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Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Assignment 1
Principles of Finance (FIN 101)
Due Date: 22/07/2022 @ 23:59
Course Name: Principles of Finance
Studentâ€™s Name:
Course Code: FIN 101
Studentâ€™s ID Number:
Semester: Summer
CRN:
For Instructorâ€™s Use only
Instructorâ€™s Name:
Level of Marks: High/Middle/Low
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The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced)
font. No pictures containing text will be accepted and will be considered
plagiarism).
Submissions without this cover page will NOT be accepted.
Learning Outcomes:
1. Recognize the fundamental financial concepts and the financial environment of the
company. (1.1)
2. Describe the role of Time-Value-of-Money for making a decision. (1.2)
3. Measure financial corporate performance. (2.4)
Assignment Question(s): (6 x 2.5 = 15 Marks)
1. Critically Explain the phrase â€œa dollar today is worth more than a dollar tomorrow.â€
2. Ahmad deposits \$1,200 in her bank today. If the bank pays 4 percent simple
interest, how much money will she have at the end of five years? What if the bank
pays compound interest? How much of the earnings will be interest on interest?
3. Lemmon Enterprises has a total asset turnover of 2.1 and a net profit margin of
7.5%. If its equity multiplier is 1.90, what is the ROE for Lemmon Enterprises?
4. Critically explain the economic role of brokers and dealers. How does each make a
profit?
5. BBB company had cash and marketable securities worth \$400,134 accounts
payables worth \$2,490,357, inventory of \$1,321,500, accounts receivables of
\$2,188,128, short-term notes payable worth \$120,000, other current liabilities of
200,000, and other current assets of \$521,800. What is the company’s net working
capital?
6. If Bob and Judy combine their savings of \$1,260 and \$975, respectively, and
deposit this amount into an account that pays 2% annual interest, compounded
monthly, what will the account balance be after 4 years?
College of Administrative and Financial Sciences
Department of Finance
BACHELOR program of FINANCE:
STUDY PLAN
May 2020
College of Administrative and Financial Sciences
COLLEGE AT A GLANCE:
History:
The CAF was the first college to start teaching after the issuing of the Honorable Royal
Decree number 37409/B dated 10/09/1432 Hijra, ordaining the establishment of the
Saudi Electronic University. In a first step towards realizing the vision and mission of
the SEU, the CAF started by constituting the following academic departments:
Accountancy, Department of E-Commerce.
The CAF opens wide doors for the future, since its fields of specialization are needed
for projects and partnerships in any public or private sectors company and institutions.
The college provides the knowledge-based needed for study, investments and
movement of capital in line with the appropriate scientific methods. Before planning
Studying in the administration and finance is in demand by many students, due to the
interest and satisfaction they find in studying something they like and find relevant to
innovation in areas which others would not see as useful or not even possible. This is
why many individuals enjoy the challenge of starting from simple projects to create
legendary success building companies recognized internationally, by pursuit of proper
planning and sound bases offered by administration studies.
Bachelor Program of Finance
1
May 2020
College of Administrative and Financial Sciences
Mission:
To offer quality academic distance e-learning programs which contribute to the realization
of the college vision and objectives in all areas of CAF specialization, leading to
Vision:
To be one of the most prominent colleges of Administration and Finance in the Middle
East by offering well-selected programs and utilizing IT in teaching and research
Objectives
The objectives of the CAF include:
To offer academic programs of high distinction capable of producing excellent leaning outcomes
effective in developing and innovating high level products and services.
â€¢
To contribute to achieving quality and distinction and creating a culture of creativity in the
art and science of management.
â€¢
To offer to students quality skills and knowledge products through utilization of up-to-date
learning training methods.
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enabling them to play a leading role in the public and private sectors.
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To apply quality assurance standards recognized locally and internationally.
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and international job market standards.
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To develop in learners the skills of creative thinking though synthesis and analysis and to
reinforce the value of team work and the ability of reaching collective decision.
Bachelor Program of Finance
2
May 2020
College of Administrative and Financial Sciences
A. PROGRAM IDENTIFICATION AND GENERAL INFORMATION
1. Program title:
Bachelor program in Finance
2. Total credit hours needed for completion of the program:
130 Credit Hours
3. Award granted on completion of the program:
4. Major tracks/pathways or specializations within the program
â€¢
Finance Concentration
â€¢
E-Commerce Concentration:
â€¢
Management Concentration
â€¢
Accounting Concentration:
5. Professional occupations
The Bachelor Program of Finance qualifies graduates who are capable to occupy various
financial positions, including not limited to:
â€¢
â€¢
â€¢
Financial Researcher.
â€¢
Financial Analyst (as employee or independent professional)
â€¢
Market Broker or Dealer
6. Name of program coordinator or chair:
Chair of Finance Department: Dr.Mansour S. Albarrak
Bachelor Program of Finance
3
May 2020
College of Administrative and Financial Sciences
B. PROGRAM CONTEXT:
1. Rationales of the program:
The rationales for the proposed Bachelor Program of Finance are:
A. The importance of the finance function in business organizations.
B. The urgent need in the labour market for finance graduates.
C. The Scarcity of financial graduates in the Kingdom and the limited spread of this
specialization in national universities.
2. Relevance of the program to the mission and goals of the institution:
This program will highly contribute with the rest of the programs at the college, to provide
qualified human resources needed to promote and gear the national economy to be among the
world’s leading economies using the online teaching, which is the main purpose of the Saudi
Electronic University
3. Relationship to other programs:
The program includes college-level courses that are required of all the college students. No
special changes/modification are deemed necessary for our students studying courses from
other programs within the college.
a. Courses required from other programs
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All university requirements (e.g. Preparatory year, Islam courses).
Principles of Accounting
Introduction to e-Management
Cost accounting
e-Commerce
Management of Information Systems
b. Courses provided to other programs
â€¢
Principles of Finance – (College Requirements).
â€¢
Macroeconomics – (College Requirements).
â€¢
Microeconomics – (College Requirements).
Bachelor Program of Finance
4
May 2020
College of Administrative and Financial Sciences
4. Specific enrolment requirements: (IT skills, Languageâ€¦):
â€¢
Fluent level of English language.
C. MISSION, GOALS & OBJECTIVES AND LEARNING OUTCOMES:
1. Program Mission:
Commitment to graduate highly qualified financial mangers to be active participants in the
finance industry considered broadly using blinded interactive teaching and self-centered
learning environment allowing them an easy integration in the Kingdomâ€™s dynamic business
environment, favoring innovation and entrepreneurship spirit.
2. Program goals and objectives:
The program of Bachelor in Finance aims to produce qualified cadres in the area of finance,
equipped with the necessary skills and knowledge to keep pace with the needs of the labor
market in both public private facilities and private sectors. The main objectives of the
program are:
1. Contribute in the development of the finance practice.
2. An effective use of the learning technologies to achieve the learning outcomes of the
program.
3. Provide balance of academic knowledge with practical applications.
4. Contribute in the development of best-in-class methods of teaching and learning in the
field of finance.
5. Assure a high compliance of the targeted learning outcomes to the market labor
required skills;
6. Encourage reflective, strategic, and analytical skills in making business decisions.
7. Promote the sense of ethics and social responsibility within Saudi business and
governmental organizations.
8. Fulfill the requirements of accreditation bodies nationally (NCAAA) and
internationally AACSB.
Bachelor Program of Finance
5
May 2020
College of Administrative and Financial Sciences
3 – Program learning outcomes
Upon completion of the program, students will be able to:
1
Knowledge
1.1
Explain the concept of market efficiency and its implications for securitiesâ€™ returns.
1.2
Explain the determinants of a firmâ€™s capital structure
1.3
Demonstrate knowledge of the risk-return relationship and can estimate appropriate rates of
return
1.4
Demonstrate knowledge of financial instruments and their markets
1.5
Understand the Saudi financial system and the GCC financial and local regulatory operating
regimes.
2
Cognitive Skills
2.1
Calculate the costs of capital and solve capital budgeting problems using the cost of capital
2.2
Apply time value of money techniques to security valuation
2.3
Calculate financial ratios using data from a firmâ€™s financial statements and explain their significance
2.4
Evaluate the financial decisions of corporations.
3
Interpersonal Skills & Responsibility
3.1
Function effectively on teamwork activities to accomplish a common goal.
3.2
Carry out projects in group structure and collaborate with group members.
4
Communication, Information Technology, Numerical
4.1
Interpret and assess the roles of financial institutions
4.2
Communicate effectively, both orally and in written form, using appropriate media.
4.3
Proper use of resources to assess the suitability, accuracy and reliability of information.
5
Psychomotor
5.1
N/A
5.2
N/A
Bachelor Program of Finance
6
May 2020
College of Administrative and Financial Sciences
D. PROGRAM STRUCTURE AND ORGANIZATION
1. Program Structure by kind of requirements:
University requirements: 34 Credit Hours
Course Code Course Name
Credit Hours
Prerequisites
ENG001
English Skills
16
CS001
Computer Essentials
3
COMM001
Communication Skills
2
CI001
2
MATH101
Fundamentals of Math
3
ISLM101
Intro to Islamic culture
2
ISLM102
Professional Conduct & Ethics in Islam
2
ISLM103
Islamic Economic System
2
ISLM101
ISLM104
Social System and Human Rights
2
ISLM102
Total
34
College Requirements are 57 credits:
Bachelor Program of Finance
7
May 2020
College of Administrative and Financial Sciences
Course Code
Course Name
Credit Hours Prerequisites
ACCT101
Principles of Accounting
3
MGT101
Principles of Management
3
STAT101
Statistics
3
ECON101
Microeconomics
3
LAW101
3
E-COM201
Introduction to e-Management
3
MGT101
ACCT301
Cost accounting
3
ACCT101
MGT322
Logistics Management
3
MGT101
FIN101
Principles of Finance
3
ACCT101
MGT311
Intro to Operations Management
3
MGT101+STAT101
MGT321
3
MGT201
Marketing Management
3
MGT101
MGT301
Organizational Behavior
3
MGT211
MGT 401
Strategic Management
3
MGT201+ FIN101
STAT201
Quantitative Methods
3
STAT101
ECON201
Macroeconomics
3
MGT211
H.R Management
3
E-COM101
e-Commerce
3
MIS201
Management of Information Systems
3
Total
Bachelor Program of Finance
Passing the first
year
MGT101
MGT101
57
8
May 2020
College of Administrative and Financial Sciences
Department Requirements are 30 credits:
Course
Course Name
Credit Hours
Prerequisites
Code
FIN201
Corporate Finance
3
FIN101
FIN403
Investments
3
FIN101
FIN402
Financial Institutions and Markets
3
FIN101
Fin405
Financial Derivatives
3
FIN402
FIN301
Risk Management
3
FIN101
FIN406
International Finance
3
FIN402
FIN401
Banks Management
3
FIN101
Complete 90
FIN408
Internship
6
credit hours
Fin424
Portfolio Management
3
Total
Bachelor Program of Finance
FIN403
30
9
May 2020
College of Administrative and Financial Sciences
Concentrations:
To satisfy the different preferences of student and comply with accreditation requirements, the
accounting program gives students the opportunity to choose the micro field of specialization.
So, the student chooses one concentration among the following:
Finance Concentration:
Course
Credit
Course Name
Code
Hours
Prerequisites
Fin414
Real Estate Finance
3
FIN201
FIN416
Islamic Finance
3
FIN201
FIN421
3
FIN301
9
Total
Accounting Concentration:
Course
Credit
Course Name
Code
Hours
Prerequisites
ACCT201
Financial Accounting
3
ACCT101
ACCT422
Tax and zakat Accounting
3
ACCT201
3
ACCT101+
MIS201
ACCT402
Introduction to Accounting Information Systems
9
Total
Bachelor Program of Finance
10
May 2020
College of Administrative and Financial Sciences
E-Commerce Concentration:
Course Code
Credit
Course Name
Hours
Prerequisites
IT404
Web Design
3
E- COM421
3
MGT401
E- COM202
E- Marketing
3
MGT201
9
Total
Course
Credit
Course Name
Code
Hours
Prerequisites
MGT312
Decision Making and Problems Solving
3
MGT101
MGT323
Project Management
3
MGT311
MGT402
3
MGT101
9
Total
These concentrations could be changed after maybe four semesters according to the market labor
requirements and trends.
Bachelor Program of Finance
11
May 2020
College of Administrative and Financial Sciences
2 – Program Structure by years
Year 1
Level
Level 1
Level
Level 2
Course
Code
Credit Hours
Course Title
ENG001
English Skills
8
CS001
Computer Essentials
3
COMM001
Communication Skills
2
Total
13
Course
Credit
Course Title
Code
Hours
ENG001
English Skills (Continued)
8
MATH001
Fundamentals of Math
3
CI001
2
Total
13
Bachelor Program of Finance
12
Pre-requisites
Pre-requisites
May 2020
College of Administrative and Financial Sciences
Year 2
Level
Course
Credit
Course Title
Code
Hours
ECON101
Micro economics
3
MGT101
Principles of Management
3
STAT101
Statistics
3
LAW101
3
ACCT101
Principles of Accounting
3
ISLM101
Introduction to Islamic culture
2
Total
17
Level 3
Level
Pre-requisites
First Year
Course
Course Title
Code
Credit
Hours
Pre-requisites
FIN101
Principles of Finance
3
ACCT101
MGT201
Marketing Management
3
MGT101
STAT201
Quantitative Methods
3
STAT101
MGT211
H.R Management
3
MGT101
E-COM101
E-Commerce
3
ISLM102
Professional Conduct & Ethics in
Level 4
Islam
Total
Bachelor Program of Finance
2
17
13
May 2020
College of Administrative and Financial Sciences
Year 3
Course
Level
Credit
Code
Course Title
Hours
ECON201
Macroeconomics
3
MIS201
Management of Information
Systems
Level 5
MGT101
Introduction n to e-Management
3
MGT101
MGT301
Organizational Behavior
3
MGT211
MGT311
Intro to Operations Management
MGT101 +
3
STAT101
Corporate Finance
3
Total
18
Course
Level 6
3
E-OM201
FIN201
Level
Pre-requisites
FIN101
Credit
Code
Course Title
Pre-requisites
Hours
ACCT301 Cost accounting
3
MGT321
3
MGT322
Logistics Management
3
MGT101
FIN301
Risk Management
3
FIN101
Concentration
3
Islamic Economic System
2
Total
17
ISLM103
Bachelor Program of Finance
14
ACCT101
ISLM101
May 2020
College of Administrative and Financial Sciences
Year 4
Course
Level
Credit
Code
Course Title
Hours
FIN401
Banks management
3
MGT101
MGT 401
Strategic management
3
MGT201+ FIN101
FIN402
Financial Institutions and markets
3
FIN101
Concentration
3
FIN403
Investments
3
FIN101
ISLM104
Social System and Human Rights
2
ISLM102
Level 7
Total
17
Course
Level
Credit
Code
FIN405
Level 8
Pre-requisites
Course Title
Pre-requisites
Hours
Financial Derivatives
3
Concentration
3
Internship
6
Complete 90 credit
hours
International Finance
3
FIN402
FIN424 Portfolio Management
3
FIN403
FIN408
FIN406
Total
Bachelor Program of Finance
15
FIN301
18
May 2020
College of Administrative and Financial Sciences
3. Field Experience
a. Brief description
The internship provides students with an opportunity to receive academic credit for
supervised professional training and experience in an actual work environment. This
Internship is an ongoing seminar between the student, the faculty member and the
employment supervisor. It involves an Internship Application and Learning Agreement,
periodic meetings with the faculty representative, professional experience at a level
equivalent to other senior-level courses and submission of material as established in the
Internship Application and Learning Agreement.
b. Semester:
Semester 8 (10 weeks)
c. Time allocation and scheduling arrangement
One semester after completing 90 credit hours of the study plan
d. Number of credit hours
06 credit Hours
e. Intended learning outcomes
â€¢
To apply academic learning to workplace practices.
â€¢
To practice and develop professional skills, such as oral, written, and
interpersonal communications.
â€¢
To use technology and analytical tools related to the field
â€¢
To understand and apply the working team requirements.
â€¢
To examine oneâ€™s own aptitudes toward work in the field of Finance and to
consider which aspects of Finance best match oneâ€™s own interests.
Bachelor Program of Finance
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May 2020
College of Administrative and Financial Sciences
f. Assessment procedures
At the end of the internship period, the student will be evaluated as follows:

40 % for internship activities (assigned by the on-training supervisor)

30 % for the apprehension and the assiduity of the student (assigned by the

30 % for the substance and the style of the training report (assigned by the
department)
5. Admission Requirements for the program:

To pass the requirements of the First year
6. Attendance and Completion Requirements:
The University adopts the blended learning model, which includes traditional learning (face-toface classes), synchronized electronic learning (virtual classes) and asynchronized electronic
learning (self-learning) as follows:
Learning Model
%
33%
Synchronized electronic learning (virtual classes)
33%
Asynchronized electronic learning (self-learning)
33%
The university applies the Study and Exams regulation as in the Higher education system and
regulations, where the student will be denied from the course if his or her absenteeism exceeds
25% of the total Scheduled face-to-face and virtual classes, and none of wish separately should
exceed 25% absenteeism.
The student shall graduate from the program if he or she successfully complete the program
Bachelor Program of Finance
17
May 2020
College of Administrative and Financial Sciences
G. LEARNING FACILITIES AND EQUIPMENT:
1. Facilities required
Bachelor Program of Finance is mainly an online program (75% is online), consequently, it
requires:

Interactive learning material

Labs
2. Classrooms
To cover the remaining 25% of face-to-face learning the program requires traditional
classrooms equipped by high-speed internet access and display equipment (Projectors, Datashowâ€¦).
3. Equipment (including IT)

A robust e-learning platform: SEU uses the Blackboard LMS, which is recognized
worldwide with its high effectiveness to cover different targeted skills.

Online system of student services
Bachelor Program of Finance
18
May 2020
College of Administrative and Financial Sciences
Finance Coursesâ€™ descriptions
(For non-FIN course description refer to concerned
departmentâ€™s webpage)
Bachelor Program of Finance
19
May 2020
College of Administrative and Financial Sciences
COURSESâ€™ DESCRIPTIONS:
LEVEL THREE
Course
Credit
Code
Course Title
Hours
ECON101
Micro economics
3
MGT101
Principles of Management
3
STAT101
Statistics
3
LAW101
3
ACCT101
Principles of Accounting
3
Bachelor Program of Finance
Pre-requisites
20
Passing the first
year
May 2020
College of Administrative and Financial Sciences
COURSE DESCRIPTION
College
Department
Sciences
Course Name
Microeconomics
Course Code:
ECON101
Credit Hours
3 credit Hours
Contact Hours
3
Arabic
Language
Track
Â§ College Req.
Level
Level 3
Finance
English
Dep. Req.
Concentration
Passing the first year
Prerequisite
Course Description:
Introduction to Microeconomics is an introduction to the economic theory involving the
examination of how decision making by firms and individuals is shaped by economic forces.
Emphasis is placed on demand, supply, market equilibrium analysis, and basic market
structure models. The invisible hand as the driving force for economic decisions as well as
market externalities are discussed. The class concentrates on providing a balanced approach
to studying economic agentsâ€™ behavior and its impact on the global economic settings.
Course Learning Outcomes:
1.
Understand the relationship between various market forces.
2.
Discuss the key microeconomic concepts of scarcity, opportunity cost, comparative
advantage, and externalities with reference to Saudi economy.
3.
Compare key characteristics among the various market structures of monopoly,
oligopoly, monopolistic competition, and perfect competition.
4.
Analyze the factors of production and their respective economic returns
Bachelor Program of Finance
21
May 2020
College of Administrative and Financial Sciences
5.
Apply supply and demand model to determine market equilibrium.
6.
Recognize how changes in supply, demand, and regulations affect market outcomes.
7.
Understand the concept of elasticity and its applications.
8.
Explore the effects of imperfect information on markets.
9. Identify the implications of an economic agent’s actions on global economic settings and
on Saudi economy.
Course Major Topics:
1. Introduction to Microeconomics
2. Elasticity
3. Production Technology and Cost
4. Market Structure
5. Market Failure
6. Factors of Production
Learning Resources
â€¢
Textbook
O’Sullivan, A., Sheffrin, S. M., & Perez, S. J. (2019). Survey of Economics: Principles,
Applications, and Tools. (9th). Upper Saddle River, NJ: Pearson Education. ISBN:
1256286222 .
â€¢
References:
Microeconomics, 11/E Karl E. Case. Ray C Fair. Sharon Oster ISBN-13: 97801330241
Prentice Hall â€¢ Paper, 504 pp Published 05/16/2013
Bachelor Program of Finance
22
May 2020
College of Administrative and Financial Sciences
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
Bachelor Program of Finance
23
May 2020
College of Administrative and Financial Sciences
COURSESâ€™ DESCRIPTIONS:
LEVEL FOUR
Course Code
Course Title
Credit Hours
Pre-requisites
FIN101
Principles of Finance
3
ACCT101
MGT201
Marketing Management
3
MGT101
STAT201
Quantitative Methods
3
STAT101
MGT211
H.R Management
3
MGT101
E-COM101
E-Commerce
3
Bachelor Program of Finance
24
May 2020
College of Administrative and Financial Sciences
COURSE DESCRIPTION
College
College of Administrative & Financial Sciences
Department
Course Name
Principles of Finance
Course Code:
FIN101
Credit Hours
3 credit Hours
Contact Hours
3
Arabic
Language
Track
Â§ College Req.
Level
Level 4
Finance
English
Dep. Req.
Concentration
ACCT101
Prerequisite
Course Description:
This course is designed to survey the field of finance and provide the foundation for more
corporate financial performance, the time-value-of-money, the nature and measurement of
risk, financial institutions, investments, and corporate finance.
Course Learning Outcomes:
1. Understand the financial environment of the company
2. Examine the relation finance/accounting.
3. Measure financial corporate performance.
4. Apply the concepts of time-value-of-money to determine the valuation of bonds and
stocks.
5. Analyze the relationship between risk and return.
6. Evaluate investment opportunities.
7. Evaluate cost of capital for decisions related to financing the operations of a corporation.
Bachelor Program of Finance
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May 2020
College of Administrative and Financial Sciences
Course Major Topics
1. The Financial Manager and the Firm
2. The Financial System and the Level of Interest Rates
3. Financial Statements, Cash Flows, and Taxes
4. The Time Value of Money
5. Discounted Cash Flows and Valuation
6. Risk and Return
7. Bond Valuation and the Structure of Interest Rates
8. Stock Valuation
9. The Fundamentals of Capital Budgeting
10. The Cost of Capital
11. How Firms Raise Capital
12. Capital Structure Policy
13. Dividends, Stock Repurchases, and Payout Policy
Learning Resources
â€¢
Textbook
Parrino, R. Moles, P., and Kidwell, D.S., 2018 Fundamentals of Corporate Finance, 4th Edition John
Wiley & Sons.
â€¢
References:
Gitmen, L., and Zutter, C., â€œPrinciples of Managerial Financeâ€. 13th Ed. Pearson, 2012.
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
Bachelor Program of Finance
26
May 2020
College of Administrative and Financial Sciences
COURSESâ€™ DESCRIPTIONS:
LEVEL FIVE
Course
Credit
Pre-requisites
Code
Course Title
ECON201
Macroeconomics
3
MIS201
Management of Information systems
3
MGT101
E-COM201
Introduction to e-Management
3
MGT101
MGT301
Organizational Behavior
3
MGT211
MGT311
Intro to Operations Management
3
MGT101+STAT101
FIN201
Corporate Finance
3
FIN101
Bachelor Program of Finance
Hours
27
May 2020
College of Administrative and Financial Sciences
COURSE DESCRIPTION
College
Department
Sciences
Course Name
Macroeconomics
Course Code:
ECON201
Credit Hours
3 credit Hours
Contact Hours
3
Language
Arabic
Track
Â§ College Req.
Level
Level 5
Finance
English
Dep. Req.
Concentration
Prerequisite
None
Course Description:
This course will teach students the basic tools of macroeconomics and apply them to real world
economic policy. Emphasis is placed on studying the economy as a whole. Issues of inflation,
unemployment, the role of fiscal and monetary policies in stabilizing the economy, the role of
government policy in promoting long-term economic growth and growth are discussed in the
context of the global economic system.
The course will be structured around the tools (models) of macroeconomics, using primarily
graphs, and occasionally equations. However, motivation for these tools, and examples of their
use will always be taken from current and recent real-world macroeconomics events and
conditions.
Course learning outcomes:
1. Analyse economic problems within the conceptual framework of mainstream
macroeconomics.
2. Understand the institutional framework of macroeconomic policymaking.
3. Understand how to evaluate macroeconomic conditions such as unemployment, inflation,
and growth.
4. Understand the fundamental determinant’s of a nation’s long-run economic growth,
Bachelor Program of Finance
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May 2020
College of Administrative and Financial Sciences
5. Understand media accounts of macroeconomic events.
6. Provide policy alternatives to address various economic outcomes.
7. Analyse actual economic events within modelling frameworks.
Course Major Topics:
1. Introduction to the ECON 201
3. Supply, Demand, and Market Equilibrium
4. Markets and Welfare
5. Macroeconomics Data
6. Economic Growth
7. Financial System
8. Unemployment
9. Monetary Policy
10. Open Economy
11. Economic Fluctuations
12. Debates in Macroeconomics.
Learning Resources
â€¢
Textbook
N. Gregory Mankiw: Principles of Macroeconomics, Cengage Learning; 9th edition
(January,2020). ISBN-13: 978-0357133491
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
Bachelor Program of Finance
29
May 2020
College of Administrative and Financial Sciences
COURSE DESCRIPTION
College
Sciences
Department
Course Name
Corporate Finance
Course Code:
FIN201
Credit Hours
3 credit Hours
Contact Hours
3
Language
Arabic
Track
College Req.
Level
Level 5
Finance
English
Â§ Dep. Req.
Concentration
Prerequisite
FIN101
Course Description:
This course is a completion of the principles of finance. It examines important issues in
corporate finance from the perspective of financial managers. The course focuses on the
concept of net present value used to analyse how investment and financing decisions interact
to affect the value of the firm. The course covers also capital budgeting, under uncertainty,
leasing and leveraged buyouts, treatment of dividend policy and capital market efficiency, as
they relate to the value-maximization objective of the firm.
While the course is not designed to dwell on abstraction, the basic theoretical underpinnings of
the various topics are a prerequisite to competent analysis and intellectual discussion. The
course emphasizes the development of problem-solving skills based on a good understanding
of the business environment as opposed to pure theorizing or mindless numbers exercises.
Course learning outcomes:
1. Understand the basic concepts of corporate finance
2. Understand capital budgeting and learn how to deal with decision making under risk. The role of
risk in financial decisions
3. Learn about the importance of the financing decision and optimum capital structure
4. Forecast and evaluate corporate cash flows;
5. Estimate the cost of capital
Bachelor Program of Finance
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May 2020
College of Administrative and Financial Sciences
6. Describe the different ways the firm distributes cash to shareholders, their motivation and effects
on shareholder’s wealth and understand how firms establish dividend payout policies.
7. Understand the major features public and private debt as well as the covenants and repayment
provisions of debt.
Course Major Topics:
1. Course Introduction Week
2. Introduction to Corporate Financing
3. How Corporations Raise Venture Capital and Issue Securities
4. Debt Policy
5. Payout Policy
6. Long-Term Financial Planning
7. Short-Term Financial Planning
8. The Weighted-Average Cost of Capital and Company Valuation
9. Mergers, Acquisitions, and Corporate Control
10. Options
11. Risk Management
12. International Financial Management
13. What We Do and Do Not Know about Finance
Learning Resources
â€¢
Textbook
Breasley, Myers, & Marcus: Fundamentals of Corporate Finance, 7th Edition (2012), McGrawHill, ISBN 9780078034640; 9780077410711
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
Bachelor Program of Finance
31
May 2020
College of Administrative and Financial Sciences
COURSESâ€™ DESCRIPTIONS:
LEVEL SIX
Course
Credit
Code
Course Title
Pre-requisites
Hours
ACCT301
Cost accounting
3
MGT321
3
MGT322
Logistic Management
3
MGT101
FIN301
RS301
Risk Management
Islamic Course 3
3
2
FIN101
Bachelor Program of Finance
32
ACCT101
May 2020
College of Administrative and Financial Sciences
COURSE DESCRIPTION
College
Course Name
Credit
Hours
Sciences
Risk Management
Course Code:
3 Credit Hours
Language
Arabic
Track
College Req.
Level
6
Department
Finance
FIN301
Contact Hours
3
English
Â§Dep. Req.
Concentration
Prerequisite
FIN101
Course Description:
This course examines modern techniques for managing financial risks. Financial risks are
generally classified into market risks, due to movement in financial prices or volatilities, credit
risks, due to fact that counterparties are unwilling or unable to fulfill their contractual
obligations, liquidity risks, when transactions cannot be conducted at prevailing market prices,
perhaps due to cash flow constraints, and operational risks, which arise from human or technical
problems. The course will cover measurement techniques for different types of financial risks
(equity, fixed income, currency, commodity) and instruments. It will cover tools such as
duration, portfolio beta, factor sensitivities, portfolio distribution analysis, and value at risk
(VAR). It will also discuss how risk measurement tools can be used for active management of
the risk/return profile of financial institutions.
Course learning outcomes:
1. Understanding of risk, risk management in corporate context
2. Competence in understanding the enterprise risk management framework
3. Ability to calculate corporate risks
4. Competence in develop of corporate risk management program
5. Ability to evaluate corporate risk management processes
Bachelor Program of Finance
33
May 2020
College of Administrative and Financial Sciences
Course Major Topics:
1. Risk Management a Helicopter View
2. Corporate Risk Management
3. Banks and Their Regulatorsâ€”The Research Lab for Risk Management
4. A User Friendly Guide to the Theory of Risk and Return
5. Interest Rate Risk and Hedging with Derivative Instruments
6. From Value at Risk to Stress Testing
7. Asset â€“Liability Management
8. Credit Scoring and Retail Credit Risk Management
9. Commercial Credit Risk and the Rating of Individual Credit
10. New Ways to Transfer Credit Riskâ€”And their Implications
11. Operational Risk
Learning Resources
â€¢
Textbook
Michel Crouhy, , Dan Galai & Robert Mark: The Essentials of Risk Management, McGraw-Hill; 2
edition (November 15, 2013). ASIN: B00H878QA4
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
Bachelor Program of Finance
34
May 2020
College of Administrative and Financial Sciences
COURSESâ€™ DESCRIPTIONS:
LEVEL SEVEN
Course
Credit
Code
Course Title
Pre-requisites
Hours
MGT 401
Strategic management
3
MGT201+ FIN101
FIN401
Banks management
3
MGT101
FIN402
Financial Institutions and markets
3
FIN101
FIN403
Investments
3
FIN101
Bachelor Program of Finance
35
May 2020
College of Administrative and Financial Sciences
COURSE DESCRIPTION
College
Course Name
Credit Hours
Sciences
Banks
Course Code:
Management
3 Credit Hours
Language
Arabic
Track
College Req.
Level
7
Department
Finance
FIN401
Contact Hours
3
English
Â§Dep. Req.
Concentration
Prerequisite
MGT101
Course Description:
The aim of this course is to provide a good grasp of both the basics (the structure and
environment of banking) and selected aspects of the applied economics of the modern banking
firm. It aims to develop a deeper understanding of best management practices in the modern
banking lines, and to enable students to envisage change and change management in the
banking sector. The course highlight topics such as financial institution performance
evaluation, risk management, portfolios and liquidity sources of funds.
Course learning outcomes:
1. Understand the banking and financial services;
2. Explain financial institutions financial statements and performance
3. Understand sources of financing financial institutions and choose the appropriate alternative
4.
Be familiar with risk management techniques to deal with the various risks banks and other
financial institutions face.
5. Define criteria of making sound decisions about loans to businesses and consumers
Bachelor Program of Finance
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May 2020
College of Administrative and Financial Sciences
Course Major topics
1. Introduction to Financial-Services Sector and the The Impact of Government Policy and
Regulation on the Financial-Services Industry
2. The Organization and Structure of Banking and the Financial-Services Industry
3. Establishing New Banks, Branches, ATMs, Telephone Services, and Web Sites
4. Financial Statements and Financial-Firm Performance
5. Tools for Managing and Hedging Against Risk
6. The Investment Function in Financial Services Management
7. Liquidity and Reserves Management: Strategies and Policies
8. Managing and Pricing Deposit Services and Nondeposit Liabilities
9. Investment Banking, Insurance, and Other Sources of Fee Income
10. The Management of Capital
11. Lending Policies and Procedures: Managing Credit Risk
13. Consumer Loans, Credit Cards, and Real Estate Lending
Learning Resources
â€¢
Textbook
Peter, Hud.. Rose : Bank Management & Financial Services, Mc Graw Hill ,2012. 9th Edition
(2012). ASIN: B009O3IAXS
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
Bachelor Program of Finance
37
May 2020
College of Administrative and Financial Sciences
COURSE DESCRIPTION
College
Sciences
Department
Course Name
Financial Institutions
and Markets
Course Code:
FIN402
Credit
Hours
3 Credit Hours
Contact
Hours
3
Language
Arabic
Track
College Req.
Level
Level 7
Finance
English
Â§ Dep. Req.
Concentration
Prerequisite
FIN101
Course Description:
This course provides an overview of the financial system. The roles of financial intermediaries,
financial markets, financial institutions, and central banks are discussed in the context of global
economy. In addition, Student will study the structure of financial markets and examine the
international financial system, discussion the completion issues among the financial industry.
Course learning outcomes:
1. Examine the role of the financial system in the economy.
2. Demonstrate an awareness of the variety of financial instruments.
3. Demonstrate the connection between interest rates and asset prices.
4. Compare and contrast the role of and function of organised financial markets and financial
intermediaries.
5. Discuss implications of the efficient market hypothesis for the allocation of funds.
6. Examine the rationale for financial intermediation.
7. Discuss the reasons for diversification in the financial institutions industry.
Bachelor Program of Finance
38
May 2020
College of Administrative and Financial Sciences
Course Major topics
1. Overview of the Financial System
2. What Do Interest Rates Mean and What Is Their Role in Valuation? And 4. Why Do Interest
Rates Change?
3. How Do Risk and Term Structure Affect Interest Rates?
4. Are Financial Markets Efficient?
5. Why Do Financial Institutions Exist?
6. Why Do Financial Crises Occur and Why Are They So Damaging to the Economy?
7. Central Banks and their roles
8. Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics
9. The Money Markets
10. The Bond and Stock Markets
11. The Mortgage and Foreign Exchange Markets
12. The International Financial System
13. Banking Industry: Structure and Competition
Learning Resources
â€¢
Textbook
Frederic S. Mishkin Stanley Eakins, Financial Markets and Institutions, 7/e (The Prentice Hall
Series in Finance). Prentice Hall; 7 edition (September 15, 2011). ASIN: B005NB0SLM
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
Bachelor Program of Finance
39
May 2020
College of Administrative and Financial Sciences
COURSE DESCRIPTION
College
Sciences
Department
Course Name
Investments
Course Code:
FIN403
Credit Hours
3 Credit Hours
Contact Hours
3
Language
Arabic
Finance
English
Track
College
Req.
Â§ Dep. Req.
Course Level
Level 7
Prerequisite
Concentration
FIN101
Course Description:
This course in an examination of investment markets, transactions, planning and information. Topics
include investment risk and return measures, debt and equity instruments, evaluation techniques,
hybrid and derivative securities, mutual funds, real estate investments, tax planning and the
investment process, and portfolio management.
Course learning outcomes:
1. Develop an understanding of the Different Types of Investments.
2. Develop an understanding of the application and limitations of the major economic and financial
theories relevant to investment
3. Develop an understanding of the valuation methods used for valuation of the common forms of debt,
equity, property and derivative securities
4. Design and monitor investment arrangements as part of the process for implementing an investment
strategy.
5. Construct, critically evaluate, and apply asset models of a stochastic nature that are appropriate to the
management of liabilities.
Bachelor Program of Finance
40
May 2020
College of Administrative and Financial Sciences
Course Major topics
1. The Investment Setting and Sources of Investment Information
2. Security Markets: Present and Future
3. Industry Analysis
4. Valuation of the Individual Firm and Financial Statement Analysis
5. Efficient Markets: A Basic View of Technical Analysis and Anomalies
6. Bond and Fixed-Income Fundamental
7. Principles of Bond Valuation and Investment
8. Duration and Reinvestment Concepts
9. Convertible Securities and Warrants
10. Put and Call Options
11. Commodities and Financial Futures
12. Mutual Funds
13. International Security Markets
14. Investments in Real Assets
Learning Resources
â€¢
Textbook
Hirt, G. and Block, S (2008). Fundamentals of Investment Management. (9th). New York:
McGraw-Hill Irwin. ISBN: 13: 978-0-07-340515-5.
– Bodie, Kane and Marcus, â€œEssentials of Investmentsâ€ Mcgraw Hill, 2010.
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
Bachelor Program of Finance
41
May 2020
College of Administrative and Financial Sciences
COURSESâ€™ DESCRIPTIONS:
LEVEL EIGHT
Course
Credit
Code
Course Title
Pre-requisites
Hours
FIN405
Financial Derivatives
3
FIN408
Internship
6
FIN406
International Finance
3
FIN402
FIN424
Portfolio Management
3
FIN403
Bachelor Program of Finance
42
FIN301
May 2020
College of Administrative and Financial Sciences
COURSE DESCRIPTION
College
Sciences
Department
Course Name
Financial Derivatives Course Code:
FIN405
Credit Hours
3
3
Contact Hours
Language
Arabic
Track
College Req.
Level
Level 8
Finance
English
Dep. Req.
Â§ Concentration
Prerequisite
FIN402
Course Description:
The course is designed to foster an understanding of derivatives primarily forwards , futures,
options, swaps, collateralized debt obligations and credit default swaps. This is achieved
through an introduction of the basic techniques of pricing and trading. The course also focuses
on the usage of these instruments for speculation and risk management.
Course learning outcomes:
1. Distinguish between call and put options and apply their use in investment management
2. Design a basic trading strategy which incorporates the use of call and put options
3. Calculate option maximum gain, maximum loss, and breakeven on various options positions
4. Compare and contrast the various aspects of Real Options vs. Financial Options
5. Evaluate the significance of cash versus physical settlement of futures contracts
6. Integrate the use of Forward Rate Agreements (FRA) in various financial scenarios.
7. Critically evaluate the conceptual aspects of swaps and apply the use in various financial
scenarios
8. Characterize the various aspects of credit derivative products and determine their
appropriateness in a variety of corporate and investment scenarios.
Bachelor Program of Finance
43
May 2020
College of Administrative and Financial Sciences
Course Major Topics
1. Introduction.
2. Structure of Options Markets.
3. Principles of Option Pricing.
4. Option Pricing Models: The Binomial Model.
5. Option Pricing Models: The Black-Scholes-Merton Model.
6. Option Strategies.
7. 8. The Structure of Forward and Futures Markets.
8. Principles of Pricing Forwards, Futures, and Options on Futures.
9. Futures Arbitrage Strategies.
10. Forward and Futures Hedging, Spread, and Target Strategies.
11. 12. Swaps.
12. Interest Rate Forwards and Options.
Learning Resources
â€¢
Textbook
Don M. Chance, Roberts Brooks: Introduction to Derivatives and Risk Management, Cengage
Learning; 9 edition (2013), Cengage Learning; 9 edition (March 6, 2012). ISBN-13: 9781133190196.
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
Bachelor Program of Finance
44
May 2020
College of Administrative and Financial Sciences
COURSE DESCRIPTION
College
Sciences
Department
Course Name
Internship
Course Code:
FIN408
Credit Hours
6 Credit Hours
Contact Hours
6
Language
Arabic
Track
College Req.
Level
Level 8
Finance
English
Â§ Dep. Req.
Concentration
Prerequisite
Complete 90 credit hours
Course Description:
This course provides qualified students with an opportunity to receive academic credit for
supervised professional training and experience in an actual work environment. This Internship is
an ongoing seminar between the student, the faculty member and the employment supervisor. It
involves an Internship Application and Learning Agreement, periodic meetings with the faculty
representative, professional experience at a level equivalent to other senior-level courses and
submission of material as established in the Internship Application and Learning Agreement.
Participation cannot be guaranteed for all applicants.
Course learning outcomes:
1. Apply academic learning to workplace practices.
2. Practice and develop professional skills, such as oral, written, and interpersonal
communications, use of technology and analytical tools, and working in teams, that will improve
performance in subsequent courses and in future work assignments .
3. Examine oneâ€™s own attitudes toward work and toward the field of Accounting and to consider
which aspects of accounting best match oneâ€™s own interests.
Bachelor Program of Finance
45
May 2020
College of Administrative and Financial Sciences
Course Major Topics
Learning Resources
â€¢
Textbook
This course does not need a textbook

40 % for internship activities (assigned by the on-training supervisor)

30 % for the apprehension and the assiduity of the student (assigned by the academic
supervisor)

30 % for the substance and the style of the training report (assigned by the department)
Bachelor Program of Finance
46
May 2020
College of Administrative and Financial Sciences
COURSE DESCRIPTION
College
Course Name
Credit Hours
Sciences
International
Course Code:
Finance
3 credit Hours
Language
Arabic
Track
College Req.
Level
8
Department
Finance
FIN406
Contact Hours
3
English
Â§ Dep. Req.
Concentration
Prerequisite
FIN402
Course Description:
This course provides a comprehensive introduction and overview of the field of international
finance. It covers the knowledge needed to manage the international aspects of multinational
firms, the operations of international and foreign bank and financial institutions, and the
operations of all firms, organizations, and individuals active in the current and future global
Course learning outcomes:
1. Provide students with a basic knowledge of how international financial markets work.
2. Provide students with an understanding of exchange rates and why currency values
fluctuate.
3. Explore methods used to manage risk in the global markets.
4. Support student learning through site visits to cultural and financial centers.
5. Provide an in-depth understanding of the process and techniques used to make international
investment decisions.
Bachelor Program of Finance
47
May 2020
College of Administrative and Financial Sciences
Course Major Topics
1. Current Multinational Challenges and the Global Economy
2. The International Monetary System
3. The Balance of Payments
4. The Continuing Global Financial Crisis
5. The Foreign Exchange Market
6. International Parity Conditions
7. Foreign Exchange Rate Determination and Forecasting
8. Transaction and translation Operating and Exposure
9. The Global Cost of Capital and raising Equity and Debt Globally
10. International Portfolio Theory and Diversification
11. Foreign Direct Investment and Political Risk
12. Multinational Capital Budgeting and Cross-Border Acquisitions
Learning Resources
â€¢
Textbook
Moffett, M., Stonehill, A., & Eiteman, D. (2012). Fundamentals of Multinational Finance. (4th).
Boston, MA: Prentice Hall. ISBN: 978-0-132-13807-9.
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
Bachelor Program of Finance
48
May 2020
College of Administrative and Financial Sciences
COURSE DESCRIPTION
College
Sciences
Department
Course Name
Portfolio Management
Course Code:
FIN424
Credit Hours
3
Contact Hours
3
Language
Arabic
Track
College Req.
Level
8
Finance
English
Concentration
Â§ Dep. Req.
Prerequisite
FIN403
Course Description:
The course discusses the portfolio management process by describing procedures for evaluating
and selecting projects. The course contents are primary model selection criterion, steps in using
a model, portfolio selection model, measurement of risk, forecasting and risk management.
Handling uncertainty, projects proposals, and history of portfolio management.
Course learning outcomes:
1. Assess the characteristics and risks of stocks, bonds, money market, and property investments
2. Evaluate the purpose and function of stock markets, interest rates, and international regulation
3. Analyse and choose appropriate Alternative Investments Portfolio Management
4. Evaluate portfolio performance and risk
5. Examine hedging activities, stock options, and currency derivatives
Bachelor Program of Finance
49
May 2020
College of Administrative and Financial Sciences
Course Major Topics:
1. The Portfolio Management Process and the Investment Policy Statement
2. Managing Individual Investor Portfolios
3. Managing Institutional Investor Portfolios
4. Capital Market Expectations
5. Asset Allocation
6. Fixed-Income Portfolio Management
7. Equity Portfolio Management
8. Alternative Investments Portfolio Management
9. Risk Management
10. Execution of Portfolio Decisions
11. Monitoring And Rebalancing
12. Evaluating Portfolio Performance
13. Global Investment Performance Standards
Learning Resources
Textbook
John L. Maginn, Donald L. Tuttle, Dennis W. McLeavey & Jerald E. Pinto: Managing Investment
Portfolios: A Dynamic Process, Wiley; 3 edition (March 9, 2007). ISBN-13: 978-0470080146
Reference:
Bodie, Kane, and Marcus, â€œEssentials of Investmentsâ€ 8th Ed., McGraw Hill, 2010
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
Bachelor Program of Finance
50
May 2020
College of Administrative and Financial Sciences
COURSESâ€™ DESCRIPTIONS:
Concentrations
Bachelor Program of Finance
51
May 2020
College of Administrative and Financial Sciences
Finance Concentration:
Course
Credit
Course Name

Code
Hours
Prerequisites
Fin414
Real Estate Finance
3
FIN201
FIN416
Islamic Finance
3
FIN201
3
FIN301
FIN421
Total
Bachelor Program of Finance
9
52
May 2020
College of Administrative and Financial Sciences
COURSE DESCRIPTION
College
Sciences
Department
Course
Name
Real Estate
Finance
Course Code:
FIN414
Credit Hours
3
Contact Hours
3
Language
Arabic
Track
College Req.
Level
Level 6, 7, 8
Finance
English
Â§ Concentration
Dep. Req.
Prerequisite
FIN201
Course Description:
This course provides an overview of real estate markets and the analysis used to support
financial decision-making. The initial portion of the course will cover basics of real estate and
mortgage products, including securitized residential debt.
The course will expose students to current â€œreal worldâ€ real estate finance and investment
situations and people who shape them.
Course learning outcomes: Upon completion of this course, the student will be able to:
1. Define and apply the real estate finance terminology.
2. Identify and apply basic finance techniques for residential real estate.
3. Discuss specific real estate finance functions of loan organization, processing, underwriting,
and delivery to secondary market.
4. List the types of investments (ownership, debt, and securities)
Bachelor Program of Finance
53
May 2020
College of Administrative and Financial Sciences
5. Distinguish between the features and benefits of each investment type
6. Discuss how the key characteristics of investments (safety, liquidity, and yield) interact to
affect investment risk
7. Discuss the concept of diversification and how it affects risk
8. Describe the types of risks assumed by mortgage lenders, including risk of default, risk of
loss, interest rate risk, and prepayment risk
Course Major Topics:
1. Real Estate Investment: Legal Concepts and Basic Real Estate Financing
2. Mortgage Law Foundation: The Time Value of Money
3. Fixed Rate Mortgage Loans, Adjustable and Floating Rate Mortgage Loans
4. Underwriting and Financing Residential Properties
5. Income-Producing Properties: Leases, Rents, and the Market for Space
6. Valuation of Income Properties: Appraisal and the Market for Capital
7. Investment Analysis and Taxation of Income Properties
8. Financial Leverage and Financing Alternatives
9. Risk Analysis
10. Disposition and Renovation of Income Properties
11. Financing Corporate Real Estate, Project Development
12. Structuring Real Estate Investments: Organizational Forms and Joint Ventures
13. Real Estate Investment Performance and Portfolio Considerations
Learning Resources
Textbook
William Brueggeman, Jeffrey Fisher: Real Estate Finance & Investments, McGraw-Hill/Irwin; 14
edition (February 12, 2010). ISBN-13: 978-0073377339
Bachelor Program of Finance
54
May 2020
College of Administrative and Financial Sciences
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
COURSE DESCRIPTION
College
Sciences
Department
Course Name
Islamic Finance
Course Code:
FIN416
Credit Hours
3
Contact Hours
3
Language
Arabic
Track
College Req.
Level
Level 6, 7, 8
Finance
English
Dep. Req.
Â§ Concentration
Prerequisite
FIN101
Course Description:
This course provides a wide-ranging introduction to the subject of Islamic finance, beginning
with an introduction which provides a background to the growth in recent years and the reasons
why this is important. The prohibition of Riba (interest) is examined in some details as this is
fundamental to understand the subject of Islamic Banking and Finance.
The course focuses mainly upon the main Islamic financial contract such as Murabaha,
Musharaka, Mudharab, Ijara, Altakafulâ€¦ in order to give a clear image about the difference
between the Islamic finance and Interest-based finance.
Bachelor Program of Finance
55
May 2020
College of Administrative and Financial Sciences
Course learning outcomes:
1. Know the origins of the Islamic Banking and Finance;
2. Appreciate the rationale behind the development of the Islamic finance industry;
3. Be able to assess the nature and scope of the Islamic finance industry in relation to its conventional
counterpart;
4. Develop an appropriate level of understanding of the main principles of Islamic banking and
finance;
5. Acquire essential knowledge about the key Islamic financial contracts, as used by the industry;
6. Know about Murabaha and Musharaka contracts, Ijara and Istisna’a financing methods, as
well as Salam and Takaful insurance;
7. Be familiarised with the Islamic financial infrastructure, international financial institutions
and regulatory bodies.
Course Major Topics:
1. Muslim Beliefs.
2. Sharia’a Law and Sharia’a Boards: Roles, Responsibility and Membership
3. Definition of Islamic Banking
4. Murabaha as a Mode of Islamic Finance
5. Mudaraba as a Mode of Islamic Finance
6. Musharaka as a Mode of Islamic Finance
7. Ijara as a Mode of Islamic Finance
8. Istisna’a as a Mode of Islamic Finance
9. Salam as a Mode of Islamic Finance
10. Takaful: Islamic Insurance
Learning Resources
â€¢
Textbook
Bachelor Program of Finance
56
May 2020
College of Administrative and Financial Sciences
Brian Kettell, Introduction to Islamic Banking and Finance, Wiley, 2011, ISBN: 978-1-119-990604 (ebook)
â€¢
Rference:
Ayub, M., â€œUnderstanding Islamic Financeâ€, John & Wiley, 2007.
Hassan, Kayed and Oseni, â€œIntroduction to Islamic Banking and Financeâ€, Pearson, 2013.
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
COURSE DESCRIPTION
College
Sciences
Department
Course Name
Financing
Course Code:
FIN421
Credit Hours
3
Contact Hours
3
Language
Arabic
Track
College Req.
Level
Level 6, 7, 8
Finance
English
Dep. Req.
Â§Concentration
Prerequisite
FIN101
Course Description:
This course on small business finance covers both the investment and the financing decisions
the decision to launch or invest in a small business and how a small firm may be financed. It
examines issues such as choosing between sources of financing small business, getting
liquidity, venture capital, structure of financing. The major objective of this course is to
Bachelor Program of Finance
57
May 2020
College of Administrative and Financial Sciences
acquaint students with the financing sources of a small business, and the ways of optimizing
the outcome of those sources.
Course learning outcomes:
1. Understand the characteristics of small business financing.
2. Identify different appropriate financial resources for small and medium businesses
3. Understand the unique risks and rewards of managing a small business;
4. Understand how to analyse the financial metrics of a new venture and make well-supported
investment decisions;
5. Create a marketing plan for a small business, including pricing decisions and building a sales
forecast;
6. Perform the necessary financial analysis to create the budgets and financial forecasts used by
Course Major Topics:
1. Introduction
2. The Private Equity Cycleâ€”Fund-Raising and Fund Choosing
3. Deal Sourcing and Evaluationâ€”Not as Easy as it Looks
4. Assigning Value
5. Deal Structuring – Private Equity Securities and Their Motivation
6. After the Money Arrives?
7. Getting Liquid: Exits and Distributions
8. The Globalization of Venture Capital and Private Equity
9. Risk and Return
10. The Impact of Private Equity on Society – Does This Really Matter Anyway?
11. People, Positions and Culture: The Management of the Private Equity Firm
12. Scaling and Institutionalization
Bachelor Program of Finance
58
May 2020
College of Administrative and Financial Sciences
Learning Resources
Textbook
Josh Lerner, Ann Leamon, Felda Hardymon: Venture Capital, Private Equity, And The
Financing Of Entrepreneurship: The Power of Active Investing. Wiley, 2012, ISBN-13: 9780470591437
Course works (assignments, quizzes, projects, case studies, board discussion):
25%
Midterm exam
25%
Final Exam
50%
Bachelor Program of Finance
59
May 2020
Chapter 1: The Financial Manager and
the Firm
Learning Objectives
1. IDENTIFY THE KEY FINANCIAL DECISIONS
FACING THE FINANCIAL MANAGER OF ANY
2. IDENTIFY THE BASIC FORMS OF BUSINESS
ORGANIZATION IN THE UNITED STATES AND
THEIR RESPECTIVE STRENGTHS AND
WEAKNESSES.
Learning Objectives
3. DESCRIBE THE TYPICAL ORGANIZATION OF
THE FINANCIAL FUNCTION IN A LARGE
CORPORATION.
4. EXPLAIN WHY MAXIMIZING THE CURRENT
VALUE OF THE FIRMâ€™S STOCK IS THE
APPROPRIATE GOAL FOR MANAGEMENT.
5. DISCUSS HOW AGENCY CONFLICTS AFFECT
THE GOAL OF MAXIMIZING SHAREHOLDER
VALUE.
Learning Objectives
6. EXPLAIN WHY ETHICS IS AN APPROPRIATE
TOPIC IN THE STUDY OF CORPORATE
FINANCE.
The Role of the Financial Manager
o THREE KEY FINANCIAL DECISIONS
â€¢ Capital Budgeting: decide which long-term
assets to acquire
â€¢ Financing: decide how to pay for short-term and
long-term assets
â€¢ Working Capital: decide how to manage shortterm resources and obligations
The Role of the Financial Manager
o THREE KEY FINANCIAL DECISIONS
â€¢ Capital Budgeting
Choose the long-term assets that will yield the greatest
net benefits for the firm.
The Role of the Financial Manager
o THREE KEY FINANCIAL DECISIONS
â€¢ Financing
Finance assets with the optimal combination of shortterm debt, long-term debt, and equity.
The Role of the Financial Manager
o THREE KEY FINANCIAL DECISIONS
â€¢ Working Capital Management
Adjust current assets and current liabilities as needed
to promote growth in cash flow.
Cash Flows Between the Firm and Its
Stakeholders and Owners
How the Financial Managerâ€™s Decisions
Affect the Balance Sheet
The Role of the Financial Manager
o THREE KEY FINANCIAL DECISIONS
â€¢ Poor decisions about capital budgeting,
financing, or working capital may lead to
â€¢ Sole Proprietorship
â€¢ Partnership
â€¢ Corporation
o SOLE PROPRIETORSHIP
â€¢ Owned by a single person who is financially
responsible for the actions and obligations of
o SOLE PROPRIETORSHIP
easiest to create
easiest to control
easiest to dissolve
right to all profit
o SOLE PROPRIETORSHIP
ownerâ€™s personal assets at risk
ownerâ€™s unlimited liability for firm obligations
equity only from owner or business profit
business income taxed as personal income
difficult to transfer ownership
o PARTNERSHIP
â€¢ A business owned by more than one person; one
or more of them financially responsible for the
actions and obligations of the business
o PARTNERSHIP
limited protection of ownersâ€™ personal assets
ownersâ€™ limited liability for firm obligations
more sources of equity
more sources of expertise
o PARTNERSHIP
shared control
shared profit
harder to dissolve
o CORPORATION
â€¢ A business owned by more than one person;
none of them financially responsible for the
actions and obligations of the business. The
corporation is responsible for its obligations and
actions.
o CORPORATION
protects personal assets
easiest to change ownership
o CORPORATION
most difficult and expensive to establish
dilutes individual control over the firm
overall higher taxes on income for shareholders
o HYBRID FORMS OF BUSINESS ORGANIZATION
â€¢ Limited Liability Partnerships (LLPs)
â€¢ Limited Liability Companies (LLCs)
â€¢ Professional Companies (PCs)
All have the limited liability of a corporation and tax
Organization of the Financial Function
o CHIEF EXECUTIVE OFFICER (CEO)
â€¢ Chief manager in the firm
â€¢ Ultimate power to make decisions and ultimate
responsibility for decisions
â€¢ Reports directly to the board-of-directors who
protect shareholderâ€™s interests
Simplified Corporate Organization
Chart
Organization of the Financial Function
o CHIEF FINANCIAL OFFICER (CFO)
â€¢ The V.P. of Finance/CFO is responsible for the
quality of the financial reports received by the
CEO
Organization of the Financial Function
o KEY FINANCIAL REPORTS
â€¢ The Treasurer manages and reports on the
collection and disbursement of cash
â€¢ The Risk Manager manages and reports on
activities to limit the firmâ€™s risks in financial and
commodity markets
Organization of the Financial Function
o KEY FINANCIAL REPORTS
â€¢ The Controller is the firmâ€™s accountant and
prepares its financial reports
â€¢ The Internal Auditor controls and reports on
activities to limit the firmâ€™s exposure to internal
threats such as fraud and inefficient use of
resources
Organization of the Financial Function
o EXTERNAL AUDITOR
â€¢ Conducts an independent audit of a firmâ€™s
financial activities
â€¢ Provides an opinion about whether the financial
reports the firm prepared are reasonably
accurate and conform to generally accepted
accounting principles
The Goal of the Firm
o DO NOT MAXIMIZE MARKET SHARE
maximize a firmâ€™s market share for a while, but
the firm will not be able to pay its bills and stay
The Goal of the Firm
o DO NOT MAXIMIZE PROFIT
â€¢ Accounting profit differs from economic profit
â€¢ Profit earned may not equal cash received
Cash not received canâ€™t be used to pay bills
â€¢ The strategy ignores the timing of future cash
flows
â€¢ The strategy ignores the risks associated with
having to wait for cash flows
The Goal of the Firm
o MAXIMIZE SHAREHOLDERSâ€™ WEALTH!
â€¢ Future cash flows are considered
â€¢ The timing of future cash flows is considered
â€¢ The risks associated with having to wait to for
cash flows are considered
The Goal of the Firm
o MAXIMIZE SHAREHOLDERSâ€™ WEALTH!
â€¢ Maximizing the price of a firmâ€™s stock will
maximize the value of a firm and the wealth of
its shareholders (owners)
The Goal of the Firm
o ITS ALL ABOUT CASH FLOW!
â€¢ Positive residual cash flow may be paid to firm
owners as dividends or invested in the firm
â€¢ The larger the positive residual cash flow, the
greater the value of a firm
â€¢ Negative residual cash flow â€“ over the long run leads to bankruptcy or closing a business
Agency Conflicts
o AGENCY RELATIONSHIP
â€¢ An agency relationship is created when the
owner (a principal) of a business hires an
employee (an agent)
â€¢ The owner surrenders some control over the
enterprise and its resources to the employee
â€¢ Separating ownership from control creates the
potential for agency conflicts
Agency Conflicts
o AGENCY RELATIONSHIP
â€¢ An agency relationship exists between
stockholders (principals) and the firmâ€™s hired
management (agents)
â€¢ In large corporations, shared ownership among
many shareholders may result in relatively little
control over management
Agency Conflicts
o OWNERSHIP AND CONTROL
â€¢ Shareholders own the corporation, but
managers control the firmâ€™s assets and may use
them for their own benefit
Major Factors Affecting Stock Prices
Agency Conflicts
o AGENCY COSTS
â€¢ Arise from (incurring and preventing) conflictsof-interests between a firmâ€™s owners and its
managers
â€¢ May reduce positive residual cash flow, stock
price, and shareholder wealth
Agency Conflicts
o GIVING AGENTS THE RIGHT INCENTIVE
â€¢ Managers tend to focus on wealth maximization
when their compensation depends on stock
price
Agency Conflicts
o GIVING AGENTS THE RIGHT INCENTIVE
â€¢ Today, the firmâ€™s stock trades at \$0.95 per share.
The CEO has an option to buy 2.5 million
shares from the firm for \$1.15 per share at any
time, beginning one year from today. If the
stock price rises to \$3.15, the option will be
worth \$5 million.
Agency Conflicts
o GIVING AGENTS THE RIGHT INCENTIVE
â€¢ Want to keep their jobs
â€¢ Oversight by the board of directors
â€¢ Oversight by large blockholders
â€¢ Potential takeover of the firm
â€¢ The legal and regulatory environment.
Agency Conflicts
o SARBANES-OXLEY AND REGULATORY REFORM
â€¢ Better corporate governance reduces agency
costs by requiring
more effective monitoring of managersâ€™ activities
programs that promote appropriate behavior by
managers
penalties for executives who do not fulfill their fiduciary
responsibilities
Corporate Governance Regulations
Designed to Reduce Agency Costs
Ethics in Corporate Finance
o WHAT ARE ETHICS?
â€¢ Ethics
societyâ€™s standards for judging whether an action is
right or wrong
societyâ€™s standards for acceptable behavior applied to
Ethics in Corporate Finance
o EXAMPLES OF ETHICAL CONFLICT IN BUSINESS
â€¢ Agency Cost
employeeâ€™s unacceptable use of employerâ€™s computer
â€¢ Conflict of Interest
mortgage contract which a home-buyer is unlikely to
fulfill but earns a mortgage broker more money
â€¢ Information Asymmetry
seller knows about prior damage to the vehicle but the
Ethics in Corporate Finance
â€¢ Regulation and market forces are not enough to
maintain integrity in the marketplace
â€¢ Business norms must be based on ethical
beliefs, customs, and practices
Ethics in Corporate Finance
o CONSEQUENCES OF UNETHICAL BEHAVIOR
â€¢ Inefficiency in the economy and costs to society
â€¢ High legal and social costs
â€¢ Problems such as the recent financial crisis in
the U.S.
Ethics in Corporate Finance
o ETHICAL BEHAVIOR
â€¢ Sometimes, it is difficult to judge whether
behavior is ethical or not
Was the manager too careful?
Did the manager take too much risk?
Was it an honest mistake?
Was it against policy, but well-intentioned?
A Framework for the Analysis of Ethical
Conflicts
Chapter 2: The Financial System and
the Level of Interest Rates
Learning Objectives
1. DESCRIBE THE ROLE OF THE FINANCIAL
SYSTEM IN THE ECONOMY AND THE TWO
BASIC WAYS IN WHICH MONEY FLOWS
THROUGH THE SYSTEM.
2. DISCUSS DIRECT FINANCING AND THE
IMPORTANT ROLE THAT INVESTMENT BANKS
PLAY IN THIS PROCESS.
Learning Objectives
3. DESCRIBE THE PRIMARY, SECONDARY, AND
MONEY MARKETS, EXPLAINING THE SPECIAL
IMPORTANCE OF SECONDARY AND MONEY
4. EXPLAIN WHAT AN EFFICIENT MARKET IS
AND WHY MARKET EFFICIENCY IS
IMPORTANT TO FINANCIAL MANAGERS.
Learning Objectives
5. EXPLAIN HOW FINANCIAL INSTITUTIONS
SERVE THE NEEDS OF CONSUMERS, SMALL
6. COMPUTE THE NOMINAL AND THE REAL
RATES OF INTEREST, DIFFERENTIATING
BETWEEN THEM.
The Financial System
o FINANCIAL MARKETS AND INSTITUTIONS
â€¢ Financial markets include markets for trading
financial assets such as stocks and bonds
â€¢ Financial institutions include banks, credit
unions, insurance companies, and finance
companies
The Financial System
o THE FINANCIAL SYSTEM AT WORK
â€¢ The financial system is competitive
â€¢ Money is borrowed in small amounts and
loaned in large amounts
â€¢ The system directs money to the best
investment opportunities in the economy
â€¢ Lenders earn profit from the spread between
lending and borrowing rates
The Financial System
o MOVE FUNDS FROM LENDER TO BORROWER
â€¢ The primary function of a financial system is to
efficiently transfer funds from lender-savers to
borrower-spenders
â€¢ Basic mechanisms by which funds are
transferred in the financial system
Direct Financing
Indirect Financing
The Flow of Funds Through the
Financial System
Direct Financing
o DIRECT TRANSFER OF FUNDS
â€¢ lender-saver contracts with a borrower-spender
â€¢ minimum transaction \$1 million
â€¢ investment banks and money center banks help
with origination, underwriting and distribution
of new debt and equity
Direct Financing
o DIRECT TRANSFER OF FUNDS
â€¢ Underwriting is a service to assist firms in
selling their debt or equity securities in a direct
financing market
Types of Financial Markets
o WHOLESALE AND RETAIL MARKETS
â€¢ Primary Market
wholesale market where firmsâ€™ new securities are
issued and sold for the first time
â€¢ Secondary Market
retail market where previously issued securities are
Types of Financial Markets
o MARKETABILITY AND LIQUIDITY
â€¢ Marketability
ease with which a seller or buyer for an asset can be
found
â€¢ Liquidity
ease with which an asset can be converted into cash
without loss of value
Types of Financial Markets
o MARKETABILITY AND LIQUIDITY
â€¢ Financial markets increase marketability and
liquidity of securities
â€¢ Financial markets lower the costs of making
transactions and make participants more willing
and able to pay higher prices
Types of Financial Markets
o BROKERS AND DEALERS
â€¢ A broker brings a seller and a buyer together but
does not buy or sell in the transaction
broker does not take on risk
seller using her own inventory of securities
dealer takes on risk
Types of Financial Markets
o EXCHANGES & OVER-THE-COUNTER MARKETS
â€¢ Exchange
location where sellers and buyers meet to conduct
transactions
â€“ New York Stock Exchange (NYSE)
â€“ Chicago Board Options Exchange (CBOE)
Types of Financial Markets
o EXCHANGES & OVER-THE-COUNTER MARKETS
â€¢ Over-the-Counter Market
dealers conduct transactions over the phone or via
computer.
â€“ National Association of Securities Dealers Automated
Quotations (NASDAQ)
Types of Financial Markets
o MONEY AND CAPITAL MARKETS
â€¢ Money Market
market for low-risk securities with maturities of less than one year.
-Treasury Bills (T-bills): are short-term debt instruments issued
by the U.S Treasury. T-bills are issued for a term of one year of
less. T-bills are considered the worldâ€™s safest debt as they are
backed by the full faith and credit of the United States
government.
-Commercial Paper: Commercial paper is an unsecured, shortterm debt instrument issued by a corporation, typically for the
financing of accounts receivable, inventories and meeting shortterm liabilities. Maturities on commercial paper rarely range any
longer than 270 days. Commercial paper is usually issued at a
discount from face value and reflects prevailing market interest
rates.
o
Types of Financial Markets
o MONEY AND CAPITAL MARKETS
â€¢ Capital Market
market for securities with maturities longer than one
year
â€“ bonds
â€“ common stock
Selected Money Market and Capital
Market Instruments June 2010
Market Efficiency
o EFFICIENT MARKET
â€¢ Current prices of securities incorporate the
knowledge and expectations of all participants
â€¢ Security prices are correct: securities are not
over-valued or under-valued.
â€¢ Participants are confident they pay or receive
the intrinsic (fair) value of a security
Market Efficiency
o MARKET EFFICIENCY
â€¢ Operational Efficiency
extent to which transaction costs are minimized
â€¢ Informational Efficiency
extent to which security prices reflect all relevant
information
Market Efficiency
o EFFICIENT MARKET HYPOTHESIS
â€¢ A theory about how efficiently the stock market
processes and incorporates information
available from
private sources of information
public sources of information
historical stock prices
Market Efficiency
o EFFICIENT MARKET HYPOTHESIS
â€¢ Strong-Form Efficiency
Security prices always reflect all information, from
every source. Even inside, or confidential information,
is reflected.
Market Efficiency
o EFFICIENT MARKET HYPOTHESIS
â€¢ Semi-strong-Form Efficiency
Security prices always reflect all public information.
Inside, or confidential information, is not reflected.
Market Efficiency
o EFFICIENT MARKET HYPOTHESIS
â€¢ Weak-Form Efficiency
Security prices always reflect the information in past
prices. No other information is reflected.
Market Efficiency
o EFFICIENT MARKET HYPOTHESIS
â€¢ Public markets, such as the NYSE are more
efficient than private markets due to the
information provided by a large number of
participants and effective regulation
Financial Institutions and Indirect
Financing
o INDIRECT FINANCING
â€¢ An institution is both a borrower and lender
borrows money from a saver
lends money to a borrower
must repay funds to the saver â€“ whether or not it is
repaid by the borrower
â€“ Examples: banks & insurance companies
Financial Institutions and Indirect
Financing
o FINANCIAL INSTITUTIONS
â€¢ Provide lending and borrowing opportunities at
the retail level for small customers and
wholesale level for large customers
â€¢ Efficiently collect funds in small amounts and
lend them in larger amounts
â€¢ Tailor loan amounts and contract terms to fit the
needs of consumers, corporations, and small
Cash Flows Between the Firm and the
Financial System
The Determinants of Interest Rate
Levels
o INTEREST RATE
â€¢ The fee for borrowing money expressed as a
percentage of a loan
real rate of interest
â€“ interest rate that would exist in the absence of inflation
(deflation)
nominal rate of interest
â€“ interest rate adjusted for inflation (deflation)
The Determinants of Interest Rate
Levels
o REAL RATE OF INTEREST
â€¢ Determinants of the real rate of interest
expected return on productive assets
time preference for consumption
The Determinants of Interest Rate
Levels
o EQUILIBRIUM RATE OF INTEREST
â€¢ Is a function of supply and demand
savers supply more funds at higher rates
spenders borrow (demand) less at higher rates
â€¢ Is the interest rate at which the quantity of
funds supplied equals the quantity of funds
demanded
The Determinants of the Equilibrium
Rate of Interest
The Determinants of Interest Rate
Levels
o INFLATION AND LOAN CONTRACTS
â€¢ Lenders want the interest rates in loan contracts
to include compensation for the inflation
predicted to occur over the life of the contract
â€¢ Compensation for expected inflation adjusts
loan rates to offset the higher prices for goods
and services expected to exist when a loan is
repaid and a lender spends the money
The Determinants of Interest Rate
Levels
o FISHER EQUATION & NOMINAL INTEREST RATE
â€¢ The Fisher Equation
o
i ï€½ r ï€« ï„P ï€« rï„P
e
e
(2.1)
Where:
i = nominal interest rate
r = real rate of interest
âˆ†Pe = expected annualized price-level change
râˆ†Pe = adjustment for expected price-level
change
The Determinants of Interest Rate
Levels
o FISHER EQUATION & NOMINAL INTEREST RATE
â€¢ Simplified Fisher Equation
i ï€½ r ï€« ï„P
e
(2.2)
The Determinants of Interest Rate
Levels
o FISHER EQUATION EXAMPLE
r ï€½ 0.04
ï„P ï€½ 0.10
e
iï€½?
i ï€½ r ï€« ï„P ï€« rï„P
e
e
ï€½ 0.04 ï€« 0.10 ï€« (0.04 x 0.10)
ï€½ 0.1440 or 14.40%
The Determinants of Interest Rate
Levels
o SIMPLIFIED FISHER EQUATION EXAMPLE
r ï€½ 0.04
ï„Pe ï€½ 0.10
i ï€½ r ï€« ï„Pe
ï€½ 0.04 ï€« 0.10
ï€½ 0.14 or 14%
iï€½?
The Determinants of Interest Rate
Levels
o REAL RATE OF INTEREST EXAMPLE
i ï€½ 0.14
ï„P ï€½ 0.10
e
i ï€½ r ï€« ï„P
e
0.14 ï€½ r ï€« 0.10
0.14 â€“ 0.10 ï€½ r
0.04 ï€½ r
r ï€½?
The Determinants of Interest Rate
Levels
o CYCLICAL & LONG-TERM INTEREST RATES
â€¢ Interest rates tend to rise and fall with changes
in the rate of inflation
â€¢ Rates tend to rise when the growth rate of the
economy increases and tend to fall when the
growth rate of the economy slows
The Determinants of Interest Rate
Levels
o INTEREST RATE, BUSINESS CYCLE & INFLATION
â€¢ Interest rates tend to increase during an
economic expansion
â€¢ Interest rates tend to decrease during an
economic contraction
Relation Between Annual Inflation
Rate and Long-Term Interest Rate
Chapter 3: Financial Statements, Cash
Flows, and Taxes
Learning Objectives
1. DISCUSS GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP) AND THEIR
IMPORTANCE TO THE ECONOMY.
2. EXPLAIN THE BALANCE SHEET IDENTITY AND
WHY A BALANCE SHEET MUST BALANCE.
3. DESCRIBE HOW MARKET-VALUE BALANCE
SHEETS DIFFER FROM BOOK-VALUE BALANCE
SHEETS.
Learning Objectives
4. IDENTIFY THE BASIC EQUATION FOR THE
INCOME STATEMENT AND THE INFORMATION IT
PROVIDES.
5. UNDERSTAND THE CALCULATION OF CASH
FLOWS FROM OPERATING, INVESTING, AND
FINANCING ACTIVITIES REQUIRED IN THE
STATEMENT OF CASH FLOWS.
6. EXPLAIN HOW THE FOUR MAJOR FINANCIAL
STATEMENTS DISCUSSED IN THIS CHAPTER ARE
RELATED.
Learning Objectives
7. IDENTIFY THE CASH FLOW TO A FIRMâ€™S
INVESTORS USING ITS FINANCIAL
STATEMENTS.
8. DISCUSS THE DIFFERENCE BETWEEN
AVERAGE AND MARGINAL TAX RATES.
Financial Statements
o PURPOSE OF FINANCIAL STATEMENTS
â€¢ Provide stakeholders a foundation for evaluating
the financial health of a firm
creditors
employees
management
stockholders
Financial Statements
o PURPOSE OF FINANCIAL STATEMENTS
â€¢ Provide stakeholders a foundation for evaluating
the financial health of a firm.
customers
general Public
regulators
suppliers
Financial Statements
o PURPOSE OF FINANCIAL STATEMENTS
â€¢ Evaluate a firmâ€™s internal environment
efficiency
effectiveness
risk level
Financial Statements
o PURPOSE OF FINANCIAL STATEMENTS
â€¢ Evaluate a firmâ€™s interaction with the external
environment
corporate citizenship
social responsibility
assessment of the external environment
response to the external environment
Financial Statements
o PURPOSE OF FINANCIAL STATEMENTS
â€¢ Provide information about the performance of
the firm
stakeholders want to compare actual vs. potential
performance
Financial Statements and Accounting
Principles
o GAAP
â€¢ Generally Accepted Accounting Principles
(GAAP)
accounting rules and standards that public companies
must adhere to when they prepare financial statements
and reports
established by the Financial Accounting Standards
Board (FASB) and authorized by the Securities and
Exchange Commission (SEC)
Financial Statements and Accounting
Principles
o INTERNATIONAL GAAP
â€¢ Uniform accounting rules and procedures
promoted by the International Accounting
Standards Board
â€¢ Firms in the European Union are moving
toward a â€œEuropean GAAPâ€
â€¢ Economic and political pressure is building in
the United States and Europe to develop a
unified accounting system
Financial Statements and Accounting
Principles
o GAAP
â€¢ Guidelines, not rules
Firms have discretion about how their financial
information is presented.
No two firms are required to have identical statements.
Financial Statements and Accounting
Principles
o GAAP
â€¢ Guidelines, not rules.
Alternative terms on financial statements
â€“ balance sheet, statement of financial condition
â€“ income statement, statement of operations, profit and loss
statement
â€“ cost-of-goods-sold, cost-of -sales, cost-of-revenue, cost-ofservices-sold
Financial Statements and Accounting
Principles
o FIVE IMPORTANT ACCOUNTING PRINCIPLES
1. Assumption of Armâ€™s Length Transaction
Parties involved in an economic transaction arrive at a
decision independently and rationally.
2. Cost Principle
Asset values are recorded at the cost for which they
were acquired.
Financial Statements and Accounting
Principles
o FIVE IMPORTANT ACCOUNTING PRINCIPLES
3. Realization Principle
Revenue is recognized when a transaction is
completed, although cash may be received earlier or
later.
4. Matching Principle
Revenue is matched with the expense incurred to
generate it.
Financial Statements and Accounting
Principles
o FIVE IMPORTANT ACCOUNTING PRINCIPLES
5. Going Concern Assumption
Assume a company will continue to operate for the
predictable future.
Financial Statements and Accounting
Principles
o ANNUAL REPORT
â€¢ Summarizes the overall performance of a firm
for the most recent fiscal year
â€¢ Information
the company, its products, its activities, and its future
summary of financial performance for the most recent
year
audited financial statements, five-year summary of
financial data
The Balance Sheet
o FIRM ASSETS & FUNDING AT A POINT IN TIME
â€¢ Left side of a balance shows assets a firm owns
and uses to generate revenue
â€¢ Right side of the balance sheet shows sources
of the funds used to acquire assets
Total Assets ï€½
Total Liabilities ï€« Total Stockholde rs’Equity
(3.1)
Diaz Manufacturing Balance Sheets as
of December 31
The Balance Sheet
o ITEM ORDER
â€¢ Assets listed in order of liquidity
â€¢ Liabilities listed in order in which they are due
to be paid
â€¢ Stockholdersâ€™ equity listed last
Common stockholders are entitled to assets remaining
after all other providers of funds are paid.
The Balance Sheet
o CURRENT ASSETS
â€¢ Assets likely to be converted to cash within a
year (or one operating cycle)
marketable securities
accounts receivable
inventory
The Balance Sheet
o CURRENT LIABILITIES
â€¢ Liabilities scheduled to be paid within a year (or
one operating cycle)
accounts payable
accrued wages
debt with less than a yearâ€™s maturity
taxes
The Balance Sheet
o NET WORKING CAPITAL
Net Working Capital ï€½ Total Current Assets
– Total Current Liabilitie s
(3.2)
The Balance Sheet
o NET WORKING CAPITAL EXAMPLE
â€¢ Diaz Manufacturing
Total current assets = \$1,039.8 million
Total current liabilities = \$377.8 million
Net working capital = Total current assets
– Total current liabilities
= \$1,039.8 million – \$377.8 million
= \$662.0 million
The Balance Sheet
o INVENTORY ACCOUNTING
â€¢ Inventory (least liquid current asset) reported
using one of two methods
FIFO (first-in-first-out) assumes merchandise is sold in
the order it was acquired by a firm.
LIFO (last-in-first-out) assumes merchandise is sold in
the reverse of the order it was acquired by a firm.
The Balance Sheet
o INVENTORY ACCOUNTING
â€¢ When the cost of inventory is increasing
FIFO reporting says a firm sold the less expensive
â€“ higher balance in inventory
â€“ lower cost-of-goods-sold
â€“ higher taxable income
â€“ higher income taxes
â€“ higher net income
The Balance Sheet
o INVENTORY ACCOUNTING
â€¢ When the cost of inventory is increasing
LIFO reporting says a firm sold the more expensive
â€“ lower balance in inventory
â€“ higher cost-of-goods-sold
â€“ lower taxable income
â€“ lower income taxes
â€“ lower net income
The Balance Sheet
o INVENTORY ACCOUNTING
â€¢ When the cost of inventory is decreasing
FIFO reporting says a firm sold the more expensive
â€“ lower balance in inventory
â€“ higher cost-of-goods-sold
â€“ lower taxable income
â€“ lower income taxes
â€“ lower net income
The Balance Sheet
o INVENTORY ACCOUNTING
â€¢ When the cost of inventory is decreasing
LIFO reporting says a firm sold the less expensive
â€“ higher balance in inventory
â€“ lower cost-of-goods-sold
â€“ higher taxable income
â€“ higher income taxes
â€“ higher net income
The Balance Sheet
o INVENTORY ACCOUNTING
â€¢ Firms may switch from one inventory
accounting method to the other under
extraordinary circumstances but not frequently
The Balance Sheet
o LONG-TERM ASSETS
â€¢ Real Assets
land
buildings
equipment
â€¢ Intangible Assets
goodwill
patents
The Balance Sheet
o LONG-TERM ASSETS
â€¢ Real assets decline with use and are depreciated
Depreciation expense reduces taxable income and
income taxes.
Assets are depreciated using either the straight line or
accelerated depreciation method.
â€¢ Intangible assets lose value over time and are
amortized (equivalent to depreciated)
The Balance Sheet
o LONG-TERM LIABILITIES
â€¢ Long-term debt
bank loans
mortgages
bonds with a maturity longer than one year
The Balance Sheet
o EQUITY
â€¢ Common Stock
ownership with control in a firm
â€¢ Preferred Stock
ownership without control in a firm
features make it an equity security that resembles debt
The Balance Sheet
o OTHER BALANCE SHEET ACCOUNTS
â€¢ Retained earnings
Profit kept and used to acquire assets.
â€¢ Treasury stock
Shares of its own stock a firm holds rather than sell
them to the public.
Market Value vs. Book Value
o RECORDING ASSET VALUE
â€¢ Assets are traditionally reported at historical
cost on a balance sheet
â€¢ Balance sheet amount does not reflect current
market value â€“ only the acquisition cost
Market Value vs. Book Value
o ASSET VALUATION
â€¢ Better information is provided to management
and investors by marking-to-market â€”
reporting balance sheet items at current market
values
difficult to determine market values of assets
â€¢ The difference between the market values of
assets and liabilities is a realistic estimate of the
market value of shareholdersâ€™ equity
The Income Statement
o INCOME STATEMENT: OVERVIEW
â€¢ Measures the profitability of a firm for a
reporting period
â€¢ Revenue is income from selling products and
services â€“ for cash or credit
â€¢ Expenses include costs of providing products
and services, and asset utilization (depreciation
and amortization)
Net income ï€½ Revenues â€“ Expenses
(3.3)
Diaz Manufacturing Income
Statements
The Income Statement
o NET INCOME EXAMPLE
â€¢ Diaz Manufacturing
Revenues = \$1,563.7 million
Expenses = \$1,445.2 million
Net Income = Revenues â€“ Expenses
= \$1,563.7 million – \$1,445.2 million
= \$ 118.5 million
The Income Statement
o DEPRECIATION
â€¢ The cost of a physical asset, such as plant or
machinery, is written off over its lifetime. This
is called depreciation, a non-cash expense
â€¢ Firms use one of these depreciation methods
straight-line depreciation
accelerated depreciation
â€“ Firms may choose to use one for internal purposes and
another for tax purposes or for statements released to the
public.
The Income Statement
o AMORTIZATION
â€¢ Amortization expense is related to using
intangible assets
goodwill
patents
â€“ Like depreciation, it is a non-cash expense.
The Income Statement
o EXTRAORDINARY ITEM
â€¢ Income or expense associated with events that
are infrequent and abnormal
separated from the results of ordinary income
shown separately on the income statement
The Income Statement
o EBITDA AND EBIT
â€¢ Earnings-before-interest-taxes-depreciationand-amortization (EBITDA)
income from selling goods and services minus the cost
of providing them
â€¢ Earnings-before-interest-and-taxes (EBIT)
EBITDA minus depreciation and amortization
The Income Statement
o EBT AND NI
â€¢ Earnings-before-taxes (EBT)
EBIT minus interest expense
taxable income
â€¢ Net income (NI)
EBT minus taxes
Statement of Retained Earnings
o RETAINED EARNINGS
â€¢ Shows cumulative effect of adjustments to
shareholdersâ€™ equity resulting from profit,
losses, and paying dividends
â€¢ Shows changes in the account for a period
based on profit, loss, or dividend paid
Diaz Manufacturing Statement of
Retained Earnings
Cash Flows
o NET CASH FLOWS VERSUS NET INCOME
â€¢ Accountants focus on net income and
shareholders focus on net cash flows. These are
not the same because of delays in inflows and
outflows, and non-cash revenues and expenses
Cash Flows
o CASH FLOWS TO INVESTORS
â€¢ Cash flows available to investors from operating
activities (CFOA)
CFOA ï€½ EBIT â€“ Current Taxes
ï€« Noncash expenses
(3.4)
Cash Flows
o CFOA EXAMPLE
â€¢ Diaz Manufacturing
EBIT = \$168.4 million
Current Taxes = \$44.3 million
Non-cash expenses = \$83.1 million
CFOA ï€½ EBIT â€“ Current Taxes ï€« Non – Cash Expenses
ï€½ \$168.4m – \$44.3m ï€« \$83.1m
ï€½ \$207.2 million
Cash Flows
o CASH FLOWS TO WORKING CAPITAL
â€¢ To compute the net cash flows into or out of
working capital
CFNWC ï€½ NWCCurrent Period – NWCPrevious Period
(3.5)
Cash Flows
o CFNWC EXAMPLE
â€¢ Diaz Manufacturing
NWC 2011 = \$662.0 million
NWC 2010 = \$342.0 million
CFNWC ï€½ NWC
2011
2011
â€“ NWC
2010
ï€½ \$662.0m – \$342.0
ï€½ \$320.0 million
Cash Flows
o STATEMENT OF CASH FLOWS
â€¢ Summarizes cash outflows and cash inflows
during a period
â€¢ Cash flows result from operating activities,
investing activities, and financing activities
â€¢ Net cash flows equals cash inflows minus cash
outflows
Diaz Manufacturing Statement of Cash
Flows
Cash Flows
o STATEMENT OF CASH FLOWS ORGANIZATION
â€¢ Operating Activities
cash inflows
â€“ sell goods and services
cash outflows
â€“ raw materials
â€“ inventory
â€“ salaries and wages
â€“ utilities
â€“ rent
Cash Flows
o STATEMENT OF CASH FLOWS ORGANIZATION
â€¢ Investing Activities
cash outflows and inflows due to
â€“ buying and selling long-term assets such as plant and
equipment
â€“ buying and selling bonds and stocks issued by other firms
Cash Flows
o STATEMENT OF CASH FLOWS ORGANIZATION
â€¢ Financing Activities
cash inflow
â€“ issue debt
â€“ issue equity
â€“ borrow money
cash outflow
â€“ pay interest or dividends
â€“ repay loan principal
â€“ purchase treasury stock
Interrelations Among the Financial
Statements
Federal Income Tax
o CORPORATE INCOME TAX
â€¢ U.S. has a progressive tax with rates ranging
from 15 percent to 39 percent
higher taxable income = higher the tax liability
Corporate Tax Rates for 2010
Federal Income Tax
o AVERAGE VERSUS MARGINAL TAX RATE
â€¢ Average tax rate
total taxes paid divided by taxable income for the
period
â€¢ Marginal tax rate
rate paid on the last dollar earned or the next dollar
that will be earned
Federal Income Tax
o DIVIDENDS AND INTEREST ARE NOT EQUAL
â€¢ U.S. tax code
allows interest payments on debt to reduce firmsâ€™
taxable income
does not allow dividend payments to equity to reduce
firmsâ€™ taxable income
â€“ debt financing has a lower cost relative to equity financing
Chapter 4: Analyzing Financial
Statements
Learning Objectives
1. EXPLAIN THE THREE PERSPECTIVES FROM
WHICH FINANCIAL STATEMENTS CAN BE
VIEWED.
2. DESCRIBE COMMON-SIZE FINANCIAL
STATEMENTS, EXPLAIN WHY THEY ARE USED,
AND BE ABLE TO PREPARE AND USE THEM TO
ANALYZE THE HISTORICAL PERFORMANCE
OF A FIRM.
Learning Objectives
3. DISCUSS HOW FINANCIAL RATIOS FACILITATE
FINANCIAL ANALYSIS, AND BE ABLE TO
COMPUTE AND USE THEM TO ANALYZE A
FIRMâ€™S PERFORMANCE.
4. DESCRIBE THE DUPONT SYSTEM OF ANALYSIS
AND BE ABLE TO USE IT TO EVALUATE A
FIRMâ€™S PERFORMANCE AND IDENTIFY
CORRECTIVE ACTIONS THAT MAY BE
NECESSARY.
Learning Objectives
5. EXPLAIN WHAT BENCHMARKS ARE, DESCRIBE
HOW THEY ARE PREPARED, AND DISCUSS
WHY THEY ARE IMPORTANT IN FINANCIAL
STATEMENT ANALYSIS.
6. IDENTIFY THE MAJOR LIMITATIONS IN USING
FINANCIAL STATEMENT ANALYSIS.
Background for Financial Statement
Analysis
o PERSPECTIVES FOR ANALYSIS
â€¢ Stockholder
â€¢ Manager
â€¢ Creditor
Background for Financial Statement
Analysis
o STOCKHOLDERâ€™S PERSPECTIVE
â€¢ Focus on
net cash flows
risk
rate of return
market value of firmâ€™s stock
Background for Financial Statement
Analysis
o MANAGERâ€™S PERSPECTIVE
â€¢ Focus on
rate of return
efficient use of assets
controlling costs
increasing net cash flows
increasing market value of firmâ€™s stock
job security
Background for Financial Statement
Analysis
o CREDITORâ€™S PERSPECTIVE
â€¢ Focus on
predictability of revenues and expenses
ability to meet short-term obligations
ability to make loan payments as scheduled
no unanticipated change in risk
Common-Size Financial Statements
.
o COMMON-SIZE
FINANCIAL STATEMENTS
â€¢ Show the dollar amount of each item as a
percentage of a reference value
Common-size balance sheet may use total assets as the
reference value; each item is expressed as a percentage
of total assets.
Common-size income statement may use net sales as
the reference value; each item is expressed as a
percentage of net sales.
Common-Size Financial Statements
o COMMON-SIZE BALANCE SHEET
â€¢ Standardizes the amount in a balance sheet
account by converting the dollar value of each
item to its percentage of total assets
Dollar values on a regular balance sheet provide
information on the number of dollars associated with a
balance sheet account.
Percentage values on a common-size balance sheet
provide information on the relative size or importance
of the dollars associated with a balance sheet account.
Exhibit 4.1: Common-Size Balance
Sheets for Diaz Manufacturing
Exhibit 4.2: Common-Size Income
Statements for Diaz Manufacturing
Financial Ratios and Firm Performance
o RATIOS IN FINANCIAL ANALYSIS.
â€¢ Ratios establish a common reference point
across firms – even though the numerical value
of the reference point will differ from firm-tofirm
Ratios make it easier to compare the performance of
large firms to that of small firms.
Ratios make it easier to compare the current and
historical performance of a single firm as the firm
changes over time.
Financial Ratios and Firm Performance
o RATIOS USED VARY ACROSS FIRMS
â€¢ occupancy ratios (hotel)
â€¢ sales-per-square foot (retailing)
â€¢ loans-to-assets (banking)
â€¢ medical cost ratio (health insurance)
Financial Ratios and Firm Performance
o RATIO VALUES VARY WITHIN AN INDUSTRY
â€¢ 2010 Gross Margin
Big Lots
40.6%
Target
30.5%
Walmart
24.9%
Financial Ratios and Firm Performance
o CATEGORIES OF COMMON FINANCIAL RATIOS
â€¢ Liquidity ratios
â€¢ Efficiency ratios
â€¢ Leverage ratios
â€¢ Profitability ratios
â€¢ Market Value ratios
Financial Ratios and Firm Performance
o LIQUIDITY RATIOS
â€¢ Indicate a firmâ€™s ability to pay short-term
obligations with short-term assets without
endangering the firm. In general, higher ratios
are a favorable indicator.
Current Ratio ï€½
Current assets
Current liabilites
Current assets – Inventory
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