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Explain why the role of the financial manager today is so important.
Describe "financial management" in terms of the three major decision areas that confront the financial manager.
Identify the goal of the firm and understand why shareholders' wealth maximization is preferred over other goals.
Understand the potential problems arising when management of the corporation and ownership are separated (i.e., agency problems).
Demonstrate an understanding of corporate governance.
Discuss the issues underlying social responsibility of the firm.
Understand the basic responsibilities of financial managers and the differences between a "treasurer" and a "controller."

Describe the four basic forms of business organization in the United States — and the advantages and disadvantages of each.
Understand how to find a corporation's taxable income and how to determine the corporate tax rate — both average and marginal.
Understand various methods of depreciation.
Explain why acquiring assets through the use of debt financing offers a tax advantage over both common and preferred stock financing.
Describe the purpose and makeup of financial markets.
Demonstrate an understanding of how letter ratings of the major rating agencies help you to judge a security's default risk.
Understand what is meant by the "term structure of interest rates" and relate it to a "yield curve."

Understand what is meant by "the time value of money."
Understand the relationship between present and future value.
Describe how the interest rate can be used to adjust the value of cash flows — both forward and backward — to a single point in time.
Calculate both the future and present value of: (a) an amount invested today; (b) a stream of equal cash flows (an annuity); and (c) a stream of mixed cash flows.
Distinguish between an "ordinary annuity" and an "annuity due."
Use interest factor tables and understand how they provide a shortcut to calculating present and future values.
Use interest factor tables to find an unknown interest rate or growth rate when the number of time periods and future and present values are known.
Build an "amortization schedule" for an installment-style loan.

Distinguish among the various terms used to express value, including liquidation value, going-concern value, book value, market value, and intrinsic value.
Value bonds, preferred stocks, and common stocks.
Calculate the rates of return (or yields) of different types of long-term securities.
List and explain a number of observations regarding the behavior of bond prices.

Understand the relationship (or "trade-off") between risk and return.
Define risk and return and show how to measure them by calculating expected return, standard deviation, and coefficient of variation.
Discuss the different types of investor attitudes toward risk.
Explain risk and return in a portfolio context, and distinguish between individual security and portfolio risk.
Distinguish between avoidable (unsystematic) risk and unavoidable (systematic) risk; and explain how proper diversification can eliminate one of these risks.
Define and explain the capital-asset pricing model (CAPM), beta, and the characteristic line.
Calculate a required rate of return using the capital-asset pricing model (CAPM).
Demonstrate how the Security Market Line (SML) can be used to describe the relationship between expected rate of return and systematic risk.
Explain what is meant by an "efficient financial market," and describe the three levels (or forms) to market efficiency.

Understand the purpose of basic financial statements and their contents.
Understand what is meant by "convergence" in accounting standards.
Explain why financial statement analysis is important to the firm and to outside suppliers of capital.
Define, calculate, and categorize (according to liquidity, financial leverage, coverage, activity, and profitability) the major financial ratios and understand what they can tell us about the firm.
Define, calculate, and discuss a firm's operating cycle and cash cycle.
Use ratios to analyze a firm's health and then recommend reasonable alternative courses of action to improve the health of the firm.
Analyze a firm's return on investment (i.e., "earning power") and return on equity using a Du Pont approach.
Understand the limitations of financial ratio analysis.
Use trend analysis, common-size analysis, and index analysis to gain additional insights into a firm's performance.

Explain the difference between the flow of funds (sources and uses of funds) statement and the statement of cash flows — and understand the benefits of using each.
Define "funds," and identify sources and uses of funds.
Create a sources and uses of funds statement, make adjustments, and analyze the final results.
Describe the purpose and content of the statement of cash flows as well as implications that can be drawn from it.
Prepare a cash budget from forecasts of sales, receipts, and disbursements — and know why such a budget should be flexible.
Develop forecasted balance sheets and income statements.
Understand the importance of using probabilistic information in forecasting financial statements and evaluating a firm's condition.

Explain how the definition of "working capital" differs between financial analysts and accountants.
Understand the two fundamental decision issues in working capital management — and the trade-offs involved in making these decisions.
Discuss how to determine the optimal level of current assets.
Describe the relationship between profitability, liquidity, and risk in the management of working capital.
Explain how to classify working capital according to its "components" and according to "time" (i.e., either permanent or temporary).
Describe the hedging (maturity matching) approach to financing and the advantages/disadvantages of short- versus long-term financing.
Explain how the financial manager combines the current asset decision with the liability structure decision.

List and explain the motives for holding cash.
Understand the purpose of efficient cash management.
Describe methods for speeding up the collection of accounts receivable and methods for controlling cash disbursements.
Differentiate between remote and controlled disbursement, and discuss any ethical concerns raised by either of these two methods.
Discuss how electronic data interchange (EDI) and outsourcing each relates to a company's cash collections and disbursements.
Identify the key variables that should be considered before purchasing any marketable securities.
Define the most common money-market instruments that a marketable securities portfolio manager would consider for investment.
Describe the three segments of the marketable securities portfolio and note which securities are most appropriate for each segment and why.

List the key factors that can be varied in a firm's credit policy, and understand the trade-off between profitability and costs involved.
Explain how the level of investment in accounts receivable is affected by the firm's credit policies.
Critically evaluate proposed changes in credit policy, including changes in credit standards, credit period, and cash discount.
Describe possible sources of information on credit applicants and how you might use the information to analyze a credit applicant.
Identify the various types of inventories and discuss the advantages and disadvantages to increasing/decreasing inventories.
Define, explain, and illustrate the key concepts and calculations necessary for effective inventory management and control, including classification, economic order quantity (EOQ), order point, safety stock, and just-in-time (JIT).

Understand the sources and types of spontaneous financing.
Calculate the annual cost of trade credit when trade discounts are forgone.
Explain what is meant by "stretching payables" and understand its potential drawbacks.
Describe the various types of negotiated (or external) short-term financing.
Identify the factors that affect the cost of short-term borrowing.
Calculate the effective annual interest rate on short-term borrowing with or without a compensating balance requirement and/or a commitment fee.
Understand what is meant by factoring accounts receivable.

Define "capital budgeting" and identify the steps involved in the capital budgeting process.
Explain the procedure used to generate long-term project proposals within the firm.
Justify why cash, not income, flows are the most relevant to capital budgeting decisions.
Summarize in a "checklist" the major concerns to keep in mind as one prepares to determine relevant capital budgeting cash flows.
Define the terms "sunk cost" and "opportunity cost" and explain why sunk costs must be ignored, whereas opportunity costs must be included, in capital budgeting analysis.
Explain how tax considerations, as well as depreciation for tax purposes, affect capital budgeting cash flows.
Determine initial, interim, and terminal period "after-tax, incremental, operating cash flows" associated with a capital investment project.

Understand the payback period (PBP) method of project evaluation and selection, including its: (a) calculation; (b) acceptance criterion; (c) advantages and disadvantages; and (d) focus on liquidity rather than profitability.
Understand the three major discounted cash flow (DCF) methods of project evaluation and selection — internal rate of return (IRR), net present value (NPV), and profitability index (PI).
Explain the calculation, acceptance criterion, and advantages (over the PBP method) for each of the three major DCF methods.
Define, construct, and interpret a graph called an "NPV profile."
Understand why ranking project proposals on the basis of the IRR, NPV, and PI methods "may" lead to conflicts in rankings.
Describe the situations where ranking projects may be necessary and justify when to use either IRR, NPV, or PI rankings.
Understand how "sensitivity analysis" allows us to challenge the single-point input estimates used in traditional capital budgeting analysis.
Explain the role and process of project monitoring, including "progress reviews" and "post-completion audits."

Define the "riskiness" of a capital investment project.
Understand how cash-flow riskiness for a particular period is measured, including the concepts of expected value, standard deviation, and coefficient of variation.
Describe methods for assessing total project risk, including a probability approach and a simulation approach.
Judge projects with respect to their contribution to total firm risk (a firm-portfolio approach).
Understand how the presence of managerial (real) options enhances the worth of an investment project.
List, discuss, and value different types of managerial (real) options.

Explain how a firm creates value, and identify the key sources of value creation.
Define the overall "cost of capital" of the firm.
Calculate the costs of the individual components of a firm's overall cost of capital: cost of debt, cost of preferred stock, and cost of equity.
Explain and use alternative models to determine the cost of equity, including the dividend discount approach, the capital-asset pricing model (CAPM) approach, and the before-tax cost of debt plus risk premium approach.
Calculate the firm's weighted average cost of capital (WACC) and understand its rationale, use, and limitations.
Explain how the concept of Economic Value Added (EVA) is related to value creation and a firm's cost of capital.
Understand the capital-asset pricing model's role in computing project-specific and group-specific required rates of return.

Define operating and financial leverage and identify causes of both.
Calculate a firm's operating break-even (quantity) point and break-even (sales) point.
Define, calculate, and interpret a firm's degree of operating, financial, and total leverage.
Understand EBIT-EPS break-even, or indifference, analysis, and construct and interpret an EBIT-EPS chart.
Define, discuss, and quantify "total firm risk" and its two components, "business risk" and "financial risk."
Understand what is involved in determining the appropriate amount of financial leverage for a firm.

Define "capital structure."
Explain the net operating income (NOI) approach to capital structure and the valuation of a firm, and calculate a firm's value using this approach.
Explain the traditional approach to capital structure and the valuation of a firm.
Discuss the relationship between financial leverage and the cost of capital as originally set forth by Modigliani and Miller (M&M), and evaluate their arguments.
Describe various market imperfections and other "real world" factors that tend to dilute M&M's original position.
Present a number of reasonable arguments for believing that an optimal capital structure exists in theory.
Explain how financial structure changes can be used for financial signaling purposes, and give some examples.

Understand the dividend retention versus distribution dilemma faced by the firm.
Explain the Modigliani and Miller (M&M) argument that dividends are irrelevant.
Explain the counterarguments to M&M — that dividends do matter.
Identify and discuss the factors affecting a firm's dividend and retention of earnings policy.
Define, compare, and justify cash dividends, stock dividends, stock splits, and reverse stock splits.
Define "stock repurchase" and explain why (and how) a firm might repurchase stock.
Summarize the standard cash dividend payment procedures and critical dates.
Define and discuss dividend reinvestment plans (DRIPs).

Understand the characteristics of the capital market and the difference between a primary and a secondary market.
Describe the three primary methods used by companies to raise external long-term funds — public issue, privileged subscription, and private placement.
Explain the role of investment bankers in the process of issuing new securities, including traditional underwriting, best efforts offering, shelf registration, and standby arrangements.
Calculate the theoretical value of a (subscription) right, and describe the relationships among the market price of the stock, the subscription price, and the value of the right.
Understand the Securities and Exchange Commission (SEC) registration process, including the role played by the registration statement, red herring, prospectus, and tombstone advertisement.
Understand the roles that venture capital and an initial public offering (IPO) play in financing the early stages of a company's growth.
Discuss the potential signaling effects that often accompany the issuance of new long-term securities.

Understand the terminology and characteristics of bonds, preferred stock, and common stock.
Explain how the retirement (repayment) of bonds and preferred stock may be accomplished in a number of different ways.
Explain the differences between various types of long-term security in terms of claims on income and assets, maturities, security holders' rights, and the tax treatment of income from the securities.
Discuss the advantages and disadvantages of issuing/buying the three different types of long-term securities from the perspective of both the issuer and the investor.

Describe various types of term loans and discuss the costs and benefits of each.
Explain the nature and the content of loan agreements, including protective (restrictive) covenants.
Discuss the sources and types of equipment financing.
Understand and explain lease financing in its various forms.
Compare lease financing with debt financing via a numerical evaluation of the present value of cash outflows.

Describe the features of three common types of options that may be used by firms in their financing — the convertible security, the exchangeable bond, and the warrant.
Understand why securities with option features may be attractive for a firm's long-term financing needs.
Explain the different terms used to express value for convertible securities — conversion value, market value, and straight-bond value.
Calculate the value of convertible securities, exchangeable bonds, and warrants, and explain why premiums over different values occur.
Understand the relationship between an option instrument and its underlying security.

Explain why a company might decide to engage in corporate restructuring.
Understand and calculate the impact on earnings and on market value of companies involved in mergers.
Describe what merger benefits, if any, accrue to acquiring company shareholders and to selling company shareholders.
Analyze a proposed merger as a capital budgeting problem.
Describe the merger process from its beginning to its conclusion.
Describe different ways to defend against an unwanted takeover.
Discuss strategic alliances and understand how outsourcing has contributed to the formation of virtual corporations.
Explain what "divestiture" is and how it may be accomplished.
Understand what "going private" means and what factors may motivate management to take a company private.
Explain what a leveraged buyout is and what risk it entails.

Explain why many firms invest in foreign operations.
Explain why foreign investment is different from domestic investment.
Describe how capital budgeting, in an international environment, is similar to or dissimilar from that in a domestic environment.
Understand the types of exchange-rate exposure and how to manage exchange-rate risk exposure.
Compute domestic equivalents of foreign currencies given the spot or forward exchange rates.
Understand and illustrate purchasing-power parity (PPP) and interest-rate parity.
Describe the specific instruments and documents used in structuring international trade transactions.
Distinguish among countertrade, export factoring, and forfaiting.

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