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FIN 819: Financial Management. Administrative Issues Course Overview . Today’s plan. Administrative issues prerequisite add, drop and withdraw projects case writing and discussion final exam final grade Course overview Team formation. The instructor. My name is George Li

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FIN 819: Financial Management

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fin 819 financial management

FIN 819: Financial Management

Administrative Issues Course Overview

FIN 819: Lecture 1

today s plan
Today’s plan
  • Administrative issues
      • prerequisite
      • add, drop and withdraw
      • projects
      • case writing and discussion
      • final exam
      • final grade
  • Course overview
  • Team formation

FIN 819: Lecture 1

the instructor
The instructor
  • My name is George Li
  • Office: DTC 582 and BUS 315
  • Email:
  • Office hours:

Monday: 1:30 p.m. to 3:30 p.m. at BUS 315

Thursday: 3:30 a.m. to 5:30 p.m. at DTC 582

  • Research interest:
      • Corporate finance: real options
      • Asset pricing: information and stock prices

FIN 819: Lecture 1

my website
My website
  • All the lecture slides, solution to homework problems, sample final exam will be posted on my website:
  • I only use ilearn to send you emails.

FIN 819: Lecture 1

  • The textbook for background reading
    • Principles of Corporate Finance, 9th Edition, by Richard A. Brealy and Stewart C. Myers, published by Irwin McGraw-Hill, 2008.

FIN 819: Lecture 1

  • You are required to take BUS 785 with a grade of at least B-, or have a waiver of this course.
  • It is the school’s policy that all the students in this course must satisfy this requirement and there is no exception, unless you get the waiver of this prerequisite

FIN 819: Lecture 1

add drop and withdrawal policy
Add, drop and withdrawal policy
  • The business school has the policy for add, drop and withdrawal
    • Students can withdraw once
    • If you like to withdraw, you have to do it in the first two weeks
    • Please read the Spring 2012 bulletin for detail information

FIN 819: Lecture 1

homework problems
Homework problems
  • In the first several lectures, I will review most important concepts in corporate finance
  • In order to help you to understand these concepts, homework problems are assigned.
  • I will not grade homework but its solution will be posted on my website.

FIN 819: Lecture 1

the two projects
The two projects
  • There is one project for each team. A project is the presentation of a case. For each of the two cases to be discussed, every team must write a report, which is 2-10 pages long in single space and typed.
  • Each team has about 4 students so that we have 4 teams.
  • Form your own teams after the break.
  • For each case, two teams are assigned to present.

FIN 819: Lecture 1

the two projects continue
The two projects (continue)
  • If your team is to present a project, your team has to use PowerPoint to present your analysis, and bring in a computer and a USB, with the PowerPoint file copied on it.
  • Each member in the team will get the same score unless there is a “free-rider” problem.

FIN 819: Lecture 1

the cases
The cases
  • One case will be reserved electronically in the library. It is supposed to be available in the third week of this semester.
  • I will tell you the password to access this case.
  • The second case is from the end of chapter 22 (Bruce Honiball’s invention)

FIN 819: Lecture 1

two cases
Two cases:
  • Nike Corporation
  • The min-case in chapter 22

FIN 819: Lecture 1

valuing a writing report
Valuing a writing-report

The instructor will use the following criteria to value a writing-report

  • understanding the case
  • clear writing
  • apply concepts correctly
  • convincing arguments

FIN 819: Lecture 1

valuing the oral presentation
Valuing the oral presentation
  • The instructor will use the following criteria to value the oral presentation
    • Clear presentation ( 5pts)
    • Answer questions precisely and concisely (6 pts)
    • Understand the concepts and theories (2 pts)
    • Have convincing arguments (2 pts)

FIN 819: Lecture 1

solution to the free rider problem
Solution to the free-rider problem
  • In theory, all members in each team should get the same score.
  • If more than two members in a team complain about the free-rider problem, the team member valuation for that team will be used to decide on the project score for each student in that team.

FIN 819: Lecture 1

the mid term and final exams
The mid-term and final exams
  • There will be a mid-term and a final exams, which are closed-book.
  • The mid-term exam has only multiple choice questions, but the final has only essay questions.
  • The mid-term exam is closely related to lectures and homework problems.
  • The final is closely related to the lectures, homework problems, and 2 cases to be discussed in the class.
  • There is no makeup or in-advance final.

FIN 819: Lecture 1

class attendance and performance
Class attendance and performance
  • It is the instructor’s strong preference that you attend each class and be actively involved, unless you are very familiar with the basic concepts discussed in the first several review lectures.

FIN 819: Lecture 1

total points
Total points
  • Your overall course grade will be based on your performance in the class, four cases, final project, and the final exam.
    • Class attendance and performance: 10 pts
    • Case write-ups: (each 5) 10 pts
    • Case presentation: 15 pts
    • Mid-term exam: 25
    • Final 60 pts
    • Total 120 pts

FIN 819: Lecture 1

curve grading
Curve grading
  • Grading policy:
  • Your ranking Letter grades
    • Top 15% A range (A-, A, A+)
    • 15% - 75% B range (B-, B, B+)
    • 75% - 95% C range (C-, C, C+)
    • Bottom 5% D range (D+, D, D-)

FIN 819: Lecture 1

fin 819 course organization
FIN 819: course organization

FIN 819

Module 1

Fundamentals of valuation

Module 2

Valuing risky investments

Risk and return

Module 3

Corporate financial decisions

Module 4

Market efficiency and options

Fundamentals of PV

Financial decision

Interest rates

Portfolio theory

Diversification and covariance

Types of securities

Stocks, bonds and other

Weak, semi-strong and

strong form efficiency

Information and stock prices

Perpetuities and

annuities calculation

Tangency portfolio, CAPM

risk and return

Modigliani-Miller theorem 1

Pizza size is independent of

how sliced

Options and Black-Scholes

Valuing stocks

and bonds

NPV and other criteria

Effect of leverage

WACC and discount rate

Modigliani-Miller theorem 2


Binomial model, replication

Risk-neutral probabilities

FIN 819: Lecture 1

corporate finance what is it
Corporate finance: what is it?
  • A set of concepts, theories and approaches that help the firm make financial decisions.

FIN 819: Lecture 1

financial decisions
Financial decisions
  • Capital budgeting (use of the capital)
    • Real capital investments
    • Mergers; acquisitions
  • Financing (capital structure decision)
    • Equity
    • Debt
  • Risk management
    • Hedging to reduce the risk
    • Portfolio diversification

FIN 819: Lecture 1

course organization
Course organization
  • This course is broken-down into 4 modules
    • Valuation
    • Assets pricing theory
    • Option pricing theory and its applications
    • Capital structure theory

FIN 819: Lecture 1

  • This module covers the fundamentals of valuation. The topics include
    • Present value concept and its application
    • Unlevered assets and betas
    • Levered assets and betas
    • Two approaches for valuing a real project
      • WACC
      • APV.

FIN 819: Lecture 1

asset pricing theory
Asset pricing theory
  • This module is the fundamental of corporate finance
    • Corporate finance is simply the application of asset pricing theories
  • It covers the most fundamental theories in finance
    • Portfolio diversification, mean-variance analysis, risk and return
    • CAPM, WACC and its calculation

FIN 819: Lecture 1

option pricing theory and its applications
Option pricing theory and its applications
  • This module, together with the first module, provides a complete picture about asset pricing.
    • asset pricing based on equilibrium concept
    • relative asset pricing, using no arbitrage argument
  • It covers
    • Black-Sholes valuation and its use in industries
    • Binomial tree valuation in single and multiple stages
    • Applications of option theory in valuing managerial flexibility: waiting, expansion, and shutting down

FIN 819: Lecture 1

financing decision capital structure theory
Financing decision (capital structure theory)
  • If you are the CEO of an industrial company
    • you can make your company more valuable by choosing “better” projects (capital budgeting)
    • we want to know if you (and the CFO) can make your company more valuable by changing the mixture of your financing (i.e. the ratio of debt to equity)
  • It covers
    • Modigliani-Miller theorems 1 and 2

FIN 819: Lecture 1