Centre for Teaching, Learning, and Professional Development

JAIPURIA INSTITUTE OF MANAGEMENT

Post Graduate Diploma in Management
SECOND TRIMESTER
Course Code:
FINANCIAL MANAGEMENT - I

ACADEMIC YEAR 2014-2015

Course Title:

Course Overview
Course Overview:
Financial Management is that managerial activity which is concerned with the
planning and controlling of the firms financial resources. The finance functions mainly
comprise of investing, financing and dividend decisions. The course begins with
sensitizing the student with the role of financial manager, the types of fundamental
decisions that financial managers make, the goal of the firm, agency problems and
how they arise, and the organization of finance function in a firm. The course also
introduces the long term sources of Funds. These discussions provide a framework
that students can use in understanding the finance concepts as the course progresses.
There after the course introduces the risk-return concept in the context of
individual security and portfolio of securities. This part of the course covers the
concepts of time value of money and cost of capital. It provides students with basic
computational tools that will help them later in analyzing the investment and financing
decisions.
The next module is devoted to Valuation wherein the application of present value
concepts to bond and stock valuation is taught.
After that, the course covers long term Investment Decisions. Here, the student is
introduced to the techniques of capital budgeting. It also illustrates the application of
these techniques. The in-depth discussion on how cash flows are calculated and
forecasted is also done.
The remaining concepts of finance such as the analytical tools, breakeven,
sensitivity, scenario and simulation analysis; capital structure, dividend decisions,
Working Capital Management, Short term sources of Funds are dealt in the second part
of the course.
Learning Outcomes
Learning Outcomes: Upon successful completion of this course the students will be
able to:
1.
Describe the role of the finance manager, nature of finance function in an
organization and agency problems arising from the relationship between
shareholders and managers.
2.
Understand and measure risk and return for individual assets and portfolio of
assets.

3.

Learn the concept of Time Value of Money and its application in various
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areas of Finance.
4.
5.
6.

Apply present value technique in valuation of shares and bonds.

Compute weighted average cost of Capital and its application in various fields of
Finance.
Appraise long term investment decisions.

List of Topics/ Modules

Topic/ Module
Contents/ Concepts
Module 1: The Financial Manager and the Firm
Introduction to Financial Management
Financial Management and Role of
Finance Manager
Goal of a Firm, Agency Issue, Sources
of Long Term Finance
Module 2: Valuation of Future Cash Flows and Risk
Risk and Return
Utility Theory
Risk and return relationship
Risk Preference
Risk diversification through portfolio
formation
Systematic Risk vs. Unsystematic risk
Beta concept, its calculation and
interpretation
CAPM Model
Time Value of Money (TVM)
Concept and importance of TVM
Present Value (PV) calculation
Future Value (FV) calculation
Annuities
Perpetuities
Mixed streams
Growing Annuities
Valuation of Bonds
Interest rates and required returns
Bond Valuation
Market Efficiency and Valuation of Shares
Market Efficiency: Efficient Market
Hypothesis
Growth method: Zero vs Constant vs
Variable growth
Cost of Capital
Cost of Debt (CoD)
Cost of Preferred Stock (CoPS)
Cost of Equity (CoE)
Weighted Average Cost of Capital
(WACC)
Weighted Marginal Cost of Capital
(WMCC)

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Module 3: Capital Budgeting Decisions

Capital Budgeting (CB)

FCFF, FCFE, APV

Estimation of Cash Flows
CB: Pay-Back Period, NPV, IRR,..
Project evaluation

Assessment Criteria
Component
Quizzes
Project
Class
Participation/
Case
Presentation /
Reflective Notes
Mid Term
Examination
End Term
Examination
Total

Description
There shall be four quizzes and each quiz will
carry equal weightage
It will be in group (group of 5 students). Project
will involve analysis of riskreturn of major sectors
Students will be evaluated for their active
contribution in class discussions, relevance of
contribution and overall conduct during classes

Weight
10%

It will cover sessions 1-12

20%

It will be based on entire syllabus

40%

20%
10%

100%

Recommended/ Reference Text Books and Resources

Text Book:
Parrino and Kidwell, Fundamentals of Corporate Finance, Wiley, First Edition,
2009
Reference Books:
I M Pandey, Financial Management, Vikas Publication, Tenth Edition
Prasanna Chandra, Financial Management Theory and Practice, TMH, Eight Edition
Brealey Myers, Principal of Corporate Finance, TMH, Seventh Edition
Session Plan
Session

Dat
Topic
Requirements:
e
Readings/ Cases
Module 1: The Financial Manager and the Firm
1
Financial Manager
Chapter 1 (pg 2-22)
and the Firm

Long Term Sources

Discussion

Learning
Outcome
Identify the key
financial decisions
and discuss the
agency issues and
objectives of
Financial
Management (LO1)

Discuss various
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long term
sources of
Finance (LO-1)

and Long term

applications of
Funds
Module 2: Valuation of Future Cash Flows and Risk

Utility Theory

Handouts (Bodie
Kane Marcus
Mohanty Page 173)

Apply the
concept of Utility
in Portfolio
management

Risk and Return

Chapter 7 (pg. 209221)

Risk and its

Diversification

Chapter 7 (pg. 224232)

Systematic Risk and

Capital Asset Pricing
Model (CAPM)

Chapter 7 (pg. 233240)

Discuss risk and

return relationship
(LO-2)
Compute and
analyze risk
associated with
different asset
classes (LO-2)
Analyze the
concept and
application of Beta
and CAPM (LO-2)

QUIZ (1-6)
Basic Concepts of
Time value of
money

Chapter 5 (pg 131-135)

Explain and
discuss the
concept and
importance of time
value of money

(LO-3)
8

Future Value and

Compounding,
Present Value and
Discounting

Chapter 5 (pg 136-155)

Additional Concepts
and Special
applications of
concepts of Time
Value of Money
(Using excel tools)
Multiple Cash Flows,
Growing Annuities
and Growing
Perpetuities

Chapter 5 (pg 156-160)

Compute and
understand
Present Value (PV)
and Future Value
(FV) concept and
its usage
Understanding
TVM application to
Annuities,
Perpetuities etc

(LO-3)

10

Getting versed
with practical
usage of Excel for
calculations

(LO-3)

Chapter 6 (pg 167

193)

Analyze the
reasons why cash
flows occurring
at different times
must be adjusted
to reflect their
value as on
common date
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(LO-3)
11

The Effective
Annual Interest Rate

Chapter 6 (pg 194

197)

*
BHARAT
ENGINEERING
Handout
WORK
12

TVM Concepts

Mid Term (1-12)

13
Corporate Bonds
and Valuation
14

Bond Yield and

Interest Rate Risk

Exercise on Forward
Mortgage, Reverse
Mortgage, other
Applications

Applying TVM
concepts through
Excel (LO-3)

Chapter 8 (pg 252-260)

Compute Bond
Value and discuss
types of Bonds
(LO-IV)
Analyze why bond
prices vary
negatively with
interest rate
movements (LO-IV)

Chapter 8 (pg 262-272)

15

Case 2: NATURE
CARE INDIA LTD
Market Efficiency &
Common Stock
Valuation

16

Valuation of Shares

Chapter 9 (pg 291-297)

17

QUIZ 2 (13-16)
Basic Concepts and
Computation of Cost
of Capital

Chapter 13 (pg 426445)

18

Using the WACC in

Practice
PROJECT
SUBMISSION

Compute and
Discuss why EAR is
appropriate way to
annualize interest
rate. (LO-3)
Applying most of
the TVM concepts

Handout
Chapter 8 (pg 250-251)

Chapter 9 (pg 287291)

Chapter 13 (pg 447452)

Discuss why
market efficiency
is important to
financial managers
(LO-IV)
Discuss dividend
valuation Model for
share valuation
(LO-IV)

Compute Cost of
Capital and
Discuss how it
varies for different
class of Capital
(LO-5)
Application of
concepts of WACC
and discuss
advantages and
limitations of
using WACC as
discount rate
(LO-5)

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Module 3: Capital Budgeting Decisions

19
QUIZ 3 (17-18)

FCFF, FCFE, APV

Concepts

Handouts

20

Capital Budgeting
and Techniques

Chapter 10 (pg 312331)

21

Capital Budgeting
Technique (CBT)

Chapter 10 (pg 332343)

22

Calculating Project
Cash Flows and
Estimating Cash
flows in Practice

Chapter 11 (pg 356 386)

23

Application of
capital budgeting
techniques
CASE 3 GUPTA
BRICKS Bulls
Trench Kiln and
Vertical Shaft
Brick Kiln
QUIZ 4 (19-23)
Review

24

Handouts

Discuss concept
of various Cash
Flows in context
of valuation (LO6)
Discuss why CB
decisions are most
important
investment
decisions
(LO-6)
Explain the
benefits of various
CB techniques
available for
project evaluation
(LO-6)
Compute and
analyze operating
Cash-flows and
Terminal Cash
Flows (LO-6)
Evaluate
investment options
for business
expansion/
Decision Making
using CB
techniques (LO-6)

CASE1 - BHARAT ENGINEERING WORK (Rajiv Srivastava, Financial

Management, Oxford)
CASE OBJECTIVE:
The case study aims at showing the computation of Equated Quarterly Installments and
splitting the same into the principal and interest components.
DISCUSSION POINTS:
Concept of annuity and its application in the case study
What will be the cash outflows for the firm?
The model for finding of value of annuity; value of principal; and value of interest
(Reference may be made to PMT, PPMT, and IPMT formulae built-in excel)
Relationship between the rate of interest and period of compounding/discounting.
CASE 2: NATURE CARE INDIA LTD. Rajiv Srivastava, Financial Management,
Oxford)
CASE OBJECTIVE:
The case has following objectives:
Computation of intrinsic value of bond
Computing yield on bonds

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DISCUSSION POINTS:
What are the variables that determine the intrinsic value of bonds?
How does intrinsic value help in investment decisions?
How yield on bond is computed? What is its relevance in investment decision?
CASE 3 GUPTA BRICKS Bulls Trench Kiln and Vertical Shaft Brick Kiln
(Rajiv Srivastava, Financial Management, Oxford)
CASE OBJECTIVE:
To expose the students with real life situation in the projects that is normally
considered in business situations and is aimed at
1. Providing practice to the students how to translate a real life situation of project
appraisal into meaningful numbers,
2. Making aware that the differential post tax cash flow and not absolute cash flows
determine the worth of the project, and
3. Acceptance/rejection of project can be done with several methods, which in
normal circumstances must lead to similar conclusion, and
The case study examines the conceptual as well as computational abilities of the
students in capital budgeting especially computation of net present value, internal
rate of return and payback period.
10. Contact Details
Name of the Instructor:
Office Location:
Telephone:
Email:
Course:
Office Hours:

Dr Sushma Vishnani
Room No 11
9838763160
sushma.vishnani@jaipuria.ac.in
PGDM
9:30 am to 5:30 pm