Journal of
Financial Education

Volume 29                                               CONTENTS                                      Summer 2003

SPECIAL TOPICS

#1 - The Underlying Coincidence Of Finance: Integrating Theory In The Classroom

Timothy Wayne Vines

Many of the decisions discussed in Finance courses can be partially explained through the application of theories that share internal consistencies. These consistencies, or coincidences, can be used to address many difficulties associated with teaching Finance. This paper describes a simple example that shows the similarity between the work of Modigliani and Miller concerning the effect of capital structure on firm value and that of Black and Scholes concerning option pricing. The paper describes how one can integrate the theories in a way that demonstrates the coincidence and allows students to overcome the difficulties associated with accepting theoretical predictions about firm behavior.

Pages 1-12

EDUCATIONAL RESEARCH

#2 - An Examination Of The Antecedents Of Cheating Among Finance Students

Kenneth J. Smith, Danny Ervin and Jeanette A. Davy

This study examines cheating behaviors among 333 finance majors at three public AACSB-accredited business schools. Specifically, we examined the simultaneous influence of demographic and attitudinal characteristics on: 1) reported prior cheating behavior; 2) the tendency to neutralize cheating behaviors; and, 3) likelihood of future cheating. In addition, we examined the impact of in-class deterrents on neutralization of cheating behaviors and the likelihood of future cheating. We also directly tested potential mediating effects of neutralization on cheating behavior.

Using structural equations modeling procedures, we conducted indepen-dent assessments of the validity of the Smith, Davy, Rosenberg, and Haight (2002) model of cheating behavior and its antecedents. Results supported the differentiation of the theoretical constructs within the specified process model. Furthermore, tests of the aforementioned theoretical model indicated that the primary influences on future cheating were in-class deterrents, prior cheating, and the degree to which one neutralized prior cheating behaviors.

Pages 13-33

#3 - Integrating Theory And Practice: The Role Of MBA Field Studies

H. Kent Baker and August Schomburg, Jr.

Employers of recent graduates of MBA programs have criticized them for failing to integrate sufficient practical experience in their programs. One way that MBA programs can bridge the gap between theory and practice is to offer field studies. This study describes the nature of field studies and presents data from a survey of MBA field studies. Survey responses from directors of 244 of 340 AACSB-accredited MBA programs reveal that about 40 percent offer field studies. The most important benefits of field studies to students are the opportunity to engage in real world applications and to integrate skills.

Pages 34-49

FINANCE PEDAGOGY

#4 - Additional Funds Needed, Financing Feedbacks, And The Weighted Average Cost Of Capital: The Missing Link

Richard M. Burns and Joe Walker

In the usual finance textbook discussions of the percent of sales approach to financial forecasting, the additional funds needed (AFN) is typically calculated with an approximate formula which, in advanced texts, is fine-tuned with a multiple pass iterative method. The former omits financing feedback effects (FFE), and the latter is cumbersome. Also, both methods ignore capital structure considerations. This paperís modified model remedies all three deficiencies. Furthermore, the model herein links the FFE to the firm's weighted average cost of capital (WACC), providing insight into financial forecasting relationships. An example shows how easily the model is applied.

Pages 50-58

#5 - A Cash Flow Approach To Learning And Understanding How Life Annuities Work

Ronald R. Crabb

The purpose of this paper is to demonstrate a methodology for computing life annuity payments without using complex actuarial mathematics. For comparative purposes, the actuarial math is included for three of the six annuities that will be examined in the paper. Students find life annuities easy to understand if they look at how cash flows through a life annuity provider: some cash comes in (premiums); some cash goes out (annuity payments); some interest gets earned on what is left over (reserve); and, after the last annuitant is paid, the reserve is gone. The only tricky part is computing the size of the life annuity payment. Working in Excel 2000, the Solver function replaces actuarial probabilities and present value factors to compute the life annuity payment.

Pages 59-79

#6 - A Spreadsheet Project For An Analystís Report On A Common Stock

Sandip Mukherji

This paper describes a spreadsheet project for preparing an analystís report on a companyís common stock. The valuation exercise is based on market multiples that are commonly used by analysts. The major goals of the project are to familiarize students with data sources for analyzing companies, strengthen their spreadsheet development skills, help them to understand various factors that influence stock prices, and require them to perform an analysis similar to what many of them will have to do in their early careers, including a written report analyzing the spreadsheet results.

Pages 80-97

#7 - A Discussion Based Exercise Emphasizing The Role of Scientific Methods In Finance

Kathryn Wilkens

This article addresses the important pedagogical issue of finance as a field of scientific inquiry. In particular, theory versus prediction takes a center stage. Key learning objectives include recognizing the difference between theoretical and predictive models, and poor and good predictive models. The overall goal is to help students appreciate scientific methods and issues and thereby make good decisions when using financial models.

Pages 98-107

FINANCE CASES

#8 - The Case Of Cooley Savings Bank: Interest Rate Sensitivity

Eric Nelson and Keith Vorkink

Early on the morning of October 29th, 2001, Jacob Robinson, president of Cooley Savings Bank (CSB), sat at his desk wondering about his bankís future. In particular, Jacob was wondering how interest rates were going to affect the bankís cash flows over the coming months. The bank had experienced cash flow fluctuations in years past as interest rates changed, but these movements did not seem as predictable as Jacob or his Asset/Liability Committee (ALCO) had hoped. Jacob had to make plans for the future, but to do so with confidence required an understanding of the relationship between interest rates and his bankís cash flows, and Jacob did not feel like he understood this relationship.

Pages 88-102