IRV-R10

IRV-R10
(PGDM-RM 2010-12:Term-III)

Introduction to Risk & Valuation
(1.5 Credits)
Dr. Shridhar Dash

I. Course Objective
The objective of the course is to familiarize the students with the tools to value the cash flows at different period of time and introduce the basic concepts risk and return to understand the cost of capital. Valuation of cash flows is critical for long-term financial decision making and project evaluation.

II. Course Contents
The course would attempt to apply the theoretical concept to real life problems of finance managers. The course would cover the time value of money, risk and return trade-offs, valuation of risk-free and risky assets, and cost of capital. In time value of money, the course would cover present and future value concepts and valuation of annuity and annuity dues. Besides time value study would cover the amortization schedules.

The concepts of risk and return would be discussed in detail to understand the concept that higher risk should accompany with higher return. In valuation of risky and risk free assets, the course would cover basic valuation models of bonds and stocks. The course would cover cost of debt, cost of equity and cost of capital.

Reference Books

1. Financial Management by Prasanna Chandra, TMH
2. Fundamentals of Corporate Finance by Ross, Westerfield, and Jordan; 8th Edition (Alternate); ISBN: 978-0-07-328211-4; 2008
3. Principles of Corporate Finance by Richard A Brealey, Stewart C. Mayers, Franklin Allen, and Pitabas Mohanty, Tata McGraw-Hill (TMH), 2007

III. Detailed Session Plan

Session 1: Introduction to financial management
In this session we will discuss the objective of a firm, concept of shareholders value, role of finance manager in an organization, and how this course is going to help in financial decision making process for an organization.

Session 2 – 5: Time value of money: Learning the tools that is required to make the decisions
In this session we will study the importance time in valuing money and how the concept is used to calculate the present and future value of money. Role of compounding and the calculation of effective rate of return will be discussed in detail. Calculation of annuity and its applications will be studied.

Session 6: Risk vis-à-vis return: Understanding the role of risk in valuation
In this session we will define risk, and its relationship with return. We would learn the some basic aspect of measurement of risk. Role of risk in valuation of assets also would be discussed in these sessions.

Session 7-8: Discounted cash-flow and valuation of assets: Getting the right inputs for financial decisions
In this session we will study various types of bonds, explain various terminologies. Basic valuation of the model will be explained. Besides basic concept of yield curve will be discussed along with the term-structure of interest rate. Attempt would be made to link the valuation of bond with the yield curve.

Similarly equity valuation will be studied with help of Dividend Discount Model and Discounted Cash Flow model.

Most importantly the role of discount rate and what is the appropriate discount rate one should use to value asset would be discussed in detail.

Session 9-10: Cost of capital: Getting the right inputs for financial decision
In these sessions we would study the concepts of capital and cost associated with various types of capital. Concept of risk and return would be discussed with in the context of Capital Asset Pricing Model (CAPM) and the application of the same in calculating the cost of capital. Weighted average cost of capital would be studied in detail and its applications will be discussed.

IV. Evaluation
The following table describes the per cent of weights given for the purpose of the evaluation.

Components	Weights (%)
Class Participation	15
Class Assignments	15
Surprise Quizzes (2)	30
End Term	40

The class participation would be based on the regularity of attendance (Students attending all classes would be rewarded), and the students participation level on the over all learning process.

Class assignment would be given to groups (each group would consists of 6 students). One can choose the group only from his/her own sections. It is expected that each students should understand the assignment. Marks on the assignment would be given on the basis of report and class discussion. Each group would get 5 minutes to discuss the assignment (faculty will decide who would discuss in the class). If any individual fails to do so then the entire group would get zero in that component. No negotiations on this respect would be encouraged.

Quizzes would be of MCQ types with negative marks. There will of two quizzes with 15% of the mark. Both the quizzes would cover the portion discussed till the time the quizzes are conducted.

End term examination would cover the entire syllabus and would test students understanding of the subject.
Created By: Hemanta Ranjan Deo on 12/21/2010 at 10:54 AM
Category: PGPRM - I Doctype: Document

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