Finance I

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FIN 101 (Credit hours 3)
BBA, Second Year, Fourth Semester

Course Objectives:
The two core courses on Finance, Finance I and Finance II, aim to provide students with basic understanding f important concepts in finance and investments, For students choosing to specialize in finance, the two core courses give them solid foundation. For students choosing to concentrate on other areas of management, the two core courses equip them adequately to understand financial decisions and communicate effectively with finance managers or finance professionals.

Course Contents:
1.Earnings and Cash Flow Analysis 3 hours
Inadequacy of accounting numbers; Emphasis on Free Cash Flow; Interpretation of Financial Ratios.

2.Liquidity and Working Capital Management 3 hours
Working capital and its components; Cash conversion cycle; Managing cash, inventories, and receivables.

3.Concepts of Return and Time value of Money 9 hours
Compound interest, compounding frequency and their implication on future values of an investment; Periodic interest rate and effective annual interest rate; Discounting and present values of cash flows; Valuation of level and growth perpetuities, annuities; Nominal return, inflation, and real return; Nominal and real interest rate! discount rate.

4.Introduction to Concept of Risk 9 hours
Concept of Expected Value, Variance, Standard Deviation, and Covariance of Returns; Limitation of Variance as a measure of risk; Normal distribution and adequacy of expected return and variance.
Concept of diversification; Use and limitations of diversification in risk reduction; Market versus unique risk; Assets versus risk.
Capital Asset Pricing Model (CAPM) and beta as a measure of asset risk.

5.Valuation of Default Risk Free Bond 6 hours
Price and yield relationship of a bond; Price risk of a default risk free bond; Coupon rate and price risk; maturity and price risk.

6.Valuation of Common Stock 6 hours
Book value, Liquidation value, Replacement Cost Value, Dividend Discount Model of stock valuation. Growth stocks and income stocks; Earning per share and P/E multiple; growth, reinvestment, ROE and stock Price; Market Efficiency and Stock Price Behavior

7.Capital Investment Decisions 6 hours
Superiority of Net Present Value (NPV) over pay back period, accounting rate of return, internal rate of return (IRR). Discounted payback period, and profitability index.
Estimating cash flows: sunk cost, opportunity cost, cannibalization, sales creation and the concept of incremental cash flows
Capital Replacement Decision; Optimal Timing of Investment; Comparing investment with different lives; Capital Rationing Problem. Sensitivity and Scenario analysis;

8.Capital Structure and Theories of Capital Structure 6 hours
Modigliani and Miller’s (MM) irrelevance proposition of Capital Structure: Static Tradeoff Theory of Capital
Structure; Pecking Order Theory; Impact of debt on incentive and agency problems. Cost of Capital and Weighted Average Cost of Capital.

Text Book:
1.Brealey,R.A., Myers S.C.. Marcus A.J.: Fundamentals of Corporate Finance, McGraw Hill International edition.

Reference Books
1.Brigham, E.F., Gapenski, L. C., and Ehourhardt: Financial Management: Theory and Practice, Harcourt College Publication, 9th edition.
2.Van Horne, J.C., and Wachowicz, JR.: Fundamentals of Financial Management, Prentice- Hall India Ltd.