Trident FIn301 full course (module 1-5)case and SLp and discussions

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 be logged onto Proquest in order to access the links. If the links don't work you can look up the articles in Proquest using "publication search".

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.

The Role of the Financial Manager

Assignment Overview

For this assignment, go to the Yahoo 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 somefinancial 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.

Present Value

Assignment Overview

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 the Yahoo 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 assignments. 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.

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

Assignment Overview

Using Yahoo! 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 equationin 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.

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 4 - Case

Capital Budgeting

Part 1. 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. A project requiring a $4.2 million investment has a profitability index of 0.94. What is its net present value? (Remember: Profitability Index is defined as Present Value of the proceeds divided by the initial investment)

Part 2.

Read the article below. 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?

Defend your answer with references to the background materials.

Please read the following article which is available in Proquest:

Internal rate of return
Computerworld. Framingham, Feb 17, 2003, Gary H Anthes.

Abstract:
Internal rate of return (IRR) is the flip side of net present value (NPV) and is based on the same principles and the same math. NPV shows the value of a stream of future cash flows discounted back to the present by some percentage that represents the minimum desired rate of return, often a company's cost of capital. IRR, on the other hand, computes a break-even rate of return. It shows the discount rate below which an investment results in a positive NPV and above which an investment results in a negative NPV. It is the breakeven discount rate, the rate at which the value of cash outflows equals the value of cash inflows.

Assignment Expectations

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

Module 4 - SLP

Capital Budgeting

Assignment Overview

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.

SLP Assignment Expectations

The paper should be two to three pages in length, and should have references to the background materials or other sources you found for this paper. It 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.

Equity and Debt

Assignment Overview

American Superconductor

As you know from reading through the background materials, the decision to use debt or equity to raise money is not a decision taken lightly by management. So when several years ago, in 2003 American Superconductor decided to raise funds through equity it was definitely a major decision that required intense discussions at the highest levels of management.

Read the article below about American Superconductor and do some of your own research using the CyberLibrary and internet search engines. You can also take a look at the official American Superconductor webpage.

Assignment Expectations

After doing your research, apply what you learned from the background materials and write a three to five 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 both of 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.

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.

Module 5 - SLP

Equity and Debt

Assignment Overview

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 for FIN301 Module 5 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 5 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 5 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

· Identify two projects or events that required an investment.

· Identify the preferable source of funding and explain why you feel that source is most appropriate.

· Write 2-4 pages, showing computations and discussing the results.

· List supporting references and cite sources.

· Use appropriate writing style (organization, grammar, & spelling - see Writing Guidelines

DISCUSSIONS

Module 1 Discussions

SubscribedSubscribe

Locked before Monday, April 6, 2015 12:00 AM PDT

78 Unread Posts (78 total) - 1 topicsHide Topics

Last post 2 week(s) ago by Timothy Clark

CFO to CEO

SubscribedSubscribe

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.

Locked before Monday, April 6, 2015 12:00 AM PDT

You must post a message before you can read and reply to posts

---

Module 2 Discussions

SubscribedSubscribe

Locked before Monday, April 6, 2015 12:00 AM PDT

78 Unread Posts (78 total) - 1 topicsHide Topics

Last post 2 day(s) ago by Billy Nolan

Present Value

SubscribedSubscribe

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.

Locked before Monday, April 6, 2015 12:00 AM PDT

You must post a message before you can read and reply to posts

---

Module 3 Discussions

SubscribedSubscribe

Locked before Monday, April 6, 2015 12:00 AM PDT

63 Unread Posts (63 total) - 1 topicsHide Topics

Last post 2 day(s) ago by Billy Nolan

CAPM

SubscribedSubscribe

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.

Locked before Monday, April 6, 2015 12:00 AM PDT

You must post a message before you can read and reply to posts

---

Module 4 Discussions

SubscribedSubscribe

Locked before Monday, April 6, 2015 12:00 AM PDT

53 Unread Posts (53 total) - 1 topicsHide Topics

Last post yesterday by Billy Nolan

Net Present Value

SubscribedSubscribe

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.

Locked before Monday, April 6, 2015 12:00 AM PDT

You must post a message before you can read and reply to posts

---

Module 5 Discussions

SubscribedSubscribe

Locked before Monday, April 6, 2015 12:00 AM PDT

49 Unread Posts (49 total) - 1 topicsHide Topics

Last post 15 hour(s) ago by Melissa Smith

Convertible Debt

SubscribedSubscribe

Many of the small "dot-com" companies got financing in the form of an instrument called convertible debt. This is like ordinary debt, in that it pays a regular (but slightly lower than you would expect) interest amount. But debtholders have the right to convert it to equity at some point in the future. Why do you think these companies chose this instrument? Do you think it was a good idea? Does convertible debt offer the same advantages to larger, more established companies such as Exxon Mobil? Remember: there's no 'free lunch'. If a company offers creditors an option to convert the bond into stocks it must be giving them something of value. It should get something in return... (You may browse for 'convertible debentures' on the web to help you out with this)...

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=0_S0bS7jQMM Understanding Convertible Bonds

http://www.youtube.com/watch?v=_Ni15ewtbRY Convertible Debt

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.

Locked before Monday, April 6, 2015 12:00 AM PDT