Pricing Model. Retrieved fromhttp://www.teachmefinance.com/capm.html

Teachmefinance.com. The Security Market Line. Retrieved fromhttp://teachmefinance.com/securitymarketline.html

Hamm, D. B. (2006). Managerial Finance: Chapter 13 – Return, Risk & the Security Market Line, OVU – Advance. Retrieved fromhttp://web.ovc.edu/advance/hamm/fin13.ppt#1

Investopedia.com. The Capital Asset Pricing Model: An Overview. Retrieved fromhttp://www.investopedia.com/articles/06/capm.asp

Investopedia.com. Financial Concepts: Capital Asset Pricing Model (CAPM). Retrieved fromhttp://www.investopedia.com/university/concepts/concepts8.asp

Business.com. Capital Asset Pricing Model (CAPM). Retrieved fromhttp://www.business.com/finance/capital-asset-pricing-model/

Module 3 - Case

The Capital Asset Pricing Model

Assignment Overview

1. For each of the scenarios below, explain whether or not it represents a diversifiable or an undiversifiable risk. Please consider the issues from the viewpoint of investors. Explain your reasoning.

a. There's a substantial unexpected increase in inflation.

b. There's a major recession in the U.S.

c. A major lawsuit is filed against one large publicly traded corporation.

2. Use the CAPM to answer the following questions:

a. Find the Expected Rate of Return on the Market Portfolio given that the Expected Rate of Return on Asset "i" is 12%, the Risk-Free Rate is 4%, and the Beta (b) for Asset "i" is 1.2.

b. Find the Risk-Free Rate given that the Expected Rate of Return on Asset "j" is 9%, the Expected Return on the Market Portfolio is 10%, and the Beta (b) for Asset "j" is 0.8.

c. What do you think the Beta (?) of your portfolio would be if you owned half of all the stocks traded on the major exchanges? Explain.

3. In one page explain what you think is the main 'message' of the Capital Asset Pricing Model to corporations and what is the main message of the CAPM to investors?

Assignment Expectations

The Case report should be a two-page report. Please show your work for quantitative questions.

Module 3 - SLP

The Capital Asset Pricing Model

UsingYahoo! Finance find the value of beta for your reference company. Write a two page paper discussing the following items:

a. What is the estimated beta coefficient of your company? What does this beta mean in terms of your choice to include this company in your overall portfolio?

b. Given the beta of your company, the present yield to maturity on U.S. government bonds maturing in one year (currently about 4.5% annually) and an assessment that the market risk premium (that is - the difference between the expected rate of return on the 'market portfolio' and the risk-free rate of interest) is 6.5%, use the CAPM equation in order to find out what is the present 'cost of equity' of your company? Explain what is the meaning of the 'cost of equity'.

c. Choose two other companies, look up their "Beta" and report the names of these companies and their betas. Suppose you invest one third of your money in each of the stocks of these companies. What will the beta of the portfolio be? Given the data in (b), what will the Expected Rate of Return on this portfolio be? Do you feel that the three-stock portfolio is sufficiently diversified or does it still have risk that can be diversified away? Explain.

SLP Assignment Expectations

In a two-page report explain your answers thoroughly with references to the background materials. Make sure to demonstrate a strong understanding of the concept of beta and the risk/return trade off.

Module 3 - Outcomes

The Capital Asset Pricing Model

· Module

o Discuss the content and assumptions of the Capital Asset Pricing Model.

o Identify practical uses for Capital Asset Pricing Model.

o Demonstrate the difference between diversifiable and undiversifiable risks.

o Describe the theoretical and practical problems associated with using the Capital Asset Pricing Model.

· Case

o Distinguish between diversifiable and undiversifiable risks and explain the implications.

o Discuss the content and assumptions of the Capital Asset Pricing Model.

o Identify and explain practical uses for Capital Asset Pricing Model.

o Describe the process of risk/return analysis.

· SLP

o Describe the process of risk/return analysis.

o Describe the theoretical and practical problems associated with using the Capital Asset Pricing Model.

o Discuss the content and assumptions of the Capital Asset Pricing Model.

o Identify and explain practical uses for Capital Asset Pricing Model.

· Discussion

o Discuss the content and assumptions of the Capital Asset Pricing Model.

o Identify and explain practical uses for Capital Asset Pricing Model.

o Describe the process of risk/return analysis.

o Describe the theoretical and practical problems associated with using the Capital Asset Pricing Model.

DISCUSSION 3

CAPM

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Now that you have read about the CAPM, would you ever use it to make personal investment decisions? How can an individual investor use or think about CAPM?

Consider the following:

WHAT IS THE MAIN MESSAGE OF THE CAPM? IT EVOLVES FROM THE NOTION THAT INVESTORS IN GENERAL AREN'T STUPID: THEY DIVERSIFY THEIR INVESTMENT FUNDS INTO A WELL DIVERSIFIED PORTFOLIO. MORE SPECIFICALLY - THE MAIN MESSAGE OF THE CAPM IS THAT THE RATE OF RETURN ONE SHOULD EXPECT TO EARN ON A PARTICULAR INVESTMENT IS ONLY RELATED TO THE SYSTEMATIC RISK OF THE SECURITY, NOT TO ITS TOTAL RISK. WHEN YOU PURCHASE A STOCK (BECAUSE YOU LIKE IT OR BECAUSE YOU GOT A 'TIP'), YOU'LL BE EXPOSED TO THE TOTAL RISK OF THIS STOCK, BUT THE MARKET THEORY IMPLIES THAT YOU'LL ONLY BE COMPENSATED FOR A SMALL PROPORTION OF THAT RISK. HENCE, IF YOU DO LIKE RISK YOU SHOULD INVEST IN A WELL DIVERSIFIED RISKY PORTFOLIO WITH MANY SECURITIES HAVING A HIGH BETA, RATHER IN AN INDIVIDUAL STOCK. NOW GO BACK TO THE INITIAL QUESTION AND PRESENT YOUR THOUGHTS...

Do research on the Internet and show the reference for the information. Don't forget to respond to a colleague's posting also.

Professor’s Note: In addition to searching the Internet for text related to this threaded discussion, please watch the following video (click on the following link to access this video and further Part 2) and post your comments.

http://www.youtube.com/watch?v=LWsEJYPSw0k CAPM Capital Asset Pricing Model in 4 Easy Steps - What is Capital Asset Pricing Model Explained

Grading Criteria: Try to add information not previously discussed by others. Please, provide factual information (not merely opinions) backed up by details or examples. Your comments should be in your own words and include references.

Module 4 - Background

Capital Budgeting with Funding Sources

Required Reading

Many of you are eager to start off with the formulas for capital budgeting, so this link is a good place to review the main formulas:

McCracken, M.E. (2005) Capital budgeting, retrieved from:http://teachmefinance.com/capitalbudgeting.html

Here is an example of net present value using Microsoft Excel:

Microsoft Office Online, NPV, Retrieved fromhttps://support.office.microsoft.com/en-US/article/NPV-function-5c52df05-07cb-48e0-a006-97225eb960bc?ui=en-US&rs=en-US&ad=US

Here is another example of net present value:

Anthes, G. (2003) ROI guide: Net present value, Retrieved fromhttp://www.computerworld.com/article/2581461/it-management/roi-guide--net-present-value.html

Here are some examples of how to compute internal rate of return using Microsoft Excel:

Microsoft Office Online, (n.d.) IRR, retrieved from:https://support.office.microsoft.com/en-US/Article/IRR-function-64925eaa-9988-495b-b290-3ad0c163c1bc?ui=en-US&rs=en-US&ad=US

Advanced Excel Business Center, (2008), Internal rate of return, retrieved fromhttp://www.advanced-excel.com/internal_rate_of_return.html

For an example of the profitability index, see:

Investopedia (n.d.). How do you use the profitability index rule when scoping out a project? Retrieved fromhttp://www.investopedia.com/ask/answers/020615/how-do-you-use-profitability-index-rule-when-scoping-out-project.asp

To gain a deeper understanding of capital budgeting beyond just the formulas, carefully review the following links:

Summary of Capital Budgeting. (n.d.) Summary of Capital Budgeting, Retrieved from:
http://www.studyfinance.com/lessons/capbudget/index.mv

Lefley, F. (1997). Modified internal rate of return: Will it replace IRR?.Management Accounting, 75(1), 64-65. Retrieved fromhttp://www.highbeam.com/doc/1G1-19035236.html

Please review the following PowerPoint presentations:

Capital Budgeting

Return on Investment

Payback

American Superconductor switch ; Westboro company plans to raise money through a stock offering,Andi Esposito. Telegram & Gazette.Worcester, Mass.: Aug 26, 2003. pg. E. Retrieved from Proquest.

Harvey, C. (2002). How do CFOs make capital structure and budgeting decisions, from: Journal of Applied Corporate Finance, 15(1), 8-23.

AswathDamodaran. 1. The Debt-Equity Trade Off: Stern School of Business, from Capital Structure Decision.

Capital Budgeting (2015) Pearson Learning Solution, New York

Optional Reading

Gotthilf, D. L. (1997). Long-term borrowing techniques. Treasurer's and Controller's Desk Book,American Management Association.

Kuhlemeyer, G. (2010). Findamentals of Financial Management, Pearson Education (read Chapter 13: Capital Budgeting Techniques)l.

Capital Budgeting - Lecture 5 Listed in the Presentations.

Damodaran, A. (n.d.). Finding the Right Financing Mix: The Capital Structure Decision, Stern School of Business. Retrieved fromhttp://pages.stern.nyu.edu/~adamodar/pdfiles/ovhds/ch8.pdf

Module 4 - Case

Capital Budgeting with Funding Sources

Case Assignment

This case has two separate parts.

Part I: Capital Budgeting Practice Problems

a. Consider the project with the following expected cash flows:

Year	Cash flow
0	-$400,000
1	$100,000
2	$120,000
3	$850,000

· If the discount rate is 0%, what is the project's net present value?

· If the discount rate is 2%, what is the project's net present value?

· If the discount rate is 6%, what is the project's net present value?

· If the discount rate is 11%, what is the project's net present value?

· With a cost of capital of 5%, what is this project's modified internal rate of return?

Now draw (for yourself) a chart where the discount rate is on the horizontal axis (the "x" axis) and the net present value on the vertical axis (the Y axis). Plot the net present value of the project as a function of the discount rate by dots for the four discount rates. Connect the four points using a free hand 'smooth' curve. The curve intersects the horizontal line at a particular discount rate. What is this discount rate at which the graph intersects the horizontal axis?

[ Look at the graph you draw and write a short paragraph stating what the graph 'shows’]

b. Consider a project with the expected cash flows:

Year	Cash flow
0	-$815,000
1	$141,000
2	$320,000
3	$440,000

· What is this project's internal rate of return?

· If the discount rate is 1%, what is this project's net present value?

· If the discount rate is 4%, what is this project's net present value?

· If the discount rate is 10%, what is this project's net present value?

· If the discount rate is 18%, what is this project's net present value?

Now draw (for yourself) a chart where the discount rate is on the horizontal axis (the "x" axis) and the net present value on the vertical axis (the Y axis). Plot the net present value of the project as a function of the discount rate by dots for the four discount rates. Connect the four points using a free hand 'smooth' curve. The curve intersects the horizontal line at a particular discount rate. What is this discount rate at which the graph intersects the horizontal axis?

[ Observe the graph and write a short paragraph stating what the graph 'shows’]

c. Read the background materials. Then write a one-to-two page paper answering the following question:

Which method do you think is the better one for making capital budgeting decisions - IRR or NPV?

Part 2: Equity and Debt

Read the article below available in ProQuest:

American Superconductor switch ; Westboro company plans to raise money through a stock offering,Andi Esposito. Telegram & Gazette. Worcester, Mass.: Aug 26, 2003. pg. E.1

Abstract (Article Summary)

"AMSC's management and board of directors believe the decision to forgo a secured debt financing and to adopt an equity financing strategy under current market conditions is in the best interests of our shareholders," said Gregory J. Yurek, chief executive officer of AMSC. The 265-employee company has operations in Westboro and Devens and in Wisconsin.

Finally, the Northeast blackout "shined a lot of light on the problems we have been talking about as a company for three to four years," Mr. Yurek said. AMSC products, such as a system installed this year in the aging Connecticut grid and high temperature superconductor power cables and other devices bought by China for its grid, are designed to improve the cost, efficiency and reliability of systems that generate, deliver and use electric power. "We are a company with products out there solving problems today," he said.

After reading the background materials and doing your research, apply what you learned from the background materials and write a two to three page paper answering the following questions:

What are the advantages and disadvantages for AMSC to forgo their debt financing and take on equity financing? Do you agree with their decision? How can a company's cost of equity be determined? Is there a tax deduction from the use of debt financing? Please explain.

Explain your answers thoroughly. Be sure to support your opinions on these assignment questions with references to the background materials or to other articles in your paper.

Assignment Expectations

This assignment consists of a quantitative section (Part 1) and an essay section (Part 2) below. Upload both sections as one Word document by the end of the Module.

Module 4 - SLP

Capital Budgeting with Funding Sources

This SLP has two parts.

Part I

Every company has capital projects. The company you have selected must need something! Be it a new wing to the building, a new product line to be funded, a new piece of equipment, find one new acquisition your company needs.

Once you have identified the new possible investment item, what problems are you going to have in estimating the cash flow that might be emanating from the initial investment and problems in getting it funded? Issues might be:

· Risk

· Cost

· Politics (getting it through committees)

· Public Relations

· etc.,

Identify a potential capital project for your company describe such a project and write a short summary of the problems you see in getting the funding to see it through.

Part II

Examine the structure and activities in your organization and identify two projects or events that required an investment. One should be a 'current project' and the other long-term investment project.

For each project or event, identify the preferable source of funding. You may not have access to the actual source of funding so limit your paper to the source YOU feel is most appropriate. Then explain why you feel that source is most appropriate.

This is a Signature Assignment Expectation for FIN301 Module 4 SLP

There are 2 specific learning outcomes: 1) apply business theories, models, and concepts to guide analysis of problems and situations and 2) utilize data driven analysis in making business decisions.

In this SLP assignment for Module 4 our emphasis will be on understanding the preferable source of funding. You will be summarizing all of what you learned the in the Cases, SLPs and TDs.

The grading rubric below has been developed to measure student success in meeting the FIN301 Module 4 SLP expectations related to applying your knowledge of the source of funding on making business decisions.

	Assignment Expectation	Weak	Marginal	Adequate	Strong
Organization	Demonstrates the ability to explain content logically, concisely, and in an appropriate manner to understanding of the source of funding.	There is no logical sequence of information. Wording is rambling and unfocused.	Paper does not follow a logical sequence.	Paper follows a logical sequence. There are some minor problems with sub-classification and/or results are not clear.	Paper follows a logical sequence with a correct computation and results. Each activity relates to others in a carefully organized framework.
Demonstrates the ability to support a central point or viewpoint throughout the paper.	Insufficient elaboration and/or support (e.g., computation, each source) in the paper.	Limited elaboration and/or support in the paper.	Support with some specific details and elaboration in the paper.	Support through both specific details and elaboration apparent in the paper.
Content	Demonstrates the ability to analyze the source of funding and compare equity with debt.	The purpose is not identified, is unclear, or inappropriate in the paper.	Purpose is occasionally unclear in the paper.	Clear purpose, but not consistently sustained throughout the paper.	Clear purpose sustained throughout the paper.
Demonstrates the ability to gather and sort financial information and data on a particular investment activity.	Does not have a grasp of information and appropriate data. Topic is poorly created. Supporting explanations are absent or vague. Trite ideas and/or unclear wording reflect a lack of understanding of topic.	Seems uncomfortable with information and data. Topic is evident but with little or no elaboration.	Seems comfortable with the financial information and data. Topic is evident with some supporting details.	Demonstrates full knowledge of the topic with explanation and elaboration. The topic is well developed, effectively supported, and appropriate for the assignment. Critical thinking is clearly and creatively expressed. Data choices are well thought out.
Delivery	Demonstrates the ability to use appropriate word choice and grammar in the paper.	There are many sentences with grammatical errors. Some sentences are incomplete/halting, and/or vocabulary is somewhat limited or inappropriate.	There are a few sentences that are complete and grammatical. Word choice is not always appropriate for presentation.	Sentences are generally complete and grammatical, and they flow together easily. With a few exceptions, words are chosen for their precise meaning.	All sentences are complete and grammatical, and they flow together easily. Words are chosen for their precise meaning. Word choice illustrates grasp of content and enhances explanation.
Demonstrates the ability to make an effective explanation outline that is free from bias.	Words chosen for an explanation are inappropriate and exhibits bias. Some readers may be confused.	Words chosen for the paper are free from bias with one or two minor exceptions.	Words have no apparent bias. There is some inappropriate explanation.	Words and explanation are completely free from bias.

SLP Assignment Expectations

For Part I, you must discuss both the estimates of the initial investments and the annual incremental after-tax cash flow that is expected to emanate from the investment.

Module 4 - Outcomes

Capital Budgeting with Funding Sources

· Module

o Apply the concepts of net present value, internal rate of return, discounted payback, and other commonly used capital budgeting techniques.

o Apply the decision numerical analysis to get a net present value as a basis of making a decision.

o Explain to another how you would handle the qualitative elements of capital budgeting.

o Describe the various sources of capital for today's organization and discuss the advantages.

o Prepare and submit a self-reflective essay.

· Case

o Explain to another how you would handle the qualitative elements of capital budgeting.

o Demonstrate the use of the basic concepts behind Discounted Cash Flow Valuation, Net Present Value, Payback Period, Discount Rate, Time Value of Cash Flow, Return on Investment.

o Apply the decision numerical analysis to get a net present value as your basis of making a decision.

o Describe fine Capital Budgeting process.

o Describe the various sources of capital for today's organization.

· SLP

o Explain to another how you would handle the qualitative elements of capital budgeting.

o Describe fine Capital Budgeting process.

o Discuss the advantages and disadvantages of each source.

· Discussion

o Describe the fine Capital Budgeting process.

o The student should prepare and submit a self-reflective essay.

Net Present Value

· Reflect in ePortfolio

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Actions for 'Net Present Value'

DISCUSSION 4

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How accurate do you think a company's estimates of the net present value of a proposed project are? Refer to both the initial investment and to the components of the cash flow: revenues, operating expenses, depreciation, taxes, and the cost of capital to use for the computation of the present value.

Keep in mind that NPV is the value in today's dollars of cash flows to be received some time in the future minus what we have to pay today to get those cash flows.

Which of the following do you think would give you the most accurate NPV calculation: (a) a brand new retail startup (b) a pharmaceutical company introducing a new drug (c) a company with a successful product in Chile trying to introduce it to the USA.

Do research on the Internet and show the reference for the information. Don't forget to respond to a colleague's posting also.

Professor’s Note: In addition to searching the Internet for text related to this threaded discussion, please watch the following videos (click on the following link to access these videos) and post your comments.

http://www.youtube.com/watch?v=jylJ2r9bklE Episode 99: How to Calculate Net Present Value

http://www.youtube.com/watch?v=uNcBWALtLHU What is NPV?

Grading Criteria: Try to add information not previously discussed by others. Please, provide factual information (not merely opinions) backed up by details or examples. Your comments should be in your own words and include references.