Module 1 – Case
THE ROLE OF THE FINANCIAL MANAGER
Assignment Overview
Due to the increasingly complex nature of corporate finance,
more and more corporations are tapping their chief financial officer to become
their chief executive officer. The CFO brings substantial financial expertise
to the position of CEO. However, there may be other reasons why the CFO is not
necessarily the best person to become the CEO.
Please note that the CFO must have an external orientation:
After all, the company is owned by its shareholders and if the company is to
operate so as to raise the value of the shares it must consider not only the
internal structure of the organization, its products, competitors etc., but it
must consider the interaction between what the company ‘does’, and the way the
‘market’ evaluates its performance. It is the combination of the two that plays
a role in affecting the market price of the shares and shareholders value. The
individuals who must have an eye on this are usually the CEO and the CFO.
Please read the articles below, which are both available in
Proquest. You need to click âADDIONAL LIBRARY RESOURCESâ under the title of
Online Library in the TLC Portal in order to access the links.
How a CFO can graduate to CEO
Corporate Finance; London; Jun 1999; Janine Brewis
Abstract: Positions of power within corporates are highly
sought after, and today’s chief financial officers and finance directors are
increasingly becoming aware that they now have a realistic opportunity of
becoming CEO. Part of the reason for the trend towards recruiting CFOs who can
behave as strategic partners is that the investor community looks much more
critically at the business performance and management strengths and weaknesses
of corporates. This strategic positioning gives them an opportunity to buff up
their image, and make themselves seen as a more credible candidate to take over
the CEO role.
Do CFOs Really Make Good CEOs
Institutional Investor; New York; Aug 1989; Picker, Ida
Abstract: With the proliferation of corporate takeovers,
leveraged buyouts, and restructuring in the US, it would seem that chief
financial officers (CFO) hold the keys to executive wisdom. Recruiters report a
growing trend of grooming CFOs for chief executive officer (CEO) positions, with
some estimating that nearly 25% of top corporate leaders are former CFOs.
Analysts, academics, and headhunters agree that the ideal CEO communicates
well, is adept at managing managers, understands the company’s product and
operations, and provides a consistent vision. A recent survey by Management
Practices Quarterly reveals that, of 83 new CEOs appointed in 1988, more than
18% came from operations-production backgrounds, some 23% had technical
training, while only 14.4% had a financial background. D. Wayne Calloway, who
became CEO of PepsiCo in May 1986, was formerly the company’s CFO and is
probably the best example of the valuable experience CFOs can bring to the CEO
position.
Assignment Expectations
Read the two articles above, look for newer articles on the
subject by browsing the web and then write a two-page paper answering the
following question:
Do you think finance departments are the best place to train
future CEOs? Provide two actual examples of CFOs of publicly-traded companies
who became CEOs of publicly-traded companies within the past 5 years. Do these
individuals have the CPA and/or CFA designations?
Include a discussion of both the pros and cons of hiring a
CFO to be CEO. Try to cite at least three articles in your paper in support of
your arguments in favor of and against hiring a CFO to be a CEO. Remember to
include a reference list and to refer to the articles you use in the body of
your paper.
Module 1 – SLP
THE ROLE OF THE FINANCIAL MANAGER
For this assignment, go to the Yahoo Stock Screener and use
this page to find a publicly traded company that you find interesting and would
like to study for this class. The company should not be a bank or a financial
institution of any kind including insurance companies.
SLP Assignment Expectations
Write a two to three page paper discussing what you find
interesting about this company, and whether or not you think this company will
have a successful future. Get to the company’s web site, into the
“investors relations” section and provide some financial highlights
of your company for the past year. Indicate which stock exchange the company is
listed on and what was the past 12 month rate of return (% gain or loss) to
investors who bought shares of this company a year ago and sold the shares
yesterday. This rate of return is called the one-year Holding Period Return, or
HPR. Also state what is the most recent price of the shares on the company?
In addition discuss briefly some information about the top
management team including the CEO and CFO. If there are any issues involved
with the company that relate to the issues discussed in the case assignment,
mention them briefly as well.
Privacy Policy |
Module 2 – Case
PRESENT VALUE
Assignment Overview
NOTE: This assignment is in two parts, one is quantitative
problem, the other a short paper. You need to turn in both Part I and Part II
to receive full credit for this assignment.
Part I: This part of the assignments tests your ability to
calculate present value.
A. Suppose your bank account will be worth $15,000.00 in one
year. The interest rate (discount rate) that the bank pays is 7%. What is the
present value of your bank account today? What would the present value of the
account be if the discount rate is only 4%?
B. Suppose you have two bank accounts, one called Account A
and another Account B. Account A will be worth $6,500.00 in one year. Account B
will be worth $12,600.00 in two years. Both accounts earn 6% interest. What is
the present value of each of these accounts?
C. Suppose you just inherited an gold mine. This gold mine
is believed to have three years worth of gold deposit. Here is how much income
this gold mine is projected to bring you each year for the next three years:
Year 1: $49,000,000
Year 2: $61,000,000
Year 3: $85,000,000
Compute the present value of this stream of income at a
discount rate of 7%. Remember, you are calculating the present value for a
whole stream of income, i.e. the total value of receiving all three payments
(how much you would pay right now to receive these three payments in the
future). Your answer should be one number – the present value for this gold
mine at a 7% discount rate but you have to show how you got to this number.
Now compute the present value of the income stream from the
gold mine at a discount rate of 5%, and at a discount rate of 3%. Compare the
present values of the income stream under the three discount rates and write a
short paragraph with conclusions from the computations.
Part II: Read the following three sample business plans:
Ice Dreams
R J Wagner & Associates Realty
Interstate Travel Center
Which of these three projects do you think should have the
highest risk from the point of view of investors (potential providers of funds)
and would therefore be evaluated using the highest discount rate? Which one do
you think should have the lowest? Write a paper explaining your reasoning.
In your assessment of the business plans consider the
possible risk of each plan. Risk is one of the main considerations when
deciding whether a plan should be evaluated and discounted to present value
using a high or a low discount rate.
Note: you are not expected to fully analyze the numbers and
financial statements in these business plans. There are only forecasts and
projections. Nobody really believes them anyway. Use your intuition rather than
calculations to assess risk and potential of each of these plans.
Assignment Expectations
Turn in both Part I and Part II in one Word document when
completed. Part I should be two pages long and contain your calculations. Part
II should be two pages long
Module 2 – SLP
PRESENT VALUE
One specialized type of security is called an equity
futures. This is a contract that guarantees you a share of a particular company
to be delivered to you not today, but sometime in the future, at a price that
is determined by the market right now. This price is usually called the futures
price of the stock (note – the term is plural – “futures”). If you
‘buy’ this futures, you don’t pay for the shares now. You are actually signing
a contract whereby you are committed to pay that price in a particular date in
the future, and you are guaranteed to receive one share of the company at that
time, irrespective of its actual market price at that future date. Suppose for
example that the futures price of the XYZ company is $40. Suppose you ‘buy’ a
6-months futures contract. If six months later the share price is $45, you gain
$5 per share. If the market price in 6 months is only $35, then you lose $5.
Using the Yahoo Finance take a look at the five year chart
for your reference company (the one you chose for SLP1). Using this chart and
other information you can find on this company, write a paper answering the
following question:
What do you think would the futures price of 100 shares of
your reference company to be delivered to you in one year be right now?
SLP Assignment Expectations
The paper is to be two pages long. You DO NOT need to use
complex mathematical formulas for this assignment. Instead, think about how
much do you think the market value of 100 shares of your company will be in one
year? In considering the possible answer please reflect also on the following:
Do you expect the price of the shares in one year to be much
higher? Or lower? Or only a little bit higher?
How risky the stock is. Is its price prone to wild swings up
and down? Or has the price been relatively stable the last few years?
What alternative investments you have access to. What rate
does your bank give you on a savings account or certificate of deposit? The
greater return you can get on other investments, the less you would be willing
to pay for an equity future.
Module 3 – Case
THE CAPITAL ASSET PRICING MODEL
Assignment Overview
For each of the scenarios below, explain whether or not it
represents a diversifiable or an undiversifiable risk. Please consider the
issues from the viewpoint of investors. Explain your reasoning.
There’s a substantial unexpected increase in inflation.
There’s a major recession in the U.S.
A major lawsuit is filed against one large publicly traded
corporation.
Use the CAPM to answer the following questions:
Find the Expected Rate of Return on the Market Portfolio
given that the Expected Rate of Return on Asset “i” is 12%, the
Risk-Free Rate is 4%, and the Beta (b) for Asset “i” is 1.2.
Find the Risk-Free Rate given that the Expected Rate of
Return on Asset “j” is 9%, the Expected Return on the Market
Portfolio is 10%, and the Beta (b) for Asset “j” is 0.8.
What do you think the Beta (?) of your portfolio would be if
you owned half of all the stocks traded on the major exchanges? Explain.
In one page explain what you think is the main ‘message’ of
the Capital Asset Pricing Model to corporations and what is the main message of
the CAPM to investors?
Assignment Expectations
The Case report should be a two-page report. Please show
your work for quantitative questions.
Module 3 – SLP
THE CAPITAL ASSET PRICING MODEL
Using Yahoo! Finance find the value of beta for your
reference company. Write a two page paper discussing the following items:
What is the estimated beta coefficient of your company? What
does this beta mean in terms of your choice to include this company in your
overall portfolio?
Given the beta of your company, the present yield to
maturity on U.S. government bonds maturing in one year (currently about 4.5%
annually) and an assessment that the market risk premium (that is – the
difference between the expected rate of return on the ‘market portfolio’ and
the risk-free rate of interest) is 6.5%, use the CAPM equation in order to find
out what is the present ‘cost of equity’ of your company? Explain what is the
meaning of the ‘cost of equity’.
Choose two other companies, look up their “Beta”
and report the names of these companies and their betas. Suppose you invest one
third of your money in each of the stocks of these companies. What will the beta
of the portfolio be? Given the data in (b), what will the Expected Rate of
Return on this portfolio be? Do you feel that the three-stock portfolio is
sufficiently diversified or does it still have risk that can be diversified
away? Explain.
SLP Assignment Expectations
In a two-page report explain your answers thoroughly with
references to the background materials. Make sure to demonstrate a strong
understanding of the concept of beta and the risk/return trade off.
Module 4 – Case
CAPITAL BUDGETING WITH FUNDING SOURCES
Case Assignment
This case has two separate parts.
Part I: Capital Budgeting Practice Problems
a. Consider the project with the following expected cash
flows:
Year
Cash flow
0
-$400,000
1
$100,000
2
$120,000
3 $850,000
If the discount rate is 0%, what is the project’s net
present value?
If the discount rate is 2%, what is the project’s net
present value?
If the discount rate is 6%, what is the project’s net
present value?
If the discount rate is 11%, what is the project’s net present
value?
With a cost of capital of 5%, what is this project’s
modified internal rate of return?
Now draw (for yourself) a chart where the discount rate is
on the horizontal axis (the “x” axis) and the net present value on
the vertical axis (the Y axis). Plot the net present value of the project as a
function of the discount rate by dots for the four discount rates. Connect the
four points using a free hand ‘smooth’ curve. The curve intersects the
horizontal line at a particular discount rate. What is this discount rate at
which the graph intersects the horizontal axis?
[ Look at the graph you draw and write a short paragraph
stating what the graph ‘showsâ]
b. Consider a project with the expected cash flows:
Year Cash flow
0
-$815,000
1
$141,000
2
$320,000
3
$440,000
What is this project’s internal rate of return?
If the discount rate is 1%, what is this project’s net
present value?
If the discount rate is 4%, what is this project’s net
present value?
If the discount rate is 10%, what is this project’s net
present value?
If the discount rate is 18%, what is this project’s net
present value?
Now draw (for yourself) a chart where the discount rate is
on the horizontal axis (the “x” axis) and the net present value on
the vertical axis (the Y axis). Plot the net present value of the project as a
function of the discount rate by dots for the four discount rates. Connect the
four points using a free hand ‘smooth’ curve. The curve intersects the
horizontal line at a particular discount rate. What is this discount rate at
which the graph intersects the horizontal axis?
[ Observe the graph and write a short paragraph stating what
the graph ‘showsâ]
c. Read the background materials. Then write a one-to-two
page paper answering the following question:
Which method do you think is the better one for making
capital budgeting decisions – IRR or NPV?
Part 2: Equity and Debt
Read the article below available in ProQuest:
American Superconductor switch ; Westboro company plans to
raise money through a stock offering, Andi Esposito. Telegram & Gazette.
Worcester, Mass.: Aug 26, 2003. pg. E.1
Abstract (Article Summary)
“AMSC’s management and board of directors believe the
decision to forgo a secured debt financing and to adopt an equity financing
strategy under current market conditions is in the best interests of our
shareholders,” said Gregory J. Yurek, chief executive officer of AMSC. The
265-employee company has operations in Westboro and Devens and in Wisconsin.
Finally, the Northeast blackout “shined a lot of light
on the problems we have been talking about as a company for three to four
years,” Mr. Yurek said. AMSC products, such as a system installed this
year in the aging Connecticut grid and high temperature superconductor power
cables and other devices bought by China for its grid, are designed to improve
the cost, efficiency and reliability of systems that generate, deliver and use
electric power. “We are a company with products out there solving problems
today,” he said.
After reading the background materials and doing your
research, apply what you learned from the background materials and write a two
to three page paper answering the following questions:
What are the advantages and disadvantages for AMSC to forgo
their debt financing and take on equity financing? Do you agree with their
decision? How can a company’s cost of equity be determined? Is there a tax
deduction from the use of debt financing? Please explain.
Explain your answers thoroughly. Be sure to support your
opinions on these assignment questions with references to the background
materials or to other articles in your paper.
Assignment Expectations
This assignment consists of a quantitative section (Part 1)
and an essay section (Part 2) below. Upload both sections as one Word document
by the end of the Module.
Module 4 – SLP
CAPITAL BUDGETING WITH FUNDING SOURCES
This SLP has two parts.
Part I
Every company has capital projects. The company you have
selected must need something! Be it a new wing to the building, a new product line
to be funded, a new piece of equipment, find one new acquisition your company
needs.
Once you have identified the new possible investment item,
what problems are you going to have in estimating the cash flow that might be
emanating from the initial investment and problems in getting it funded? Issues
might be:
Risk
Cost
Politics (getting it through committees)
Public Relations
etc.,
Identify a potential capital project for your company
describe such a project and write a short summary of the problems you see in
getting the funding to see it through.
Part II
Examine the structure and activities in your organization
and identify two projects or events that required an investment. One should be
a ‘current project’ and the other long-term investment project.
For each project or event, identify the preferable source of
funding. You may not have access to the actual source of funding so limit your
paper to the source YOU feel is most appropriate. Then explain why you feel
that source is most appropriate.
This is a Signature
Assignment Expectation for FIN301 Module 4 SLP
There are 2 specific learning outcomes: 1) apply business
theories, models, and concepts to guide analysis of problems and situations and
2) utilize data driven analysis in making business decisions.
In this SLP assignment for Module 4 our emphasis will be on
understanding the preferable source of funding. You will be summarizing all of
what you learned the in the Cases, SLPs and TDs.
The grading rubric below has been developed to measure
student success in meeting the FIN301 Module 4 SLP expectations related to
applying your knowledge of the source of funding on making business decisions.
Assignment Expectation
Weak
Marginal
Adequate
Strong
Organization
Demonstrates the ability to explain content logically,
concisely, and in an appropriate manner to understanding of the source of
funding.
There is no logical sequence of information. Wording is
rambling and unfocused.
Paper does not follow a logical sequence.
Paper follows a logical sequence. There are some minor
problems with sub-classification and/or results are not clear.
Paper follows a logical sequence with a correct computation
and results. Each activity relates to others in a carefully organized
framework.
Demonstrates the ability to support a central point or
viewpoint throughout the paper.
Insufficient elaboration and/or support (e.g., computation,
each source) in the paper.
Limited elaboration and/or support in the paper.
Support with some specific details and elaboration in the
paper.
Support through both specific details and elaboration
apparent in the paper.
Content
Demonstrates the ability to analyze the source of funding
and compare equity with debt.
The purpose is not identified, is unclear, or inappropriate
in the paper.
Purpose is occasionally unclear in the paper.
Clear purpose, but not consistently sustained throughout the
paper.
Clear purpose sustained throughout the paper.
Demonstrates the ability to gather and sort financial
information and data on a particular investment activity.
Does not have a grasp of information and appropriate data.
Topic is poorly created. Supporting explanations are absent or vague. Trite
ideas and/or unclear wording reflect a lack of understanding of topic.
Seems uncomfortable with information and data. Topic is
evident but with little or no elaboration.
Seems comfortable with the financial information and data.
Topic is evident with some supporting details.
Demonstrates full knowledge of the topic with explanation
and elaboration. The topic is well developed, effectively supported, and
appropriate for the assignment. Critical thinking is clearly and creatively
expressed. Data choices are well thought out.
Delivery
Demonstrates the ability to use appropriate word choice and
grammar in the paper.
There are many sentences with grammatical errors. Some
sentences are incomplete/halting, and/or vocabulary is somewhat limited or
inappropriate.
There are a few sentences that are complete and grammatical.
Word choice is not always appropriate for presentation.
Sentences are generally complete and grammatical, and they
flow together easily. With a few exceptions, words are chosen for their precise
meaning.
All sentences are complete and grammatical, and they flow
together easily. Words are chosen for their precise meaning. Word choice
illustrates grasp of content and enhances explanation.
Demonstrates the ability to make an effective explanation
outline that is free from bias.
Words chosen for an explanation are inappropriate and
exhibits bias. Some readers may be confused.
Words chosen for the paper are free from bias with one or
two minor exceptions.
Words have no apparent bias. There is some inappropriate
explanation.
Words and explanation are completely free from bias.
SLP Assignment Expectations
For Part I, you must discuss both the estimates of the
initial investments and the annual incremental after-tax cash flow that is
expected to emanate from the investment.
Module 1 discussion
CFO to CEO
There has been a trend across corporate America of promoting
financial officers to CEO. What are some advantages and disadvantages of this
practice? (Based on the article of Financial Managers and other reading you may
have done)
Do research on the Internet and show the reference for the
information. Don’t forget to respond to a colleague’s posting also.
Professorâs Note: In addition to searching the Internet for
text related to this threaded discussion, please watch the following videos
(click on the following link to access these videos) and post your comments.
http://www.youtube.com/watch?v=E2GxuhDRVYg David Mudrick –
CFOs Becoming CEOs
http://www.youtube.com/watch?v=y5HkWah-bfs Ron Gaboury –
CFOs Becoming CEOs
Grading Criteria: Try to add information not previously
discussed by others. Please, provide factual information (not merely opinions)
backed up by details or examples. Your comments should be in your own words and
include references.
Module 2 discussion
Present Value
What is your personal discount rate or rate of preferences?
That is, how much would you pay for a promise of $1,000 to be received one year
from now? Would you discount it by 10%, 5%, etc?
Do research on the Internet and show the reference for the
information. Don’t forget to respond to a colleague’s posting also.
Professorâs Note: In addition to searching the Internet for
text related to this threaded discussion, please watch the following videos
(click on the following link to access these videos) and post your
comments.
http://www.youtube.com/watch?v=ks33lMoxst0 Introduction to Present Value
http://www.youtube.com/watch?v=4LSktB7Pk_c Present Value 2
http://www.youtube.com/watch?v=nScQsMmohZ0 Time value of
money calculations using the TI BAII Plus calculator â part 1
http://www.youtube.com/watch?v=EocymirVokM Lesson TVM-10-060
– Clip 06 – PV of an Annuity Due – TI BAII Financial
Grading Criteria: Try to add information not previously
discussed by others. Please, provide factual information (not merely opinions)
backed up by details or examples. Your comments should be in your own words and
include references.
Module 3 discussion
CAPM
Now that you have read about the CAPM, would you ever use it
to make personal investment decisions? How can an individual investor use or
think about CAPM?
Consider the following:
What is the main message of the CAPM? It evolves from the
notion that investors in general arenât stupid: They diversify their investment
funds into a well-diversified portfolio. More specificallyâthe main message of
the CAPM is that the rate of return one should expect to earn on a particular
investment is only related to the systematic risk of the security, not to its
total risk. When you purchase a stock (because you like it or because you got a
âtipâ), youâll be exposed to the total risk of this stock, but the market
theory implies that youâll only be compensated for a small proportion of that
risk. Hence, if you do like risk you should invest in a well-diversified risky
portfolio with many securities having a high beta, rather in an individual
stock. Now go back to the initial question and present your thoughts…
Do research on the Internet and show the reference for the
information. Don’t forget to respond to a colleague’s posting also.
Professorâs Note: In addition to searching the Internet for
text related to this threaded discussion, please watch the following video
(click on the following link to access this video and further Part 2) and post
your comments.
http://www.youtube.com/watch?v=LWsEJYPSw0k CAPM Capital
Asset Pricing Model in 4 Easy Steps – What is Capital Asset Pricing Model
Explained
Grading Criteria: Try to add information not previously
discussed by others. Please, provide factual information (not merely opinions)
backed up by details or examples. Your comments should be in your own words and
include references.
Module 4 discussion
Net Present Value
How accurate do you think a company’s estimates of the net
present value of a proposed project are? Refer to both the initial investment
and to the components of the cash flow: revenues, operating expenses,
depreciation, taxes, and the cost of capital to use for the computation of the
present value.
Keep in mind that NPV is the value in today’s dollars of
cash flows to be received some time in the future minus what we have to pay
today to get those cash flows.
Which of the following do you think would give you the most
accurate NPV calculation: (a) a brand new retail startup (b) a pharmaceutical
company introducing a new drug (c) a company with a successful product in Chile
trying to introduce it to the USA.
Do research on the Internet and show the reference for the
information. Don’t forget to respond to a colleague’s posting also.
Professorâs Note: In addition to searching the Internet for
text related to this threaded discussion, please watch the following videos
(click on the following link to access these videos) and post your
comments.
http://www.youtube.com/watch?v=jylJ2r9bklE Episode 99: How to Calculate Net Present
Value
http://www.youtube.com/watch?v=uNcBWALtLHU What is NPV?
Grading Criteria: Try to add information not previously
discussed by others. Please, provide factual information (not merely opinions)
backed up by details or examples. Your comments should be in your own words and
include references.
Module 4 Reflective Discussion
Given the readings and assignments in this course, identify
and briefly discuss two important concepts applicable to your professional discipline.
In other words, discuss what concepts you have learned that you feel you can
personally apply to your career.
