Framework of Financial Decision Making in a Business Unit.

Paper MBAEX-8106: Managerial Finance

Semester I/2013-14

Faculty Instructor: Narain

Contact details: Room No.: 44

                North Campus,

                Faculty of Management Studies,

                University of Delhi, Delhi – 110 007.

                Email: narain@fms.edu        

Course objective:

The objective of the course is to acquaint the participants with the broad framework of financial decision making in a business unit.

Pre-requisite for the course:

General understanding of the economic and business terms mostly used in the business page of daily newspapers often read by the participants.

Recommended readings:

Brealey, Myers, Allen &Mohanty – “Principles of Corporate Finance” (henceforth BMAM)

Damodaran – “Corporate Finance” (henceforth DAM)

Gitman – “Principles of Managerial Finance” (henceforth LJG)

Berk, DeMarzo& Harford – “Fundamentals of Corporate Finance”(henceforth BDH)

Van Horne &Wachowicz– “Fundamentals of Financial Management”(henceforth VHW)

Khan & Jain – “Basic Financial Management”(henceforth K&J)

Detailed course content & readings:

1. Introduction to Managerial Finance

Introduction to financial management, functions of finance manager, objective of financial management, agency issue

• DAM –chapter 1 & 2
• BMAM – chapters 1

1. Time value of money

Time preference of money, causes of such preference, Timelines, Compounding of cash flows, discounting of cash flows

• BDH –chapter 4
• DAM – chapter 3

1. Capital budgeting decisions

Capital budgeting process, Assumptions & problems, computation of project cash flows

• VHM –chapter 12
• K&J – chapter 3

1. Capital budgeting evaluation techniques

Desirable evaluation technique, Non-DCF project evaluation, DCF project evaluation,

• VHW – chapter 13
• BMAM – chapters 5
• BDH – chapter 8 & 9
• “How CFOs Make Capital Budgeting and Capital Structure Decisions”, Journal of Applied Corporate Finance

1. Cost of capital estimation

Assumptions of hurdle rate, components of hurdle rate, computation of cost of each sources of financing, weights for each sources of financing, desirable hurdle rate

• VHW – chapter 15
• LJG – chapter 11
• K&J – chapter 4

1. Capital structure decisions

Capital structure & hurdle rate, concept of leverage, EBIT-EPS analysis, theories of capital structure, factors affecting capital structure