Finance 543 Syllabus	Capital Resource	Rakesh Bharti
Section 6B5	Allocation	Alumni Hall, Room 2142, Box 1103
Spring I, 1998		(618) 692-2549
		rbharat@siue.edu
		http://www.siue.edu/~rbharat

Course Material

Required Text: The Capital Budgeting Decision: Economic Analysis of Investment Projects by Harold Bierman and Seymour Smidt, 8^th Edition, 1993, Prentice-Hall, Inc.

Course Objective

In the pursuit of value creation, perhaps no other activity is more directly relevant than the capital allocation decision. In a simplified framework, a company raises financing from various sources to invest the funds in ventures that will add wealth to the company. Companies employ various tools such as patents, product image, et cetera to garner returns which are in excess of the cost paid for the financing. Thus evaluation of the various investment opportunities that present themselves to a company is the most critical function a company performs as this decision, in effect, dictates the strategic direction of the firm.

Often, in the introductory finance course, the problem of capital budgeting is introduced at its most rudimentary level in the form of the Net Present Value (NPV) analysis. Certainly, the concept of the NPV is the crucial first step of the process. However, the richness of uncertainty embedded in such decisions indicates that the future direction of a firm cannot be guided by a mechanical rule. This course intends to introduce the student to capital budgeting in a more realistic setting with the use of case studies. The mode of analysis required will be quantitative as well as qualitative. We intend to cover the various applications of capital budgeting in the form of unequal life spans, capital rationing, inflationary environment, buy or lease, and alternative approaches of handling uncertainty among others.

Prerequisites

The only required course for FIN 543 is FIN 513.

Components of Course Grade

Your course grade will be calculated on the basis of your performance in the following segments of the course. The examinations will be based on the material covered/assigned in the class. I shall assign practice problems from time to time which will help students prepare for the examinations.

Segment	Points	Due Date
Homework	100	December 5, 1997
Two Case Analyses	300	Due on 12/15/97 and 12/29/97 (postmarked)
Mid-Term Examination	300	2:30-5:00 PM; 12/7/97
Final Examination	300	2:30-5:00 PM; 1/11/97
Total	1000

Reading Assignments

Before the first weekend, students are expected to read the first four chapters of the text and submit the solutions to the following problems. These chapters and problems are essentially similar to the subject matter covered in FIN 513. This should give an opportunity to familiarize yourself with the important concepts once again.

Homework: Problems 2.3, 2.6, 2.29, 4.1, 4.2, 4.26 (Due Date - December 5, 1997)

We shall sequentially cover the chapters listed below. There is a considerable amount of material to be covered in this class. You may have been exposed to some of the material in prior finance classes. Most of the material, though, should be reasonably new to you. Please do read all of the material before coming to the class.

Segment	Chapter	Title
I Weekend:	5	Mutually Exclusive Investments
	6	The Determination and Use of Cash Flows
	7	Annual Equivalent Costs and Replacement Decisions
	8	Capital Budgeting Under Capital Rationing
	9	Capital Budgeting and Inflation
	10	Accounting Concepts Consistent with Present-Value Calculations
	11	Buy or Lease
	12	Investment Timing
	13	Fluctuating Rates of Output
II Weekend:	14	Investment Decisions with Additional Information
	15	Foreign Investments
	16	Economic Evaluation of Investment Proposals: The Government's Point of View
	17	Capital Budgeting with Uncertainty
	18	The Rate of Discount and Uncertainty
	19	The State Preference Approach
	21	Valuing Flexibility: An Application of Option-Valuation Techniques
	22	A New Approach to Uncertainty
	23	A Manual

In addition, students should also read cases 4, 6, 8, and 10 for the first weekend. These cases will be solved in class. However, a prior reading will help us progress quickly. I shall assign cases to be read for the second weekend in class.