EXC 2110 Basic Financial Management

APPLIES TO ACADEMIC YEAR 2013/2014

EXC 2110 Basic Financial Management


Responsible for the course
Dag Michalsen

Department
Department of Financial Economics

Term
According to study plan

ECTS Credits
7,5

Language of instruction
English

Introduction
The essence of business administration includes corporate finance (=investment and financing). Good knowledge within these areas is a necessary prerequisite to understand the economic content of investment and financing decisions, obtain decision-relevant information, discuss and assess alternatives, make correct decisions and convey relevant and useful information.

The aim of the first course within the field of corporate finance is to provide the students with essential basic knowledge and skills, so that they can take part in discussions on problems in finance and carry out simple analyses within the field, make correct decisions and communicate the results of the analyses in a comprehensible manner.

The course Basic Financial Management is mainly focused on capital budgeting. By studying the main activities carried out in a company as an investment project over several periods, emphasis is placed on considering all economic effects of the project and of taking a long-term perspective (over several years, until the project is completed). The course therefore starts with capital budgeting. The finance area also focuses on how uncertainty affects decisions on which investments should be made (the risk and return on individual projects and portfolios) and owners’, creditors’ and companies’ capital costs.


Learning outcome
Acquired knowledge
After taking the course, the students shall be able to explain key concepts and give an account of the tools used in analyses of finance problems (these tools include methods, techniques, models, theories, etc. applied in the subject area).

  • Examples of concepts that students shall be able to explain: sunk cost, present value, future value, income statement, annuity, cash flow and risk adjusted cost of capital, variance, standard deviation, expectation, efficient portfolios, risk aversion, bonds, market efficiency, anomalies, risk premium.
  • Examples from the toolbox: cash budget, investment budget, net present value, internal rate of return, capital asset pricing model, portfolio theory.

Acquired skills
After taking the course, the students shall be able to (a) apply knowledge (i.e. concepts and skills) in analyses and discussions on financial problems, (b) distinguish between relevant and irrelevant information, and (c) give written answers to questions so that the readers understand the applied methods and conclusions. Examples:
  • When the tool is given, be able to apply the tool correctly
  • Based on simple situation descriptions, choose the right tool and apply it correctly
  • Based on more complex situation descriptions, be able to produce relevant information, link it to the suitable tool and apply the tool correctly

Reflection
After taking the course, the students shall be able to ask critical questions and reflect on crucial assumptions and theories within the business economics field.


Prerequisites
Basic bachelor courses in Mathematics and Statistics.

Compulsory reading
Books:
Hillier, David ... [et al.]. 2011. Fundamentals of corporate finance. European ed. McGraw-Hill

Recommended reading

Course outline

1 Introduction and Overview ch. 1-2
2 Accounting and Finance ch. 3
3 The Time Value of Money ch. 4
4 Valuing Bonds and Stocks ch. 5-6
5 Capital Budgeting under Certainty ch. 7-9
6 Capital Budgeting under Uncertainty ch. 10-11
7 The Cost of Capital ch. 12

    Computer-based tools
    Students are advised to make use of computer-based tools in the course, for instance spreadsheets. At the examination, however, computer-based tools are not allowed.

    Learning process and workload
    The course will include a combination of lectures and plenary tutorials where solutions to exercises will be explained.

    Please note that whilst attendance is not compulsory, it is the students responsibility to obtain any information provided in class that is not included on the course homepage/It's learning or text book.

    Coursework requirements
    There will be two mandatory hand-in assignments. The assignments will be in the form of two small cases selected from the end-of-chapter mini-cases in the textbook.

    The following is an indication of the time required:
    Activity
    Hours
    Lectures
    36
    Plenary tutorials where exercises will be explained
    6
    Preparation for lectures and plenary tutorials
    108
    Preparation for hand-in assignment
    10
    Preparation for the final exam
    40
    Total recommended use of time
    200

      Coursework requirements
      Note that successful completion (approved / not approved) of the two hand-in assignments is required to sit for the final exam.

      Examination
      A three-hour individual multiple choice exam concludes the course.

      Examination code(s)
      EXC 21101 – Multiple-choice examination, accounts for 100% of the grade in EXC 2110 Basic Financial Management 7,5 ECTS credits.

      Examination support materials
      Interest tables and BI-approved exam calculator and allowed. TEXAS INSTRUMENTS BA II Plus™
      One bilingual dictionary may also be used. Support materials permitted at written examiniations are explained under exam information in our web-based Student handbook. Please note use of calculator and dictionary. http://www.bi.edu/studenthandbook/examaids

      Re-sit examination
      A re-sit is held in connection with the next scheduled exam in the course.
      Students that have not got approved for the two hand-in assignments must retake the exercises during the next scheduled course. Students that have not passed the written exam or who wish to improve their grade must retake the exam in connection with the next scheduled course.

      Additional information

      Semesters

      Translations