Haramaya University
College of Business and Economics
Accounting and Finance Program
Course Information
Course Number AcFn 3044
Course Title Financial Modeling
Degree Program BA Degree in Accounting and Finance
Contact Hours 2 hours per week
Instructor Ashu G. ashegirma88@[Link] / [Link]@[Link]
Course Objectives & Competencies to be Acquired
After successfully completing this course, students should be able to:
Explain financial modeling; valuation techniques and basic financial calculations using excel.
Perform corporate valuation by applying various methods to determine business value
Model pro forma financial statements and determine business value;
Course Description: The course is designed to enable students to understand financial models and
develop valuation financial models to ascertain the values of assets and business.
Course Contents
Chapter 1. Introduction to Financial Modeling and Valuation
1.1. Introduction to financial modeling
1.2. Overview of excel functions for modeling
1.3. Basic Financial Calculations using excel
1.4. Present Value and Net Present Value
1.5. The IRR and Loan Tables
1.6. Future values and Applications
1.7. Introduction to valuation and valuation standards
Chapter 2. Determining the Cost of Capital
2.1. Overview
2.2. Computing the Value of the Firm’s Equity, E
2.3. Computing the Value of the Firm’s Debt, D
2.4. Computing the Firm’s Tax Rate, Tc
2.5. Computing the Firm’s Cost of Debt, rD
2.6. Two Approaches to Computing the Firm’s Cost of Equity, rE
2.7. Implementing the Gordon Model for rE
2.8. The CAPM: Computing the Beta, β
2.9. Using the Security Market Line (SML) to Calculate Merck’s Cost of Equity, rE
2.10. Three Approaches to Computing the Expected Return on the Market, E(rM)
Chapter 3. Corporate Valuation
3.1. Overview
3.2. Methods to Compute Enterprise Value (EV)
3.3. Using Accounting Book Values to Value a Company: The Firm’s Accounting Enterprise Value
3.4. Efficient Markets Approach to Corporate Valuation
3.5. Enterprise Value (EV) as the Present Value of the Free Cash Flows: DCF “Top Down” Valuation
3.6. Free Cash Flows Based on Consolidated Statement of Cash Flows (CSCF)
3.7. Free Cash Flows Based on Pro Forma Financial Statements (following Chapter)
Chapter 4. Pro-Forma Financial Statement Modeling
4.1. Overview
4.2. How Financial Models Work: Theory and an Initial Example
4.3. Free Cash Flow (FCF): Measuring the Cash Produced by the Business
4.4. Using the Free Cash Flow (FCF) to Value the Firm and Its Equity
4.5. Some Notes on the Valuation Procedure
4.6. Alternative Modeling of Fixed Assets
4.7. Sensitivity Analysis
Teaching & Learning Methods/strategy
The teaching and learning methodology include lecturing, discussions, problem solving, and analysis.
Take-home assignment will be given at the end of each chapter for submission within a week. Solution
to the assignments will be given once assignments are collected. Cases with local relevance will also be
given for each chapter for group of students to present in a class room. The full and active participation
of students is highly encouraged.
Assessment/Evaluation
Test 1 Test 2 Attendance Assignment Final Exam Total
15% 20% 5% 10% 50% 100%
Roles of the Instructor
He/she will come to the class regularly on time and deliver the lecture in a well-organized manner.
Besides, at the end of each class he/she gives reading assignment for the next class. He/she will make
sure that proper assessments are given. He/she is also responsible to give feedback for each assessment.
Roles of the students
The success of this course depends on the students’ individual and collective contribution to the class
discussions. Students are expected to participate voluntarily, or will be called upon, to contribute to set
exercises and problems. Students are also expected to read the assigned readings and prepare the cases
before each class so that they could contribute effectively to class discussions. Students must attempt
assignments by their own. Proficiency in this course comes from individual knowledge and
understanding. Copying the works of others is considered as serious offence and leads to disciplinary
actions.
Text Book & Reference Books
Simon Benninga, Financial Modeling, 4th ed., 2014, MIT Press
Tom Y. Sayer, Financial Modeling for Business Owners and Entrepreneurs, Developing Excel Models
to Raise Capital, Increase Cash Flows, Improve Operations Plan Project and Make decisions.
Selected References:
1. Benninga, S., and O. Sarig. 1997. Corporate Finance: A Valuation Approach. McGraw-Hill.
2. Benninga, S., and O. Sarig. 2003. Risk, Returns and Values in the Presence of Differential
Taxation. Journal of Banking and Finance.
3. Brealey, R. A., S. C. Myers, and F. Allen. 2013. Principles of Corporate Finance, 11th ed.
McGraw-Hill.
4. DeAngelo, H., L. DeAngelo, and D. J. Skinner. 2008. Corporate Payout Policy. Foundations
and Trends in Finance.
5. Dittmar, A. K., and R. F. Dittmar. 2004. Stock Repurchase Waves: An Explanation of the
Trends in Aggregate Corporate Payout Policy. Working paper, University of Michigan.
6. Fruhan, W. E. 1979. Financial Strategy: Studies in the Creation, Transfer, and Destruction of
Shareholder Value. Irwin.
7. Gordon, M. J. 1959. Dividends, Earnings and Stock Prices. Review of Economics and Statistics.
8. McKinsey & Company, T. Koller, M. Goedhart, and D. Wessels. 2010. Valuation: Measuring
and Managing the Value of Companies, 5th ed. Wiley.
9. Ross, S. A., R. W. Westerfield, and J. Jaffe. 2010. Corporate Finance, 9th ed. McGraw-Hill.
Ground Rule: Students should attend minimum of 75% of whole class to seat on exam and avail
him/her self on time in class.
