Principles of Finance 350



Lecture 405 is Tues/Thurs 12:00-12:50 AM (13086) in Lubar Hall N140

Fall Semester 2012, 3 credits

INSTRUCTOR: Richard D. Marcus, an Associate Professor of Business and the Chair of the LSB Executive Committee

OFFICE: S430F in Lubar Hall. My mailbox is also on the fourth floor of Lubar Hall

OFFICE HOURS: Tuesdays and Thursdays from 11:00AM - noon in Lubar Hall S430F and by appointment.

TELEPHONE: 414-229-4103 (office) or 414-228-7731 (home)



PRINCIPLES OF FINANCE 350: Examines the fundamentals of financial management, asset/liability valuations, risk and return, investment analysis, sources and uses of funds, cost of capital, and cash management. Prerequisites are soph st; Econ 103(P) & 104(P); Bus Adm 201(P) or 207(P); Bus Adm 210(P) or 211(P).

TEXTBOOK and CONNECT FINANCE: An electronic textbook and electronic homework assignment is available on directly from McGraw-Hill together, called Connect-Plus for $89. You can purchase Connect without the electronic textbook for $49.99 also from McGraw-Hill. The textbook is: Ross, Westerfield, and Jordan: Essentials of Corporate Finance 7th 2011 McGraw-Hill. You will need Connect for your homework assignments. As outlined in this syllabus, assignments will make up a significant portion of your overall course grade. Both Connect and Connect-Plus can be accessed by clicking the Connect Registration link below. Purchase of materials through the UWM bookstore is more expensive, as they have a loose-leaf book with Connect for $148.

REGISTRATION FOR CONNECT: To register for Connect, please register at the web link for our class is given below. Click the blue Buy Connect to register for CONNECT-only or click the blue Buy Connect Plus to purchase an electronic version of the textbook. The web link is: When registering online, you will have the option of purchasing Connect or Connect Plus; should you require it, you may register and access Connect or Connect Plus for 3 weeks before paying for it. Connect Plus gives you access to the full textbook, which is both searchable and printable.

SUPPORT AND TIPS FOR CONNECT: If you have any issues while registering or using Connect, please contact the Care Team for McGraw-Hill through . Our course examines Chapters 1-15. To avoid problems related to unexpected technical issues, you are advised not to wait until the last moment to complete assignments.

FINANCIAL CALCULATOR: You will need a financial calculator of your own choosing. My recommendation is Texas Instruments BAII Plus or the professional version. The textbook is designed for use of either HP-10B or TI BA II Plus Financial Calculators. Either the TI or HP is fine with me. Most APPS for smart phones include some financial calculator functions, but few of the free APPS have all that is needed for bond analysis, such as IRR and uneven cash flows. It is possible to purchase a BA II Plus App for $14.99 on iTunes. BYC means Bring Your Calculator!

MIDTERMS, FINALS, and HOMEWORK WEIGHTS: There will be two midterm examinations and one final. Each midterm exam is worth 45 of 190 points in the class. We will also have homework assignments that will constitute 50 of 190 of the points that are completed on Connect Finance from McGraw-Hill. The Final is worth 55 points.

MIDTERM EXAM DATES: The midterms for 350 are in class. The first midterm is on Tuesday, October 2 in class and covers Chapters 1-5 for 45 points. The second midterm is on Thursday, November 8 in class and covers Chapters 6-10 for 45 points. The final covers Chapters 11-15. Professor Marcus provides a list of key financial formulas attached to the midterms and finals. Students will bring their own financial calculator to the exams.

FINANCE CONNECT ASSIGNMENTS: There are 14 assignments (9 graded and 5 are ungraded). Each of the nine graded assignments is worth 5 points for a total of 45 points out of 190. The questions are algorithmic so that each student gets different numbers for most problems. The assignments have unlimited number of attempts to retake up to the due dates listed in the "Daily Schedule of Lectures, Discussion Sections, and Connect Assignments" appearing below. There is no penalty for retaking the assignment. I permit (and encourage you) to print assignment, but you must enter your answers on the website.

FINAL EXAM: Lecture 405 is on Friday, December 14 at 12:30-2:30 PM. The final covers Chapters 11-15 for 55 points out of 190 possible in the course. The final has more time available, permitting a longer exam than the midterms.

GRADES: Grades will be based on the total points earned on midterm 1, midterm 2, the final, and the scores received on the graded assignments in CONNECT FINANCE. A total of 190 is the maximum possible points for the semester. There are no "extra credit" points available. Typically, students who amass points at (or above) the median score will be considered for earning a B or better. Those who are in the lower half will be considered for scores of B- or lower. Scores will be posted on Desire2Learn at:

TEACHING ASSISTANT, EMAIL, DISCUSSION SECTIONS: We an outstanding Teaching Assistant, Dave Mateljan (E-mail: Dave Mateljan is TA for Discussions 606 through 610.

TA OFFICE, PHONE NUMBER, and OFFICE HOURS: Dave Mateljan's office is S325 in Lubar Hall. His office phone number is 414-229-2547. Dave Mateljan's office hours each week are on Tuesdays from 1-3 PM.

CLASSROOM POLICIES: UWM has long-standing policies on academic misconduct, sexual harassment, discrimination, adding, dropping, withdrawal, repeating classes, and changes of grade. These policies are available at:

SPECIAL NEEDS: If anyone has a need for note-taking or testing assistance, please feel free to discuss this with me early in the semester. Slide presentations are available weekly in class and will be available on D2L.

SOCIAL CONNECTIVITY: Financial announcements of stock splits, leverage buyouts, and dividend changes occur daily. Some will be highlighted for special attention. These can appear on Facebook walls or as text messages using Twitter. Students will be invited to like a fan page that for Professor Marcus' 350 class. It is called UWMFinance350 and the same name in Twitter. Links to these locations are on the NAVIGATION line on D2L site for our class. You can view the messages sent by clicking either Facebook or Twitter. You can click the like "thumps up" icon in Facebook or click follow in Twitter to have it sent to your own page or phone.

OBJECTIVE: To understand the everyday financial activities of collecting from customers and paying suppliers, finding long-term financing to pay for investments, and deciding which investments offer the greatest promise. These are issues sometimes called Financial Management, but they are duties of a financial manager. Financial managers who do these tasks well reduce the risk of financial distress and increase the opportunities for growth and profits.

Schedule of Lectures, Discussions, & Connect Assignments

Labor Day is Monday, September 3: The university is closed.

WEEK 1: Lecture #1 on Tuesday, September 4: Chapter 1- Introduction to Financial Management

Discussion 1: Wednesday, September 5: Demo and Intro to Connect Finance, D2L links to Facebook and Twitter for UWMFinance350.

Lecture #2 is on Thursday, September 6: Chapter 2 - Financial Statements, Taxes, and Cash Flows.

Monday, September 10: Due date for the first Finance Connect assignment. This assignment is ungraded from Chapter 1 .

WEEK 2: Lecture #3 on Tuesday, September 11: Chapter 2 (continued) - CFFA or Cash Flow From Assets

Discussion 2: Wednesday, September 12: OCF and CFFA problems (problems 19-21, pages 46-47).

Lecture #4 on Thursday, September 13 Chapter 3 - Working with Financial Statements (emphasis on ratio analysis).

Monday, September 17: Due date for the second assignment Finance Connect assignment from Chapters 2 & part of chapter 3. This assignment is graded, but you have multiple times to take it before the deadline.

WEEK 3: Lecture #5 on Tuesday, September 18: Chapter 3 (continued) - The Du Pont Identity

Discussion 3: Wednesday, September 19: TAT (Total Asset Turnover from pages 59-60 and problem 22 on page 87) and Du Pont Identity questions.

Lecture #6 on Thursday, September 20: Chapter 4 Introduction to Valuation (BYC = Bring Your Calculator!)

Monday, September 24: Due date for the third Finance Connect assignment from Chapter 3 and Chapter 4. This assignment is graded.

WEEK 4: Lecture #7 on Tuesday September 25: Chapter 5 - Discounted Cash Flow Valuation (BYC)

Discussion 4: Wednesday, September 26: TVM (Time Value of Money) from end of Chapter 4 and some from Chapter 5 on uneven Cash Flows using your financial calculator: selected Questions and Problem from page 153-157 - BYC (bring your calculator!) HINT: Do all the worked problems on page 604-606 (textbook Appendix D) for TI BA II Calculators and HP-10B Calculators.

Lecture #8 on Thursday, September 27: Chapter 5 (continued) - Effective Annual Rates (EARs), Perpetuities, Midterm 1 Overview.

Monday, October 1 is also the due date for the fourth Finance Connect ungraded assignment based on Chapter 5 as a great review also for Midterm 1.

WEEK 5: Tuesday, October 2: is our MIDTERM #1 in classroom N140 noon to 1PM and BYC! Midterm 1 covers Chapters 1-5.

Discussion 5: Wednesday, October 3: Return of Midterm #1, Answers to Midterm #1, and "The five keys to bond valuation"

Lecture #9 on Thursday, October 4: Chapter 6 - Interest Rates and Bond Valuation

Sunday, October 8: Due date for fifth Finance Connect assignment from Chapter 6. This assignment is graded.

WEEK 6: Lecture #10 on Tuesday, October 9: Chapter 6 (continued) - Bond Features, Bond Types, and Yield Curves

Discussion 6: Wednesday, October 10: Selected problems from Chapter 6.

Lecture #11 on Thursday, October 11: Chapter 7 - Equity Markets and Stock Valuation

Monday, October 15: Due date for sixth Finance Connect assignment from Chapter 7. This assignment is graded.

WEEK 7: Lecture #12 on Tuesday, October 16: Chapter 7 (continued) - Preferred Stocks, Primary Markets, and Secondary Markets for Equities

Discussion 7: Wednesday, October 17: DGM - The Dividend Growth Model and selected problems from Questions and Problems pages 225-227.

Lecture #13 on Tuesday, October 18: Chapter 8 - NPV is Net Present Value and IRR is Internal Rate of Return

Monday, October 22: Due date for seventh assignment from Finance Connect from Chapter 8. This assignment is graded.

WEEK 8: Lecture #14 on Tuesday, October 23 Chapter 8 (continued) - Capital Budgeting and Capital Rationing

Discussion 8: Wednesday, October 24: NVP and IRR using Excel and on calculators, and selected problems form page 259

Lecture #15 on Thursday, October 25 Chapter 9 - Making Investment Decisions

Monday, October 29: Due date for eighth Finance Connect assignment based on Chapter 9. This assignment is graded.

WEEK 9: Lecture #16 on Tuesday, October 30 Chapter 9 (continued) - Sensitivity Analysis of Capital Projects and Managerial Options

Discussion 9: Wednesday, October 31: Calculating project Operating Cash Flows (OCF) examples from Page 296.

Lecture #17 on Thursday, November 1 Chapter 10 - Lessons from Capital Market History

Monday, November 5: Due date for ninth Finance Connect assignment based on Chapter 10. This assignment is ungraded.

WEEK 10: Lecture #18 on Tuesday, November 6: Chapter 10 (continued) Capital Market Efficiency and review for Midterm #2

Discussion 10: Wednesday, November 7: Arithmetic versus Geometric Returns and selected problems from pages 334-335

Thursday, November 8: is our MIDTERM #2 in classroom N140 noon to 1PM and BYC! Midterm 2 covers Chapters 6-10.

Sunday, November 12, no Connect Assignment due.

WEEK 11: Lecture #19 on Tuesday, November 13: Chapter 11 - Risk and Return

Discussion 11: Wednesday, November 14: Return of Midterm 2 and How a beta is estimated, and selected problems from pages 371-373.

Lecture #20 on Thursday, November 15: Chapter 11 (continued) - The Security Market Line and CAPM (The Capital Asset Pricing Model)

Monday, November 19: Due date for the tenth Finance Connect assignment from Chapter 11. This assignment is graded.

WEEK 12: Lecture #21 on Tuesday, November 20: Chapter 12 - The Cost of Capital

Discussion 12: Wednesday, November 21: Review of the WACC (Table 12.1 on page 389) and selected problems

Lecture #22 on Thursday, November 22: Chapter 12 (continued) - Some methods for finding the cost of capital for projects not similar to the whole firm

Monday, November 26: Due date for the eleventh Finance Connect assignment from Chapter 12. This assignment is graded.

WEEK 13: Lecture #23 on Tuesday, November 27: Chapter 13 - Leverage and Capital Structure

Discussion 13: Wednesday, November 28: Workout versus a Bankruptcy and selected problems from page 433-435.

Lecture #24 on Tuesday, November 29: Chapter 13 (continued) - An Optimal Capital Structure?

Sunday, December 3: Due date for the twelfth Finance Connect assignment from Chapter 13. This assignment is ungraded.

WEEK 14: Lecture #25 on Tuesday, December 4: Chapter 14 - Dividends and Dividend Policy

Discussion 14: Wednesday, December 5: Stock Splits and Reverse Stock Splits and a few questions from pages 463-465

Lecture #26 on Thursday, December 6: Chapter 14 (continued) - Stock Dividends and Stock Repurchases

Monday, December 10: Due date for Thirteenth Finance Connect assignment from Chapter 14. This assignment is graded.

WEEK 15: Lecture #27 on Tuesday, December 11: Chapter 15 - Raising Capital and Issuing Securities

Discussion 14: Wednesday, December 12: Dutch auction underwriting of an IPO and review questions for the final

Thursday, December 13: This is the University Study Day. No classes.

Friday, December 13: Due date for our fourteenth Finance Connect assignment from Chapter 15. This assignment is ungraded.

Also Friday, December 14: is our FINAL in classroom N140 from 12:30 to 2:30 PM. Remember to BYC! The Final covers Chapters 11-15.

Scores and grades will be posted on D2L at and an email notice will be sent when grades have been reported on PAWS.