Hong Kong University of Science and Technology

FINA2303 Financial Management L1

Spring 2016
Instructor: Mr. M. K. Lai, PhD, CFA, CIIA, MHKSI
Email: fnmklai@ust.hk
Lecture time and venue: 10:30am 11:50am, Tuesday and Thursday, from 2 February to 5
May 2016 (except public holidays), LTE
Consultation time and venue: 1:00pm 2:50pm, Wednesday, from 24 February to 4 May
2016 (except public holidays), Room 2612A
Number of Credits: 3 units
Course website: http://canvas.ust.hk
Teaching assistant: Ms. Stella Lien
Email: fnstella@ust.hk
Tutorial time and venue will be released later.
Consultation time and venue will be released later.
Contact Method
As I work on a part-time basis for HKUST, I do not have an office and will not be around
the campus at all times. There are two main ways to contact me as follows:
(1) minor issues and a few short questions through email (fnmklai@ust.hk, not to use the
message system in CANVAS); and
(2) major issues and many questions in consultation time.
Prerequisite
ACCT2010 and ISOM2500
Course Description
This course aims to provide the participants with the basic, practical and applied knowledge
in financial management. It discusses the basic financial concepts including cash flows, time
value of money and tradeoff between risk and return. It introduces the technique of valuation,
including bond and stock valuation. It examines a major financial decision of a company,
namely capital budgeting (including the cost of capital).
Learning Objectives
After completing this course, the participants are expected to:

learn how to learn by discovery and active participation;

learn how to become a more effective team member and/or a leader through active

involvement in a group task;

apply the time value of money;

analyze the attractiveness of investment projects through capital budgeting;

explain the valuation of bonds and stocks;

explain the concepts of risk, return and diversification, and the tradeoff between risk and
return; and

explain the concept of the cost of capital.

Assessment
Participation

3%

MyFinanceLab (MFL)
Group Case Study

7%
15%

Mid-Term Examination
Final Examination
Total

30%
45%
100%

Learn How to Learn By Discovery

In a business setting and the real world, participants are expected to face problems and try to
solve them by searching for the best solutions on their own. In this course, participants are
expected to take an active part in the learning process by discovery. In other words,
participants are required to make preparation and look for the best answers to a number of
questions to be discussed before each class. The issues to be discussed can be found from the
handouts. This active learning process will better prepare participants to work in the real
world in the future. Therefore, a participant must be willing to take serious commitments
before he/she enrolls in this section.
Participation
Participants are expected to take an active part in the class. A designated participant drawn
from the class list at random will be asked to answer a particular question during the class.
Each participant will be asked at least once during the semester, starting from 18 February
onwards. Marks for participation (with a maximum of 3) will be awarded by the instructor
according to the quality of the answer given by each participant. The rules for answering a
question include the following:
(1) Please identify yourself in the class by raising your hand before you answer a question.

(2) Please do not use any telecommunication devices or other sources to look up the answer
when you are called to answer a question.
(3) Please do not talk to or communicate with your fellow classmates or any other persons
in any way when answering a question.
(4) Please notice that the time limit for answering a question is usually 1 minute. If you
fail to answer it within the time limit, you are considered as if you cannot answer it at
all.
(5) Your presence in the class does not guarantee that you will be awarded any mark for
participation while your absence will ensure that you will get zero mark.
(6) The mark awarded for participation is totally at the discretion of the instructor upon the
quality of the answer. The decision of the instructor is final.
(7) If you cannot attend a particular class with a valid reason (such as illness or some
other extenuating circumstances), please inform the instructor through email before the
class and provide the proof of the reason within one week after the class. It is at the
discretion of the instructor to decide whether to accept the reason. If your absence is
approved by the instructor, he will not ask you to answer a question during that class.
However, in normal circumstances, the instructor will approve your absence from the
class at most twice.
Any cheating behavior (including answering a question on behalf of another, violating any of
the above rules, etc.) will be considered as a serious offence according to the University
policy and procedures.
MyFinanceLab (MFL)
Each participant is required to have an individual Access Code to register for MyFinanceLab, a
web-based homework and tutorial system accompanied the textbook. It can be either purchased
bundled with the hardcopy textbook and e-book at a special discounted price, or separately if a
participant owns a used copy of the textbook, at the campus bookstore. Note that the number of
standalone cards is limited and may be sold out quickly.
Important: Participants must have their MFL accounts properly registered by 5:00pm on 19
February. The publisher has prepared a registration instruction powerpoint file to demonstrate
how to register the MFL account and the file has been uploaded in CANVAS. Participants must
follow the exact instructions and procedures specified in the file for their accounts to be
considered as valid for grading. If a participant has registered his/her MFL account in one
section and subsequently changes to another section, he/she must inform the teaching assistant
to deactivate the MFL account in the old section and re-register the MFL account in the new
section.

MFL contains a number of tutorial tools and learning aids that give participants hands-on
guidance with a hint when working on the end-of-the-chapter problems. Participants should
utilize it extensively for this course. MFL provides step-by-step instruction, input-specific
feedback, and hints, and may link to spreadsheets, or sample problems that address the learning
objective of the problem. Therefore, the solutions to end-of-chapter problems will not be posted
because participants will get detailed solutions during their own practices.
If a participant attempts the questions of a particular exercise in the MFL before its specified
deadline, he/she will get the full mark for that exercise. Late submission of the exercise is not
permitted under any circumstances. For each question, three trials for the answer are permitted.
A maximum of 7 marks will be awarded to a participant based on all the MFL exercises.

Group Case Study

Participants are required to form teams of 4 to 6 members within the sections L1, L6 and L8
to carry out one group task. The group task is to work on a case study about capital budgeting.
Each group must submit a list of their members to the teaching assistant via Group under
People in CANVAS by 5:00pm on 19 February. Each group is required to submit a report
for the task by 5:00pm on 1 April. Reports on an individual basis will not be accepted.
The instructor and teaching assistant will generally not handle complaint cases against a
free-rider. As a penalty for a free-rider, a group can choose not to include his/her name in
the case report if the group believe that he/she does not make any useful contribution to the
group task. In that case, the free-rider will get zero mark for the case.
Examinations
There are two closed-book examinations which are common to participants in all sections. A
formula sheet will be provided to the participants during each examination. Participants will
be informed about the content of the formula sheet in advance. They have to memorize
anything else not included in the formula sheet.
The mid-term examination will take place from 9:45am to 12:15pm on 12 March, lasting
for two and a half hours and covering Chapters 1, 3, 4, 5 and 8 of the textbook as specified
in the course outline below. The format and number of examination questions will be released
later. It will account for 30% of the total marks.
If a participant cannot sit for the mid-term examination, he/she must have an acceptable
reason (such as illness or some other extenuating circumstances), must inform the instructor
in writing before the start of the examination through email and must subsequently provide
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documentation of proof to the instructor within one week after the scheduled examination
date. After reviewing the circumstances of each case, the instructor has the discretion to
adjust the weight of the final examination of the particular participant to 75% of the total
marks. If a participant fails to follow the above procedures or the instructor is not satisfied
with his/her stated circumstances, he/she will get zero mark for the examination without any
weight adjustment in the final examination.
The final examination will last for three hours, covering all chapters of the textbook
(including the chapters covered in the mid-term examination) as specified in the course
outline below. The date and venue will be arranged by the University which will notify the
participants about the details accordingly. The format and number of examination questions
will be released later. It will account for 45% of the total marks.
If a participant fails to sit for the final examination, he/she must follow the university
guidelines to apply for a make-up examination via ARRO in a formal manner
(http://arr.ust.hk/reg/em/em_std_reg/reg_makeup.html?ticket=ST-592907-EECaScdg1DFbj4
Xdw7ob-cas1.ust.hk).
Distribution of Grades
In general, grades will be awarded to the participants in accordance with the University
guidelines as follows:
Final Grade

Percentage

A-, A and A+

10-20%

B-, B and B+

25-40%

C-, C and C+

35-45%

5-10%

0-5%

However, the final grades may be subject to modification based on the actual performance of
the participants. It is usually on a relative basis. Grades will be curved across the three
sections (L1, L6 and L8) under my instruction.
Academic Honesty
Attention is drawn to the University policy and regulations on honesty in academic work, and
to the disciplinary guidelines and procedures applicable to breaches of such policy and
regulations. Basically, there is zero tolerance for cheating, dishonesty and plagiarism at any
time and such acts may result in very strict sanctions.
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Financial Calculator
It is optional for a participant to have a financial calculator which has built-in functions that
save time in solving some calculation-type problems. Participants can buy one of the
following models such as TI BA II Plus or HP 12C which are permitted to be used in all
major professional examinations in finance.
Participants are required to learn how to operate the financial calculator on their own. If a
participant is prepared to take more finance courses in the future, the instructor strongly
advises him/her to buy one of the above financial calculators as those courses may require a
participant to know how to use a financial calculator.
A workshop on how to use a financial calculator is arranged in LSK G012 on 4 February.
There are two sessions as follows: from 6:00pm to 7:00pm for the English session and from
7:00pm to 8:00pm for the Cantonese session. It is optional for a participant to attend the
workshop.
Tutorials
Apart from the lectures, participants can attend tutorials conducted by the teaching assistant
on a weekly basis from the week starting on 22 February through the week starting on 3 May.
There are four sections (two 1-hour sections and two 1-hour sections with the extra half an
hour for Q&A) for each tutorial. Attendance is not compulsory and participants have the
discretion to decide whether to go to any of the four sections which fits their own schedules.
The time and venue of the tutorials will be released later.
In the tutorials, the teaching assistant will explain selected concepts and illustrate with
examples extracted from the end-of-chapter questions in the textbook. The participants can
also take the chance to ask questions and seek for help if needed. In case of any issue related
to MFL and/or the use of a financial calculator, participants can go to the tutorials and ask
the teaching assistant for help. The instructor will not answer questions relating to these
issues.
Rules of the Game
1. Because of the large size of the class, the instructor will not take attendance. However,
participants are strongly advised to attend the class for two main reasons. Firstly, the
handouts only contain brief outlines and the instructor will elaborate and explain further
through lectures, discussion and participants involvement during the class. Notice that
the instructor will not arrange any videotaping for the class. Secondly, a participant
may be requested to answer a particular question in class and his/her absence will result
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in zero mark for participation. However, as mentioned, the presence of a participant

does not guarantee that any mark will be awarded for participation.
2.

3.

The instructor expects that each participant will attend the class on time. In the business
world, late arrival and/or early departure is considered as disruptive and disrespectful,
and such actions are not encouraged and may result in lower grades for the participant.
It is helpful, but not necessary, that a participant has a financial calculator. Any
non-programmable calculator without the capability for storing and displaying text or
formula is allowed to be used in the examination. However, participants are required to

4.

learn how to operate the calculator on their own.

Mobile phones and other telecommunication devices need to be turned off or switched
to the silence mode. Notebooks or similar devices are allowed as long as they do not
lead to inappropriate behavior and disturbances to the others.

5.
6.

7.

8.

No audio and/or video recording is allowed.

The course materials will be posted on the Universitys CANVAS. Please check the
website for new postings on a regular basis. Lectures, handouts and other relevant
materials are the copyright property of the instructor. Reproduction and distribution of
such materials in any forms are not allowed without the express consent of the
instructor.
How to form and run the groups is totally the concern of the group members. In a
business setting, team work is the rule rather than the exception and participants can take
the opportunity to learn how to take the initiative to approach the others to form a group
and take an active role in group dynamics. The instructor or teaching assistant will not
help a participant to form and join a group or receive and tackle any complaint about
a particular group member. As mentioned, a group can choose not to include the name
of a group mate if he/she does not make any useful contribution to the group task.
The course outline below shows the syllabus for the preparation of the examinations.
If time permits, the instructor will endeavor to include other additional issues as
appropriate to provide a more complete picture of corporate finance and discuss the
Hong Kong practices.

Required Textbook
Berk, Jonathan, Peter DeMarzo and Jarrad Hartford, Fundamentals of Corporate Finance,
third edition, Pearson, 2015. (BDH)
This book is required for all participants as it will be used extensively during the course and
will serve as the basis for the examinations. Participants should read the assigned chapters in
the book thoroughly because the lectures will only focus on the core and more difficult
concepts rather than the full details.
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Participants can choose to buy (a) the textbook + MFL with ebook (at a discounted price of
HK$316.80) or (b) the MFL on a stand-alone basis (at a price of HK$155) in the campus
bookstore.
As the textbook contains information mainly about the US corporate finance practices, the
instructor will provide the relevant Hong Kong materials during the lectures. In case of a
conflict between the US and Hong Kong practices, participants should focus on the materials
of the textbook in the preparation of the examinations. The textbook is also put under reserve
in the University Library.
Course Outline (for the preparation of the examinations)
Date
Topic
2 February (Tuesday)

Opening Remarks
Topic 1: Introduction to Corporate Finance
Suggested Reading
BDH, Chapter 1 (excluding 1.2)

4 February (Thursday)

Topic 1: Introduction to Corporate Finance (Contd)

Topic 2: Time Value of Money and Valuation
Suggested Reading
BDH, Chapters 3, 4 and 5 (excluding 5.3)

11 February (Thursday)

Topic 2: Time Value of Money and Valuation (Contd)

16 February (Tuesday)

Topic 2: Time Value of Money and Valuation (Contd)

18 February (Thursday)

Commencement of Participation
Topic 2: Time Value of Money and Valuation (Contd)

19 February (Friday)

Deadline for Registration of MFL Account by 5:00pm

Deadline for Submitting Group List by 5:00pm

23 February (Tuesday)

Topic 2: Time Value of Money and Valuation (Contd)

24 February (Wednesday) Commencement of Consultation

Date
25 February (Thursday)

Topic
Topic 3: Capital Budgeting (Contd)
Suggested Reading
BDH, Chapters 8 (excluding 8.6 and MIRR) and 9 (excluding 9.5,
9.6 and MACRS)

1 March (Tuesday)

Topic 3: Capital Budgeting (Contd)

3 March (Thursday)

Topic 3: Capital Budgeting (Contd)

8 March (Tuesday)

Topic 3: Capital Budgeting (Contd)

10 March (Thursday)

Topic 3: Capital Budgeting (Contd)

12 March (Saturday)

Mid-Term Examination

15 March (Tuesday)

Topic 4: Bond Valuation

Suggested Reading
BDH, Chapter 6 (excluding 6.5)

17 March (Thursday)

Topic 4: Bond Valuation (Contd)

22 March (Tuesday)

Topic 4: Bond Valuation (Contd)

31 March (Thursday)

Topic 4: Bond Valuation

Topic 5: Stock Valuation
Suggested Reading
BDH, Chapter 7

1 April (Friday)

Deadline for Submitting of Group Case Study Report by 5:00pm

5 April (Tuesday)

Discussion of Group Case Study

Topic 5: Stock Valuation (Contd)

7 April (Thursday)

Topic 5: Stock Valuation (Contd)

Date
12 April (Tuesday)

Topic
Topic 5: Stock Valuation (Contd)
Topic 6: Risk and Return
Suggested Reading
BDH, Chapters 11 and 12

14 April (Thursday)

Topic 6: Risk and Return (Contd)

19 April (Tuesday)

Topic 6: Risk and Return (Contd)

21 April (Thursday)

Topic 6: Risk and Return (Contd)

26 April (Tuesday)

Topic 6: Risk and Return (Contd)

28 April (Thursday)

Topic 6: Risk and Return (Contd)

Topic 7: Cost of Capital
Suggested Reading
BDH, Chapter 13

3 May (Tuesday)

Topic 7: Cost of Capital (Contd)

5 May (Thursday)

Topic 7: Cost of Capital (Contd)

Wrap Up

Final Examination (To be arranged by the University)

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