The information contained on this page is designed to give students a representative example of material covered in the course. Any information related to course assignments, dates, or course materials is illustrative only. For a definitive list of materials, please check the online catalog 3-4 weeks before the course start date.
FIN 532: Financial Decision Processes
Financial decision making under uncertainty; positive and normative models and current issues in financial management.
Prerequisite: FIN 531 and its prerequisites. Because FIN 532 is an advanced finance course, you are assumed to have a working knowledge of economics, accounting, elementary calculus, and statistics. These prerequisites will enable you to perform a better analysis for the assignments.
Overview | Objectives | Materials | Library Resources | Technical Requirements | Course Requirements | Assignments | Grading | Course Schedule | Academic Integrity | Accommodating Disabilities | Additional Policies
Overview
FIN 532 focuses on the use of the real options approach to evaluate capital investment projects with dynamically uncertain cash flows and managerial flexibilities. Examples of such projects include pharmaceutical R&D projects, oil exploration, and projects with abandonment options, expansion options, and postponement options. The classical discounted cash flow (DCF) approach is often inappropriate in analyzing these types of projects.
This course provides (1) a brief overview of the classical DCF method of capital investment analysis; (2) a comparison of NPV, decision trees, and real options; and (3) the real options method used to evaluate capital investment projects. These topics are quantitative in nature and the course relies heavily on quantitative analysis of decision making under uncertainty. The course consists of lectures, problem solving examples, and exercises.
Course Objectives
After completing this course, you should be able to do the following:
- apply NPV analysis to capital investment projects with uncertainty using sensitivity analysis and Monte Carlo simulations;
- apply decision tree analysis to value capital investment projects;
- identify managerial flexibilities in capital investment projects as real options problems; and
- apply the real options approach to value capital investment projects with managerial flexibilities.
Required Course Materials
Most World Campus courses require that students purchase materials (e.g., textbooks, specific software, etc.). To learn about how to order materials, please see the Course Materials page. You should check LionPATH approximately 3–4 weeks before the course begins for a list of required materials.The following materials are required:
- Harvard Business Review (HBR) Articles: HBR articles must be accessed and purchased via the Harvard Business Review site. View the FIN 532 Course Readings file to see the list of articles which must be accessed through the HBR site.
- To access Harvard Business Review articles: Go to the HBR website at and make sure to register so you can access your course readings. (Though you need to register, you do not need to subscribe.) You will need to purchase your HBR readings using your credit card. To read PDF articles, make sure you have the Adobe Reader, which you can download for free at Adobe's website. For technical assistance contact Harvard Business School Publishing at 1-800-810-8858.
- Decision Tools Suite (@RISK Software): This software should have been purchased in BUSAD 526. As a reminder, this software is accessible for 17 months after the license has been activated.
- e-Reserves and Journal Articles: You will also access readings from the Penn State University Library. View the FIN 532 Course Readings file to see the list of articles that must be accessed through e-Reserves. Another access route is to go to the University Libraries page, click on the Course Reserves tab at the top and search for "FIN 532." See below for further information about the library.
Recommended Reading Material:
- Copeland, T., & Antikarov, V. (2003). Real options–A practitioner's guide (Revised Edition). Published by Texere/Thomson. ISBN#: 978-1-58799-186-8
- Holden, C. (2012). Excel® modeling in corporate finance (4th ed.). Published by Pearson. ISBN#: 978-0-13-249784-8
- Brealey, R., Myers, S., & Allen, F. (2011). Principles of corporate finance (10th ed.). Published by Irwin-McGraw Hill. ISBN#: 978-0-07-353073-4
- Ross, S., Westerfield, R., & Jaffe, J. (2010). Corporate finance (9th ed.). Published by Irwin-McGraw Hill. ISBN#: 978-0-07-338233-3
Software: Microsoft Excel will be the software package that will be used for this course.
Microsoft Excel will be used extensively in this course, and at a minimum, you are expected to have an introductory level of skills in Excel by the end of the first week. If you feel your Excel proficiency is lacking, please go to Penn State's Lynda site to access self-paced video tutorials. Reviewing BUSAD 525, BUSAD 526, and FIN 513 course material, as well as developing spreadsheet examples from Holden's textbook would also help.
Library Resources
Many of the University Libraries resources can be utilized from a distance. Through the Libraries website, you can
- access magazine, journal, and newspaper articles online using library databases;
- borrow materials and have them delivered to your doorstep—or even your desktop;
- get research help via email, chat, or phone using the Ask a Librarian service; and
- much more.
You must have an active Penn State Access Account to take full advantage of the Libraries' resources and service. The Off-Campus Users page has additional information about these free services.
Technical Specifications
Note: Courses that are designated as running in Canvas have different technical requirements. For those courses, please review the Canvas Technical Requirements for MFIN courses.
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| Operating System | Windows Vista, Windows 7, Windows 8* Macintosh users may have problems using the specialized software required in some courses. *Windows 8 support excludes the tablet only RT version |
| Processor | 1 GHz or higher |
| Memory | 2 GB of RAM |
| Hard Drive Space | 500 MB free disk space |
| Browser | We recommend the latest Angel-supported version of Firefox or
Internet Explorer. To determine if your browser fits this criteria and
for advice on downloading a supported version, please refer to the
following ITS knowledgebase article:http://kb.its.psu.edu/cms/article/6
Note: Cookies, Java, and JavaScript must be enabled. Pop-up blockers should be configured to permit new windows from Penn State web sites. Due to nonstandard handling of CSS, JavaScript, and caching, older versions of Internet Explorer (such as IE 6 or earlier) do not work with our courses. |
| Plug-ins | Adobe Reader [Download from Adobe]
Flash Player [Download from Adobe] |
| Additional Software | Microsoft Office 2007 or higher |
| Internet Connection | Broadband (cable or DSL) connection required |
| Printer | Access to graphics-capable printer |
| DVD-ROM | Required |
| Sound Card, Microphone, and Speakers | Required |
| Monitor | Monitor (Capable of at least 1024 x 768 resolution) |
To ensure instructional videos play correctly on your computer:
- Ensure that javascript is enabled in your browser. Here is a web page that helps you through the process of enabling your javascript: Enable JavaScript in My Browser.
- Ensure that you have at least Flash Player 11.0 installed. Here is a web page that helps you through the process of installing the flash player: Get Adobe Flashplayer.
If you need technical assistance at any point during the course, please contact the Service Desk.
For registration, advising, disability services, help with materials, exams, general problem solving, visit World Campus Student Services!
Course Requirements
There are a total of seven lessons and each lesson will have the following:
- Learning objectives
- A Road Map specifying reading assignments and learning activities
- Lecture notes
- Problem assignment(s)
As the course material is very complex and quantitative, your study effort should be devoted to learning the lesson material thoroughly, going over the examples step by step, and solving assigned problems. The solutions are provided for you to check your solutions and correct any mistakes. It is not advisable for you to look study the solutions first without attempting to solve the problems on your own.
Assignments
Homework Assignments (Individual work)
Three homework assignments are required to be completed as individual work. Please check the course schedule to see when the homework assignments are due and which exercises are required to be completed for each homework assignment. You need to complete these assignments using Excel. Additionally, your work will be graded based on the criteria listed in the Homework and Exam Grading Rubric.
Note: In some instances there are additional exercises that have been created for you in order for you to practice the skills you learned within the lesson content, your readings, and other resources. Although you are not required to turn in the other exercises, you are welcome to, as this will assist you in learning the materials. If you do not complete the ungraded exercises, please remove the worksheets from the template file. As noted earlier, which exercises are required to be completed will be explicitly stated in the course schedule.
It is very important that you complete and submit all the homework assignments in order to master the materials, keep up with the course progress, and do well in the course.
Midterm Exam (Individual work)
There will be one midterm exam to be completed online as individual work. The exam contains two parts:
- Part I: qualitative part (involving multiple-choice or true-false questions) to test your understanding of the concepts (this will be worth a total of 20 points).
- Part II: quantitative problem(s) to be completed using Excel spreadsheets and other tools (this will be worth a total of 80 points).
The midterm exam will cover material learned in Lessons 1–4.
During the examination period, communication with anyone concerning the subject matter of the exam is prohibited. Additionally, your work will be graded based on the criteria listed in the Homework and Exam Grading Rubric.
Note: You will only be able to access the Midterm Exam folder on the date(s) specified within the course schedule.
Final Case Analysis (Team work)
There is one team-based case analysis that is due at the end of the course (please check the course schedule for the due date). Although the project is not due until the end of the course, it would be beneficial for you to start forming a team and begin working on the project as early as possible during the course. You are strongly encouraged to form a team of three, at the maximum. Please select your team members and e-mail your team membership to your instructor by the end of Week 1. The purpose of this project is to help you gain further understanding of the knowledge learned in this class by analyzing real world problems.
I will provide you with some questions to serve as a basis for your analysis. These questions are designed to provoke thought regarding the issues raised in the case. With case analysis, you are often put in the position of a decision maker or someone who recommends courses of action with respect to specific investment or financial decisions. In that position, you learn to think about the issues at hand, not just about the techniques used to resolve them.
No solutions to the case will be written up and distributed. This policy is not intended to make you feel neglected. Faculty who teach case courses generally do not distribute solutions. In addition, the case writers have asked me not to distribute my solutions because distributed solutions have the notorious tendency to spread to the next generation of students, which can impair students’ learning and the efforts of teachers to stimulate independent critical thinking. However, I will provide feedback based on your team's submissions.
Case reports will be evaluated on both the quality of the analysis as well as the effectiveness of the communication. Please communicate your arguments in a persuasive, cogent, and jargon-free manner. Constructive use of tables and graphs is encouraged; extensive sensitivity analysis or Monte Carlo simulation without a concrete interpretation is not encouraged. The reports should not exceed five double-spaced typewritten pages, excluding tables or graphs. Please use a 12-point font and 1-inch margins on each side.
Please do not structure your case report to answer each individual question. Rather, your report should tell a “story” based on the questions that I provided. Typically, a case report covers three main areas: (1) key issues identification, (2) analysis and evaluation of alternative courses of action, and (3) recommendation and a plan of action. One possible format is as follows:
- An executive summary: should be short, to the point, and contain recommendation for actions.
- Main body of the paper: should be devoid of any extensive numerical calculations or details and should cover the three main areas mentioned above in a storytelling format.
- Appendices: should contain details of your calculations, the basis on which projections were made, and possible sensitivity analysis.
To assist you with team discussions, a team discussion forum will be set up so that only the members of a team can access their team discussion forum as a means to communicate. Feel free to use the forum as often as you need to when completing the case analysis. You can also use other means of communication with your team, such as Collaborate, Skype, e-mail, phone, etc., whichever communication tool works best for your group.
Please use MS Word and MS Excel and incorporate spreadsheet output (meaining, show your work) in your submissions. When creating your Excel file, please make sure not to hardcode numbers that result from formula calculations. Hardcoded numbers are only for input values. Please use the following naming convention when submitting your team file and include your team name in the subject of the message (e.g., FIN532_FinalCaseAnalysis_Team1).
Note: Your work will be graded based on the criteria listed in the Case Analysis and Write-Up Grading Rubric, which explains my expectations and the grading scheme.
Finally, after your team has completed the Final Case Analysis, each member will need to complete a Peer Evaluation of each team member. Note: The maximum score for the Final Case Analysis is 90 points. The peer evaluation is worth 9 points and will be an integral part of the Final Case Analysis score. Combining these two scores results in 99 points. This can also be viewed in the grading requirement and scale section.
Discussion Forum Participation (Individual work)
Students will be asked to participate in ongoing online activities and discussions. Please refer to the course schedule to view the discussion forums that are required to be completed. Additionally, discussions will be graded based on the criteria listed in the Class Participation Grading Rubric.
Grading
Your performance in this course will be based on the following:
| Assignment | Nature of Work | Max Score (points) | Source |
|---|---|---|---|
| Homework 1 | Individual | 10 | Lesson 1: Exercises 2 and 4 |
| Homework 2 | Individual | 10 | Lesson 3: Exercises 1 and 2 |
| Homework 3 | Individual | 10 | Lesson 5: Exercises 1 and 2 |
| Midterm Exam | Individual | 100 | Lessons 1 through 4 |
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Final Case Analysis | Team | 99 | Lesson 7 |
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Discussion Forum Participation | Individual | 21 | See course schedule |
| Total Course Score | 250 |
The maximum possible total score earned in the course is 250. At the end of the course, your total course score is determined as the sum of the individual score for each assignment. Decimal points for total score will follow the normal convention of rounding up or down—namely, decimal points below 0.5 will be rounded down. Then, your letter grade will be determined by converting your total course score above using the scale below.
| Letter Grade | Percentage |
|---|---|
| A | 95 and above |
| A- | 90-94 |
| B+ | 86-89 |
| B | 81-85 |
| B- | 76-80 |
| C+ | 71-75 |
| C | 66-70 |
| C- | 61-65 |
| D | 56-60 |
| F | Less than 56 |
Please refer to the University Grading Policy for Graduate Courses for additional information about University grading policies.
Valuation involves both art and science, can be tricky at times, and requires a lot of hard work. Taking this course will not transform you into a valuation expert or corporate finance manager overnight. Rather, it is hoped that you see the practical relevance of valuation regardless of your position within a corporation.
Late Policy
The course schedule is strictly adhered to. Late assignments, discussion participation, and exams will be accepted only if the instructor is notified of a special circumstance that cannot be avoided two days (at the latest) prior to the due date. Please document and provide reason for this unavoidable specific circumstance. Students will receive a zero for work submitted late without an acceptable reason.
Note: All due dates reflect North American eastern time (ET).
The schedule below outlines the associated timeframes and assignments that we will be covering in this course. This ensures that all students have the same deadlines regardless of where they live.FIN 532 Course Schedule
- Course length: 7 weeks
Each assignment is identified as individual (I), team (T), graded (G), or ungraded (U).
| Week 1 Topic: | Lesson 1: DCF, Sensitivity Analysis, and Monte Carlo Simulation Using @RISK |
|---|---|
| Readings
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Harvard Business Review Readings
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| Videos |
View Lesson 1 instructional videos (total video time for this lesson is 32:84). |
| Assignments |
Homework 1, Exercises 2 and 4 (I, G) Note: Only Exercises 2 and 4 will be graded for the Homework 1 grade. The other exercises are for you to use to practice the skills you have learned.
You will complete all of these exercises by using the Lesson 1 Exercises Excel template, and will then need to submit the exercises as a completed workbook to the Lesson 1 Drop Box. For more information related to the Homework 1 Assignment, refer to the Homework Assignments section in the Course Syllabus. Discussion Forum Participation Activity
Final Case Analysis
All assignments are due by 3:00 a.m. eastern time (ET) on Monday unless noted otherwise. |
| Week 2 Topic: | Lesson 2: Decision Tree Analysis for Real Options and Real Options Classification |
|---|---|
| Readings
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Harvard Business Review Reading
Note: Refer to the Harvard Business Review (HBR) Articles section in the Course Syllabus for instructions on how to access and purchase HBR articles. Library Reserve Reading
Note: This article can be accessed through the library's electronic reserves system. |
| Videos |
There are no instructional videos for this lesson. |
| Assignments |
Homework Assignment (optional) (I, U) Note: These exercises are optional and are for you to use to practice the skills you have learned.
Once you have completed all of the exercises above by using the Lesson 2 Exercises Excel template, you can then submit the exercises as a completed workbook to the Lesson 2 Drop Box. Submission of this assignment is not required. For more information related to the optional Homework Assignment, refer to the Homework Assignments section in the Course Syllabus. Discussion Forum Participation Activity
All assignments are due by 3:00 a.m. ET on Monday unless noted otherwise. |
| Week 3 Topic: | Lesson 3: Real Options Using the Black-Scholes-Merton Option Pricing Model |
|---|---|
| Readings
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Harvard Business Review Readings
Note: Refer to the Harvard Business Review (HBR) Articles section in the Course Syllabus for instructions on how to access and purchase HBR articles. |
| Videos |
There are no instructional videos for this lesson. |
| Assignments |
Homework 2, Exercises 1 and 2 (I, G) Note: Exercises 1 and 2 will be graded for the Homework 2 grade.
You will complete all of these exercises by using the Lesson 3 Exercises Excel template and will then need to submit the exercises as a completed workbook to the Lesson 3 Drop Box. For more information related to the Homework 2 Assignment, refer to the Homework Assignments section in the Course Syllabus. Discussion Forum Participation Activity
All assignments are due by 3:00 a.m. ET on Monday unless noted otherwise. |
| Week 4 Topic: | Lesson 4: Using the Binomial Option Pricing Model for Real Options Analysis |
|---|---|
| Readings
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Harvard Business Review Readings
Note: Refer back to the Harvard Business Review (HBR) Articles section in the Course Syllabus for instructions on how to access and purchase HBR articles. |
| Videos |
There are no instructional videos for this lesson. |
| Assignments |
Homework Assignment (optional) (I, U) Note: These exercises are optional and are for you to use to practice the skills you have learned.
Once you have completed all of the exercises above by using the Lesson 4 Exercises Excel template, you can then submit the exercises as a completed workbook to the Lesson 4 Drop Box. Submission of this assignment is not required. For more information related to the optional Homework Assignment, refer to the Homework Assignments section in the Course Syllabus. Discussion Forum Participation Activity
Midterm Exam (I, G)
Mid-Course Survey (I, U)
All assignments are due by 3:00 a.m. ET on Monday unless noted otherwise. |
| Week 5 Topic: | Lesson 5: Where Do the Inputs for Real Options Analysis Come From? |
|---|---|
| Readings
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Library Reserve Reading
Note: This article can be accessed through the library's electronic reserves system. |
| Videos |
View Lesson 5 instructional videos (total video time for this lesson is 4:18). |
| Assignments |
Homework 3, Exercises 1 and 2 (I, G) Note: Exercises 1 and 2 will be graded for the Homework 3 grade.
You will complete all of these exercises by using the Lesson 5 Exercises Excel template, and will then need to submit the exercises as a completed workbook to the Lesson 5 Drop Box. For more information related to the Homework 3 Assignment, refer to the Homework Assignments section in the Course Syllabus. Discussion Forum Participation Activity
All assignments are due by 3:00 a.m. ET on Monday unless noted otherwise. |
| Week 6 Topic: | Lesson 6: Advanced Real Options |
|---|---|
| Readings
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Library Reserve Reading
Note: This article can be accessed through the library's electronic reserves system. |
| Videos |
There are no instructional videos for this lesson. |
| Assignments |
Homework Assignment (optional) (I, U) Note: This exercise is optional and is for you to use to practice the skills you have learned.
Once you have completed all of the exercises above by using the Lesson 6 Exercises Excel template, you can then submit the exercises as a completed workbook to the Lesson 6 Drop Box. Submission of this assignment is not required. For more information related to the optional Homework Assignment, refer to the Homework Assignments section in the Course Syllabus. Discussion Forum Participation Activity
All assignments are due by 3:00 a.m. ET on Monday unless noted otherwise. |
| Week 7 Topic: | Lesson 7: Closing Thoughts on Real Options Analysis |
|---|---|
| Readings
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Harvard Business Review Readings
Note: Refer to the Harvard Business Review (HBR) Articles section in the Course Syllabus for instructions on how to access and purchase HBR articles. Library Reserve Readings
Note: These articles can be accessed through the library's electronic reserves system. |
| Videos |
There are no instructional videos for this lesson. |
| Assignments |
Homework Assignment There are no exercises for you to practice for this lesson. Final Case Analysis (T, G) Complete and submit the Final Case Analysis. (T, G) Discussion Forum Participation Activity
All assignments are due by 3:00 a.m. ET on Monday unless noted otherwise. |
Academic Integrity
According to Penn State policy G-9: Academic Integrity , an academic integrity violation is “an intentional, unintentional, or attempted violation of course or assessment policies to gain an academic advantage or to advantage or disadvantage another student academically.” Unless your instructor tells you otherwise, you must complete all course work entirely on your own, using only sources that have been permitted by your instructor, and you may not assist other students with papers, quizzes, exams, or other assessments. If your instructor allows you to use ideas, images, or word phrases created by another person (e.g., from Course Hero or Chegg) or by generative technology, such as ChatGPT, you must identify their source. You may not submit false or fabricated information, use the same academic work for credit in multiple courses, or share instructional content. Students with questions about academic integrity should ask their instructor before submitting work.
Students facing allegations of academic misconduct may not drop/withdraw from the affected course unless they are cleared of wrongdoing (see G-9: Academic Integrity ). Attempted drops will be prevented or reversed, and students will be expected to complete course work and meet course deadlines. Students who are found responsible for academic integrity violations face academic outcomes, which can be severe, and put themselves at jeopardy for other outcomes which may include ineligibility for Dean’s List, pass/fail elections, and grade forgiveness. Students may also face consequences from their home/major program and/or The Schreyer Honors College.
How Academic Integrity Violations Are Handled
World Campus students are expected to act with civility and
personal integrity; respect other students' dignity, rights, and
property; and help create and maintain an environment in which all
can succeed through the fruits of their own efforts. An environment
of academic integrity is requisite to respect for oneself and
others, as well as a civil community.
In cases where academic integrity is questioned, the Policy on Academic Integrity indicates that procedure requires an instructor to inform the student of the allegation. Procedures allow a student to accept or contest a charge. If a student chooses to contest a charge, the case will then be managed by the respective college or campus Academic Integrity Committee. If that committee recommends an administrative sanction (Formal Warning, Conduct Probation, Suspension, Expulsion), the claim will be referred to the Office of Student Accountability and Conflict Response.
All Penn State colleges abide by this Penn State policy, but review procedures may vary by college when academic dishonesty is suspected. Information about Penn State's academic integrity policy and college review procedures is included in the information that students receive upon enrolling in a course. To obtain that information in advance of enrolling in a course, please contact us by going to the Contacts & Help page .
Accommodating Disabilities
Penn State welcomes students with disabilities into the University's educational programs. Every Penn State campus has resources for students with disabilities. The Student Disability Resources (SDR) website provides contacts for disability services at every Penn State campus. For further information, please visit the SDR website.
In order to apply for reasonable accommodations, you must contact the appropriate disability resources office at the campus where you are officially enrolled, participate in an intake interview, and provide documentation based on the documentation guidelines. If the documentation supports your request for reasonable accommodations, your campus's disability resources office will provide you with an accommodation letter. Please share this letter with your instructors and discuss the accommodations with them as early in your courses as possible. You must follow this process for every semester that you request accommodations.
Additional Policies
For information about additional policies regarding Penn State Access Accounts; credit by examination; course tuition, fees, and refund schedules; and drops and withdrawals, please see the World Campus Student Center website.
Veterans and currently serving military personnel and/or dependents with unique circumstances (e.g., upcoming deployments, drill/duty requirements, VA appointments, etc.) are welcome and encouraged to communicate these, in advance if possible, to the instructor in the case that special arrangements need to be made.
Disclaimer: Please note that the specifics of this Course Syllabus are subject to change, and you will be responsible for abiding by any such changes. Your instructor will notify you of any changes.