Chapel Garden

FIN 361: WORKING CAPITAL MANAGEMENT

INSTRUCTOR: Riaz Hussain                                                      OFFICE: 431 Brennan Hall 

OFFICE HOURS: Monday and Wednesday, 1:00 PM to 3:00 PM, and by appointment.

CONTACT: e-mail: Send an email, Telephone: office 941-7497, secretary 941-4048, home 347-8077, Fax 941-4825.

OBJECTIVES: After taking this course, the students will be able to:

1. Solve optimization problems using Maple.

2. Apply the concept of net present value in solving financial problems.

3. Calculate the cost of capital of a firm.

4. Create simple financial statements of a firm.

5. Understand the significance of financial ratios and ratio analysis.

6. Use the operating cycle to improve the value of a firm.

7. Apply the proper cash management system at a firm.

8. Develop a credit policy to manage the accounts receivable at a firm.

9. Find the value of a credit-card portfolio at a bank.

10. Find the proper sources of short-term financing for a corporation.

11. Implement a functional inventory policy at a company.

TEXT: Working Capital Management, by Riaz Hussain, University of Scranton, Scranton, PA, January 2012. The sale of this book supports a scholarship at the University.

Recommended reading: Short-Term Financial Management, by Maness and Zietlow, South-Western Publishing, third edition, 2005.

Please bring a calculator with you in each class.

PREREQUISITES: FIN 351, or permission of the instructor.

EXAMINATIONS: There will be three 70-minute tests, and a 2-hour comprehensive final examination. The test dates are:

First: February 29, 2012

Second: April 4, 2012

Third: May 2, 2012

Final: May 14, 2012

The tests will have five problems each and the final examination eight. The exams will be all closed book. Make up exams will not be given, except in the most serious cases.

GRADING: Students are not graded on a bell-shaped curve. A student's final grade depends on the rank in class, the percentage score averaged for all the tests, the overall quality of students in the class, classroom interaction, and the instructor's subjective evaluation of student's performance.

SUBJECT: The topics covered in this course include:

1. Maple: Using Maple.

2. Optimization: Optimization principles, optimization of working capital.

3. Cost of Capital: Cost of debt and equity, weighted average cost of capital

4. Net Present Value: Value creation, net present value.

5. Financial Planning and Control: Balance sheet model of a firm, ratio analysis, sources of information, net working capital, operating cycle and cash cycle, NPV of operations, sources-and-uses-of-cash statement, working capital policy.

6. Cash Management: Cash management, Baumol model, Miller-Orr model, modern methods.

7. Accounts Receivable Management: Credit policy, analysis of credit decisions, valuation of a credit card portfolio, Altman's zeta model.

8. Short-term Financing: Accruals, accounts payable, short-term bank loans, line of credit, factoring.

9. Inventory Management: Inventory policy, optimal order size, extensions of the basic model, quantity discounts, present value approach, inflation.

10. Review Problems: Integrated problems.