BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, Pilani

Pilani Campus
AUGS/ AGSR Division

SECOND SEMESTER 2018-19

COURSE HANDOUT
Date: 07.01.2019

In addition to part I (General Handout for all courses appended to the Time table) this portion gives further
specific details regarding the course.
Course No : ECON F 315 / FIN F 315
Course Title : Financial Management
Instructor-in-Charge : Rajan Pandey

1. Course Description: FIN F315 (ECON F315) - Financial Management - is a foundation course on
Corporate Finance. The course provides an in-depth coverage of array of decisions undertaken by the Financial
Manager of an organization for achieving the objectives of shareholder's wealth maximization principle.

In an increasingly competitive and globally integrated world, the roles and responsibilities of financial manager
have widened manifold in the past two decades. The fast-paced rise in a number of Indian companies in the new
millennium indicates the tremendous investments infused by profit-seeking investors amidst growth of the Indian
corporate sector. The wide-range of investment avenues available to investors explains the extent of innovations
happening in financial markets worldwide. This explosive growth is much attributable to the integration of world
markets, modern computational sophistication, and an ever-increasing role played by communications and
information technology. However, with uncontrolled growth comes the risk of an uncontrolled collapse and the
financial crisis of 2008 is a classic case of presence of fault lines in the financial markets.

To retain the confidence and faith of investors and forge robust and sustainable growth, the firms must impress
suppliers of capital (investors) with adequate rewards to compensate them for the risks they undertake. In this
pursuit of shareholder's wealth maximization, it is imperative that decisions taken by firms related to investment in
projects (capital budgeting), raising finances for undertaking investment decisions (financing) and rewarding
shareholders (dividend policy) deomonstrate management's competence and goodwill. However, this pursuit of
shareholder’s wealth maximization must ensure protecting the rights of stakeholders such as employees, suppliers,
customers and the environment etc.

The role of the financial manager - which is central to the decision-making concerning finances (money, capital,
investment etc.) – plays a critical role in ensuring seamless day-to-day operations, maintaining profitability and
sustaining reliable long-term performance along with its adherence to corporate social responsibility.

2. Scope and Objective of the Course: This course aims at introducing students to the fundamental
Corporate Finance concepts, theories, and the process of financial decision-making. The structure of the course
enables students to:

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 BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, Pilani
Pilani Campus
AUGS/ AGSR Division

a. Appreciate the existence of a variety of financial instruments and their valuations,

b. Learn globally adopted corporate investment and risk management practices, and
c. Obtain knowledge of the strategic financial management approaches followed globally for gaining deeper
insights into the principles and practices of modern corporate finance.

Primarily the course objectives hover around key decisions made by financial managers, which include financing
decisions, investing decisions, capital structure decisions, and shareholder rewarding policies. The contents of this
course enable the participants to appreciate the interdependencies between these decisions and their impact on the
survivability of the firm.

Important: The course assumes that students have done a basic course on accounting (prerequisite), have strong
foundation on financial statements, and have elementary familiarity with financial markets, financial securities,
statistics, and MS-Excel.

3. Text Book: Any single textbook is not sufficient for the course.

4. Reference Books (R#): In decreasing order of priority:

1. Eugene F. Brigham and Michael C. Ehrhardt, Financial Management: Theory and
Practice, 14/e, 2014, (South-Western) Cengage Learning.
2. Richard A. Brealey, Stewart C. Myers, Franklin Allen, and Pitabas Mohanty,
Principles of Corporate Finance, 8/e, 2010, Tata McGraw-Hill Publishing
Company Ltd.
3. Stephen A. Ross, Randolph W. Westerfield, Jeffrey Jaffe, Bradford D. Jordan, and
Ram Kumar Kakani, Corporate Finance, 11/e, 2016, McGraw Hill Education.
4. Lawrence J. Gitman, Principles of Managerial Finance, 11/e edition, 2008, Pearson
Education Publication (erstwhile textbook).
5. Aswath Damodaran, Corporate Finance: Theory and Practice, 2/e, 2001, John
Wiley & Sons, Inc.
6. Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri, and Joseph M. Katz,
Financial Theory and Corporate Policy, 4/e, 2011, Pearson Education, Inc.
7. Robert A Haugen, Modern Investment Theory, 5/e, 2018, Pearson India Education
Services Pvt. Ltd.

5. Course Plan:

Contents: Imp Note – Refer to the relevant sections of the first reference book as mentioned below
(class notes to be clubbed with book chapters). Supplementing the first reference book (Brigham &
Ehrhardt) with lecture notes should suffice. Refer to the next section for information on the relevant
topics from the first reference book.

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 BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, Pilani
Pilani Campus
AUGS/ AGSR Division

Detailed syllabus and lecture plan follows.

The course syllabus is divided into 5 Modules:
1. Introduction to corporate finance and corporate governance
2. Risk, return, security valuation, and cost of capital
3. Capital budgeting
4. Financing, capital structure, and dividend policy
5. Special topics in corporate finance

Module No. Lecture Session Reference Learning outcomes

1. Introduction to L1 Introduction to Corporate Understanding of:

Corporate Finance A. Key decisions taken
Finance, L2 Modern corporate structure by the financial
Corporate L2 Roles of a financial manager manager.
Governance, and L3 Goals of a corporation B. Do's and Don'ts of
Financial L3 First principles of corporate managerial finance
Environment finance R1: Ch 1, Ch practices.
L4 Information asymmetry 13 + Class C. Relevance of
L4 Principle agent conflict notes shareholder's wealth
L4 Agency costs maximization
L5 Financial markets and principle.
Financial instruments D. Important types of
financial markets and
popular financial
securities.

2. Modern L6 Types of financial securities R1: Ch 18, Ch Understanding of:

Portfolio Theory L7 How are securities issued 5 & 7 + Class A. Different types of
and Cost of L8 Security valuation principle notes financial instruments
Capital L9 Measuring risk and return R1: Ch 6, Ch and how they are
L10-11 Capital Asset Pricing Model 25 + Class issued by the
notes companies.
L12 Weighted-average Cost of R1: Ch 9 + B. Dividend discount
Capital Class notes models and free cash
flow models for stock
valuation.
C. Quantification of
investment return and
risk.
D. Markowitz's
efficient frontier and
capital market theory.
E. Elements of capital
structure and
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 BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, Pilani
Pilani Campus
AUGS/ AGSR Division

estimation of financing
cost.
3. Capital L13 Cash flow evaluation tools and R1: Ch 10 + Understanding of:
Budgeting techniques such as NPV, IRR, Class notes A. Practical
Profitability Index etc. approaches followed
L14 Issues with NPV-IRR approach by the firms for
L15 Identifying relevant cash flows R1: Ch 11 + analyzing and ranking
L16 Case study on cash flow Class notes long-term investments.
estimation B. Strengths and
L17 Sensitivity and scenario R1: Ch 11, Ch weakness of the tools
analysis 26 + Class and techniques of cash
L18 Monte-Carlo simulation notes flow evaluation.
L19-20 Real Options C. Common risk
analysis approaches
followed by
practitioners for
forecasting cash flows.
4. Financing, L21-22 Financing and overview of R1: Ch 18 & Understanding of:
Capital Structure capital structure 20, Ch 15, Ch A. The relevance and
and Dividend L23-24 Capital structure theories 21 + Class irrelevance of capital
L25-26 Dynamic capital structure notes structure.
Policy
L27-28 Dividend payment to R1: Ch 14 + B. The process of
shareholders: Theories and Class notes dividend payment.
implications C. Different corporate
actions that may
potentially impact the
capital structure of a
firm.
D. Advantages and
disadvantages of
project financing
through use of debt.
5. Special topics L29-30 Lease financing R1: Ch 19 Understanding and
in corporate L31-32 Mergers and Acquisitions Ch 22 appreciation of special
finance L33-34 International financial Ch 17 and emerging themes
management Ch 16 in corporate finance
L35-36 Working capital R3: Ch 14 and their implications
management R2: Ch 13 in financial decision
L37-38 Behavioral finance and its + making process.
implications for the corporate Class notes
manager

6. Evaluation Scheme: The course is of 300 marks.

Components Duration Weightage Date & Time Nature of component
(%) (Close Book/ Open Book)
Mid-Semester Test 90 Min. 30% 14/3 2:00 -3:30 PM Open Book

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 BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, Pilani
Pilani Campus
AUGS/ AGSR Division

Comprehensive 180 Min. 40% 9/5 FN Partly Open Book

Examination
Quizzes (3) 40 Min. 15% (best Announced Closed
2)
Group Assignment Take-home 15% TBD -

7. Contact:

Chamber (6165 - G) Economics and Finance Dept., New Academic Block.

Chamber consultation hour: Tuesday – 1200 hr. - 1400 hr. and Saturday - Post Lunch (seek an appointment through
e-mail for meeting on a Saturday.)

e-mail – [email protected]
8. Notices: Refer to Economics & Finance Dept. Notice Board for notices regarding display of marks, solutions of
tests etc. Students must check their BITS e-mail accounts on a regular basis for course related announcements.
9. Make-up Policy: Make-up exam for Mid-semester Test and the Comprehensive Exam will be granted in only genuine
cases with prior written permission from AUGS Dept. Prior written permission is mandatory under all circumstances. No
make-up shall be granted for the quizzes.

Instructor-in-charge
Course No. ECON F315 / FIN F 315