Students

AFIN890 – Corporate Financial Modelling and Forecasting

2014 – S1 Day

General Information

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Unit convenor and teaching staff Unit convenor and teaching staff Unit Convenor
Edward Watts
Contact via edward.watts@mq.edu.au
Credit points Credit points
4
Prerequisites Prerequisites
ACST603 or AFIN858 or (4cp in ACCG or ACST or BUS or MKTG units at 600 level) or (admission to MActPrac or MCom or MEc or MIntBus prior to 2011)
Corequisites Corequisites
Co-badged status Co-badged status
Unit description Unit description
The aim of this unit is to investigate, from both a theoretical and applied perspective, the role of forecasting in the investment and financing decisions of corporations. Why do corporations need forecasts, what methods do they use to generate and evaluate forecasts, and what weight do they place on forecasts in decision making? Both short term and long term forecasting activities are examined.

Important Academic Dates

Information about important academic dates including deadlines for withdrawing from units are available at https://www.mq.edu.au/study/calendar-of-dates

Learning Outcomes

On successful completion of this unit, you will be able to:

  • Capacity to build a financial simulation model, using assumptions to simplify relationships and to put those relationships into equation form.
  • Ability to apply both traditional and modern time series methods in forecasting pro forma financial statements, using firm specific, industry, and global information.
  • Understand the effects of uncertainty on financial models and be able to include these effects in their modeling.
  • Recognise the limitations and biases often encountered in financial forecasts, and link these to characteristics of the market.
  • Apply various finance theories in modeling share prices, investment, debt, mergers and acquisition, and financial distress.
  • Ability to document and describe a complex model in simple and credible terms, understandable by decision makers.

Assessment Tasks

Name Weighting Due
Class Test 10% Week 4
Class Tests 60% Weeks 7, 10, 13
Presentation 15% Allocated week
Assessed Coursework 15% Week 13

Class Test

Due: Week 4
Weighting: 10%

The 1 hour in-class Minor Test  will be a hands-on exercise based on one or more similar exercises encountered in the material from weeks 1 to 3. Students can only take up to 10 A4 pages of hand written notes, double sided, into the test. These notes are to be in your own hand writing, and are not to be photo-copies or reduced. 

No extensions will be granted.  Students who have not submitted the task prior to the deadline will be awarded a mark of 0 for the task, except for cases in which an application for special consideration is made and approved.




On successful completion you will be able to:
  • Capacity to build a financial simulation model, using assumptions to simplify relationships and to put those relationships into equation form.
  • Ability to document and describe a complex model in simple and credible terms, understandable by decision makers.

Class Tests

Due: Weeks 7, 10, 13
Weighting: 60%

Throughout the semester there is a series of 3 Major in-class Tests. Each 1 hour in-class Test  will be a hands-on exercise based on one or more similar exercises encountered in class. The first in the series is based on the material from weeks 4 to 6 and is held in week 7; the second in the series is based on the material from weeks 7 to 9 and is held in week 10; and the third in the series is based on the material from weeks 10 to 12 and is held in week 13. Each test in the series of 3 is worth 20%, and the total value of the series is 60%. Students can only take up to 10 A4 pages of hand written notes, double sided, into the test. These notes are to be in your own hand writing, and are not to be photo-copies or reduced. 

No extensions will be granted.  Students who have not submitted the task prior to the deadline will be awarded a mark of 0 for the task, except for cases in which an application for special consideration is made and approved.




On successful completion you will be able to:
  • Capacity to build a financial simulation model, using assumptions to simplify relationships and to put those relationships into equation form.
  • Ability to apply both traditional and modern time series methods in forecasting pro forma financial statements, using firm specific, industry, and global information.
  • Understand the effects of uncertainty on financial models and be able to include these effects in their modeling.
  • Ability to document and describe a complex model in simple and credible terms, understandable by decision makers.

Presentation

Due: Allocated week
Weighting: 15%

Students will be placed into groups of 4 initially (this number might need to be adjusted in cases), and these groups will be assigned to a week and end-of-chapter exercises. This will be a hands-on exercise and the group is expected to upload a solution to the exercise onto iLearn prior to the class, and to demonstrate the solution to the class in a 30 to 45 minute presentation. The presentation should be as interactive as possible. The group should show the steps involved in solving the exercise: interpreting the information given; identifying and estimating relationships; entering both data and equations on the spreadsheet; explaining the assumptions and results to users; etc. The report - soft copies of spreadsheet, word files, and overheads - is worth 10%. A cover sheet on the uploaded report, which will not be disclosed to the class, should weight the contribution of each group member to the Report, summing to 100%.  All students must be involved in the presentation as an individual mark, worth 5%, is allocated for each individual's performance in the presentation. 

No extensions will be granted.  Students who have not submitted the task prior to the deadline will be awarded a mark of 0 for the task, except for cases in which an application for special consideration is made and approved.

 


On successful completion you will be able to:
  • Capacity to build a financial simulation model, using assumptions to simplify relationships and to put those relationships into equation form.
  • Ability to apply both traditional and modern time series methods in forecasting pro forma financial statements, using firm specific, industry, and global information.
  • Understand the effects of uncertainty on financial models and be able to include these effects in their modeling.
  • Recognise the limitations and biases often encountered in financial forecasts, and link these to characteristics of the market.
  • Apply various finance theories in modeling share prices, investment, debt, mergers and acquisition, and financial distress.
  • Ability to document and describe a complex model in simple and credible terms, understandable by decision makers.

Assessed Coursework

Due: Week 13
Weighting: 15%

During the Unit five real world applications (case studies) will be discussed in detail during class. Students will be required to summarise the key insights and issues highlighted by each of these applications in no more than two A4 pages per application. These are to be completed by students as an individual task - not as group work. Students are encouraged to complete each summary shortly after reflecting on the class discussion. Prior to the week 13 class (by 12 noon on June 11) students should combine the five summaries into one journal, and upload a soft copy (in Word) to TURNITIN through iLearn. No hard copy of the journal is required.

No extensions will be granted.  Students who have not submitted the task prior to the deadline will be awarded a mark of 0 for the task, except for cases in which an application for special consideration is made and approved.



 

 

 

No extensions will be granted.  Students who have not submitted the task prior to the deadline will be awarded a mark of 0 for the task, except for cases in which an application for special consideration is made and approved.

 

 

 

 


On successful completion you will be able to:
  • Understand the effects of uncertainty on financial models and be able to include these effects in their modeling.
  • Recognise the limitations and biases often encountered in financial forecasts, and link these to characteristics of the market.
  • Apply various finance theories in modeling share prices, investment, debt, mergers and acquisition, and financial distress.
  • Ability to document and describe a complex model in simple and credible terms, understandable by decision makers.

Delivery and Resources

Classes 

The Unit involves 3 hours face-to-face teaching per week consisting of a 3 hour seminar. The class is held in a computer lab allowing a combination of Lecture time and Hands-on activities. The timetable for classes can be found on the University web site at:  http://www.timetables.mq.edu.au/

The class is held on Wednesday in Room E4B 214 from 12noon to 3pm.

Required and Recommended Texts and/or Materials

Prescribed

James Morris and John Daley. “ Introduction to Financial Models for Management and Planning” ISBN: 9781420090543. Chapman and Hall/CRC Finance Series The  prescribed  text  can  be  purchased  from  the  Macquarie  University  Co-op  Bookshop.  

Recommended

The Flaw Of Averages: Why We Underestimate Risk In The Face Of Uncertainty, Sam Savage,

Probably Not: Future Prediction Using Probability & Statistical Inference. Lawrence Dworsky, John Wiley & Sons, 2008.

Monte  Carlo  Methods  in Finance.  Peter Jackel.  John Wiley & Sons, 2002. Other resources  will be provided  through  ilearn.

Unit Web Page

The unit Web site is only available to students enrolled in AFIN890. It will be available from Sunday 2nd March. Students will be able to access the unit web page by the use of their normal university user/password details. Please contact the IT Help Desk if you have any difficulties accessing the unit web page:

Phone: (02) 9850 HELP (4357)

Option 1 or Freecall: 1800 063 191

Face to Face: IT Help Desk, C5C244 24/7

Email:   help@mq.edu.au

The Website  will contain  important  unit materials,  including:

  •  Course  details—An  outline  of the unit, including  assessment  tasks
  •  Announcements—notices updating students on important matters regarding the unit.
  •  Assignment
  •   Suggested  answers  and solutions  to homework  questions
  •   Results for   assignment  and other assessable  material.

Learning and Teaching Activities

This is very much a hands-on course. The nature of the material is best learnt by practising the development of models, learning from mistakes, and discovering your own short cuts and styles. For this reason the lectures are conducted in the computer labs with practise exercises interspersed throughout the lecture. Further, the software enables the student to visualise the effect of unertainty on various theoretical relationships in finance, and thus is helpful in enabling a student to understand both the strengths and limitations of corporate finance theories. Given the hands-on nature of the Unit, the majority of the assessment tasks are conducted with the student accessing a computer and relevant software.

Technology Used and Required

The course uses @RISK, possibly the most widely used modelling software in industry.A version of @RISK is installed in the computer lab, and students will be able to access these computers during the class. Also, a time limited version of @RISK is attached to the text, if students want to practice at home.

Changes Since Last Offering

1. No final exam. This has been replaced by three in-class tests. The primary reason for this change is to allow the material to be tested on the computer, using excel and @RISK, complementing the hands-on nature of the Unit.

2. One extra topic on portfolio creation using the software.

 

 

Unit Schedule

 
Week  Date  Topic

 Chapter from

Morris-Daley

 Problems

 1

Mar 5

 Introduction: Modelling and Forecasting

1

 

 2

Mar 12

Financial Analysis

2

Pr 2.2 

 3

Mar 19

Growth and Cash Flows

JOURNAL: Application 1

3

Pr 3.3

 4

Mar 26

TEST 1

Financial Statement Simulation

4

 

 5

Apr 2

Monte Carlo Simulation

JOURNAL: Application 2

5

 PRESENTATION 1

Pr 4.3

 6

Apr 9

Time Trend Simulation

Industry and Economy-Wide Relationships

6 and 7

 PRESENTATION 2

Pr 5.2

         

 7

Apr 30

MAJOR TEST 1

Uncertainty and Time Series Properties

JOURNAL: Application 3

8

 Pr 6.2, 7.3

 8

May 7

Modelling Firm Value

9

 Pr 8.1, 8.3

 

 9

May 14

Modelling Mergers and Acquisitions

JOURNAL: Application 4

10

 PRESENTATION 3

Pr 9.2, 9.3

 10

May 21

MAJOR TEST 2

Debt Financing

11

 Pr 10.1, 10.2, 10.3

 11

May 28

 Simulating Security Prices

JOURNAL: Application 5

13

PRESENTATION 4

 Pr 11.1, 11.2

 12

June 4

 Security Returns and Portfolio Composition

14

PRESENTATION 5

 Pr 13.1, 13.2

 13

June 11

 MAJOR TEST 3

 

 PRESENTATION 6

 Pr 14.1

Policies and Procedures

Macquarie University policies and procedures are accessible from Policy Central. Students should be aware of the following policies in particular with regard to Learning and Teaching:

Academic Honesty Policy http://mq.edu.au/policy/docs/academic_honesty/policy.html

Assessment Policy  http://mq.edu.au/policy/docs/assessment/policy.html

Grading Policy http://mq.edu.au/policy/docs/grading/policy.html

Grade Appeal Policy http://mq.edu.au/policy/docs/gradeappeal/policy.html

Grievance Management Policy http://mq.edu.au/policy/docs/grievance_management/policy.html

Disruption to Studies Policy http://www.mq.edu.au/policy/docs/disruption_studies/policy.html The Disruption to Studies Policy is effective from March 3 2014 and replaces the Special Consideration Policy.

In addition, a number of other policies can be found in the Learning and Teaching Category of Policy Central.

Student Code of Conduct

Macquarie University students have a responsibility to be familiar with the Student Code of Conduct: https://students.mq.edu.au/support/student_conduct/

Supplementary Exams Further information regarding supplementary exams, including dates, is available here http://www.businessandeconomics.mq.edu.au/current_students/undergraduate/how_do_i/special_consideration

Student Support

Macquarie University provides a range of support services for students. For details, visit http://students.mq.edu.au/support/

Learning Skills

Learning Skills (mq.edu.au/learningskills) provides academic writing resources and study strategies to improve your marks and take control of your study.

Student Services and Support

Students with a disability are encouraged to contact the Disability Service who can provide appropriate help with any issues that arise during their studies.

Student Enquiries

For all student enquiries, visit Student Connect at ask.mq.edu.au

IT Help

For help with University computer systems and technology, visit http://informatics.mq.edu.au/help/

When using the University's IT, you must adhere to the Acceptable Use Policy. The policy applies to all who connect to the MQ network including students.

Graduate Capabilities

PG - Discipline Knowledge and Skills

Our postgraduates will be able to demonstrate a significantly enhanced depth and breadth of knowledge, scholarly understanding, and specific subject content knowledge in their chosen fields.

This graduate capability is supported by:

Learning outcomes

  • Capacity to build a financial simulation model, using assumptions to simplify relationships and to put those relationships into equation form.
  • Ability to apply both traditional and modern time series methods in forecasting pro forma financial statements, using firm specific, industry, and global information.
  • Understand the effects of uncertainty on financial models and be able to include these effects in their modeling.
  • Recognise the limitations and biases often encountered in financial forecasts, and link these to characteristics of the market.
  • Apply various finance theories in modeling share prices, investment, debt, mergers and acquisition, and financial distress.

Assessment tasks

  • Class Test
  • Class Tests
  • Presentation
  • Assessed Coursework

PG - Research and Problem Solving Capability

Our postgraduates will be capable of systematic enquiry; able to use research skills to create new knowledge that can be applied to real world issues, or contribute to a field of study or practice to enhance society. They will be capable of creative questioning, problem finding and problem solving.

This graduate capability is supported by:

Learning outcomes

  • Capacity to build a financial simulation model, using assumptions to simplify relationships and to put those relationships into equation form.
  • Ability to apply both traditional and modern time series methods in forecasting pro forma financial statements, using firm specific, industry, and global information.
  • Understand the effects of uncertainty on financial models and be able to include these effects in their modeling.
  • Apply various finance theories in modeling share prices, investment, debt, mergers and acquisition, and financial distress.

Assessment tasks

  • Class Test
  • Class Tests
  • Presentation
  • Assessed Coursework

PG - Effective Communication

Our postgraduates will be able to communicate effectively and convey their views to different social, cultural, and professional audiences. They will be able to use a variety of technologically supported media to communicate with empathy using a range of written, spoken or visual formats.

This graduate capability is supported by:

Learning outcomes

  • Capacity to build a financial simulation model, using assumptions to simplify relationships and to put those relationships into equation form.
  • Apply various finance theories in modeling share prices, investment, debt, mergers and acquisition, and financial distress.
  • Ability to document and describe a complex model in simple and credible terms, understandable by decision makers.

Assessment tasks

  • Presentation
  • Assessed Coursework

Research and Practice

  • This unit uses research from external sources (references)
  • This unit gives you practice in applying research findings in your assignments
  • This unit gives you opportunities to conduct your own research.

 The Assignments and the Report both involve research. You will need to read some academic articles and synthesise those articles in developing your own arguments. There is also an opportunity to scan the media – newspapers, business journals, and other data sources, in doing your own research. In the databases section of the library website, both Business source premier and Factiva are very useful resource tools.