Journal of
Financial Education

Volume 29                                               CONTENTS                                      Fall 2003

SPECIAL TOPICS

#1 - International Mergers: Review Of Literature And Clinical Projects

Robert L. Conn

This paper provides a review of the academic literature on cross-border mergers as a preamble to a project description of clinical studies of 18 major international mergers involving U.S. targets during 1988-2001. The clinical studies, all classroom tested, require students to assess merger motives of foreign acquiring and U.S. acquired firms, analyze the pre-merger financial health of the U.S. firm, evaluate stock market reactions of the firms around announcement/consummation dates, review important public regulatory issues, discuss terms of the merger, and put all the specific merger information in context to general findings of the academic literature. Summaries of both short-term and long-horizon shareholder effects of cross-border mergers are provided from the extant academic literature. In addition, details of using Standard & Poorís Research Insight database are provided for the financial analysis. The project is designed for upper level undergraduate and MBA finance classes.

Pages 1-27

EDUCATIONAL RESEARCH

#2 - Effects Of Team Learning On Success Rates In Introductory Finance

Virginia Ingram and Janet S. Adams

Team learning has been recommended as a means to expedite management of large (200+) sections of finance classes. In a naturally occurring experiment, we found that students in smaller classes (under 70) who were assigned to teams for problem solving and for group testing for a portion of their grades consistently had higher success rates and lower drop rates than those taught by the same instructor without using this method. Moreover, the instructor observed other benefits of the team learning method, including improved attendance, increased student involvement in and preparation for class, and more efficient use of in-class time.

Pages 28-39

#3 - Evidence Of The Effectiveness Of Course Management Software
And Asynchronous Communication In A First Finance Course

Alex H. Wilson

This paper examines the effectiveness of Course Management Software (CMS) in general and asynchronous discussion board in specific as supplements to traditional residency model pedagogy in two large lectures sections of Principles of Finance Class. I find support for the proposal that CMS participation does improve student performance, although participation pales in comparison to the impact of grade point average. Communication boards are significant contributors to student performance, although less significant than overall CMS usage. Finally, it appears that there are significant differences in the way students utilize the CMS software. Female and older students are heavier users of the software, and apparently get more benefit for their utilization.

Pages 40-54

FINANCE PEDAGOGY

#4 - Using Value Line To Estimate The Cost Of Capital And Industry Capital Structure

Samuel C. Weaver

The cost of capital has been identified as one of the most important financial concepts. However, for some finance students, the WACC appears to be a nebulous concept accompanied by a daunting estimation process. This industry case study seeks to demystify the calculation of the WACC by applying data readily available from Value Line. This case provides the finance instructor and student an excellent compliment to the introduction provided by textbooks and the survey of practitioners "Best Practices in Estimating Cost of Capital" [Bruner et al., 1998]. This study will aid financial education by reviewing multiple techniques for estimating the cost of capital, applying those techniques to calculating the cost of capital for Hershey Foods and eleven other food processing companies through the use of data from Value Line, and then reviewing the WACC and capital structure theory as applied to the food processing industry.

Pages 55-71

#5 - Risk-Neutral Pricing: Minding Your π's And q's

Gordon J. Alexander and Michael G. Sher

A common method of presenting the Binomial Option Pricing Model is through the use of risk-neutral pricing. We give an intuitive explanation of this method that focuses on explaining the linkage between the risk-neutral probability, which we refer to as the pseudoprobability, and the market's estimate of the actual probability of an upmarket state occurring. We demonstrate that the pseudoprobability is simply the actual probability, marked down for risk aversion, and that changes in its value impact the firmís stock price, and in turn, the value of its options.

Pages 72-84

#6 - Problem-Based Learning In Finance: An Application To Portfolio Analysis

Anthony L. Loviscek, Frederick D. Crowley and Randy I. Anderson

This study demonstrates how problem-based learning, a method of cooperative learning based on deductive inquiry, can be practically and realistically applied in undergraduate and MBA courses in finance. We illustrate the methodís application to portfolio analysis. In doing so, we assert that the practical application of this method may help instructors to (1) promote active learning in the classroom, (2) bridge the long-acknowledged gap between theory and application in finance, and (3) provide opportunities to integrate material across several disciplines.

Pages 85-103

FINANCE CASES

#7 - Peace State Capital Management Corporation

Marcus A. Ingram and Virginia C. Ingram

A portfolio manger at a major investment management firm explains her rationale for purchasing corporate bonds issued in 1995 with maturities of 100 years. The portfolio manager compares the convexity and duration of the super-maturity bonds to other corporate bonds and to U.S. Treasury STRIPS. Shortly after the bonds were issued, the Treasury proposed to eliminate the interest payment tax deduction for all corporate bonds with original maturities of greater than 40 years. The portfolio manager must evaluate the potential effects of these proposals on her bond holdings and prepare to justify her purchase of them to her supervisor and to her clients.

Pages 104-116