Widener university

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DR. IQBAL MANSUR Tel: (610) 499-4321

Office: 226 QC Fax: (610) 499-4614

http://muse.widener.edu/SBA/FacultyWebpages/Mansur/INDEX.HTM E-mail: imansur@widener.edu

Prerequisite: FIN 540/548

Course Description and Objectives:

This course is designed to introduce the students to accounting and finance concepts as they relate to business valuation and mergers and acquisitions. The course focuses on financial reporting and tax issues associated with business combinations and consolidated financial statements. In addition, the course covers the topics of capital structure and cost of capital and applies these concepts to capital budgeting decisions in the context of mergers and acquisitions. Business valuation issues including approaches to valuing a firm is an important segment of the course.

This course consists of lectures, class discussion, and written problem assignments. Lecture and discussion will focus on concepts and principles designed to demonstrate and illustrate concepts and practices in the dynamic field of finance.

Learning Objectives:

At the completion of the course you should be able to:

  1. understand the accounting issues as they relate to mergers and acquisitions;

  1. understand the importance of cash flows, their sources and how business decisions affect cash flows;

  1. understand how managers combine debt and equity financing to establish an optimal capital structure that maximizes the value of the firm’s assets;

  1. understand the concept of the cost of capital and how it is used with the investment opportunity schedule to make the firm’s financing and investment decisions;

  1. understand the concept of Net Present Value (NPV) and how to apply it to investment decisions;

  1. understand why a project’s NPV is a measure of the value it creates;

  1. understand various other alternative rules to screen investment proposals;

  1. understand various methods used to value businesses and how to apply them in practice to estimate the value of a company; and

  1. measure value creation using the concepts of Marker Value added and Economic Value Added.


Gabriel Hawawini and Claude Viallet. Finance for Executives: Managing for Value Creation. 2007, 3rd ed. , Thompson South-Western; ISBN # 0-324-27431-9.

It is strongly recommended that students read the Wall Street Journal on a regular basis.


A financial calculator, preferably HP 10BII, is required.

Student Evaluation:

a). Students are expected to study the relevant portion of the course material prior to the class meeting on which it is to be discussed.

b). Grade will be based primarily on examination performance but due consideration will be given to class participation.

c). Students are responsible for familiarity with materials discussed in class and are not released from this responsibility because they ceased to attend.

Attendance Policy

It is expected that students attend all 7 class meetings. In rare instances, with the approval of the instructor, a student may miss one session. Under no circumstances, a student may miss 2 or more meetings during the seven-week session.

Drop Policy

The University drop policy will be followed.

Grading Procedures

The "plus-minus" grading scale, as stated below, will be used to assign the final grade.

96 - 100 A 87 - 89 B+ 77 - 79 C+

90 – 95 A- 84 - 86 B 70 - 76 C

80 - 83 B-

Exams and Weights

There are two take home exams, each weighing 50% of the final grade.



Chapters and Topics

Self-Test Problems

End of Chapter Review Problems

Jan. 17

Ch. 1 Financial Management and Value Creation

  • Fundamental Finance Principles

  • Role of Financial Markets

  • Sources and Uses of Cash

  • Economic Value Added

Ch. 2: Understanding Balance Sheets and Income statements

  • Financial Accounting Statements

  • The Balance Sheet

  • The Income Statement

  • Reconciling Balance Sheet and Income Statement

  • The structure of the Owners’ Equity Account


2 and 6

Ch.5: Diagnosing Profitability, Risk, and Growth

  • Measure of Profitability

  • Return of Equity

  • Other Measure of Profitability

  • Financial Leverage and Risk

  • Self-sustainable Growth



Jan. 24

Ch.4: Measuring Cash Flows

  • Net Cash Flow from Operating Activities

  • Net Cash Flow from Investing Activities

  • Net Cash Flow from Financing Activities

  • The Cash Flow Statement

  • Net Operating Cash Flow Vs. Free cash Flow Vs. Bankers’ Cash Flow



Ch. 8: Identifying and Estimating a Project’s Cash Flows

  • The Actual Cash Flow Principle

  • Identifying a Project’s Relevant Cash Flows

  • Estimating a Project’s Relevant Cash Flows

  • Sensitivity of NPV to Changes in Cash Flows


5 and 9

Jan. 31

Ch. 6: Using NPV Rule to Value-Creating Investment Decisions

  • The Capital Investment Process

  • The opportunity Cost of Capital

  • Net Present value Rule

  • A Measure of Value Creation

  • Special Cases of Capital Budgeting

  • Limitations of the Net Present Value Creation

6.4 and 6.5

4, 6, and 8

Ch. 7: Alternatives to the Net Present Value Rule

  • The Payback and Discounted Payback Methods

  • The Internal rate of Return

  • The Profitability Index

  • The Average Accounting Rule


7 and 10

Feb. 7

Midterm Exam due

Feb. 7

Ch. 10: Estimating the Cost of Capital

  • Estimating the Cost of Debt

  • Estimating the Cost of Equity – Dividend Discount Model

  • Estimating the Cost of Equity – Constant Growth Model

  • Estimating the Cost of Equity – CAPM

  • Estimating Cost of Capital of a Firm

  • Estimating Cost of Capital of a Project


1, 9 and 10

Feb. 14

Ch. 11: Designing a Capital Structure

  • The Capital Structure

No Corporate Taxes and No Financial Distress Cost

Corporate Taxes and No Financial Distress Cost

Financial Distress is Costly

  • Effect of Changes in Capital Structure on the Firm’s Value

  • Formulation of Capital Structure Policy


1 and 5

Feb. 21

Ch. 12: Valuing and Acquiring a Business

  • Alternative Valuation Methods

  • Valuing a Firm’s Equity using Comparables

  • Valuing a Firm’s Assets and Equity Using DCF Approach

  • Estimating Acquisition Value

  • Estimating Leverage Buyout Value


4 and 8

Feb. 28

Ch. 14: Managing for Value Creation

  • Measuring Value Creation

  • Identifying the Drivers of Value Creation

  • Linking Operating Performance and Remuneration to Value Creation

  • Linking Capital Budgeting to Value Creation

  • Financial Strategy Martix of Value Creation


5 and 8

Mar. 10

Final Exam due

Please note that the instructor reserves the right to change any items of the Syllabus and course guidelines presented above without the prior approval of the students enrolled in class.

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