Journal of
Financial Education

Volume 32                                               CONTENTS                                      Summer 2006

SPECIAL TOPICS

#1 - Women as Finance Academics: Role Models and Researchers

Phyllis Keys and Pamela A. Turner

Researchers indicate that the presence of female professors in traditionally male-oriented subjects leads to greater student diversity as a result of role model effects [Rask and Bailey, 2002]. Additional research lends support to a positive relation between gender diversity and organizational value [Carter, Simkins, and Simpson, 2003]. Yet, despite increases in females with finance doctorates and in female undergraduate business majors, finance departments at most universities lack gender diversity [Dyl and Hasselback, 1998; Levsen, Goettel, Chong, and Farris, 2001]. We document the productivity of female researchers, examining characteristics associated with success for female researchers in finance departments. Our purpose is to increase role model effects by heightening awareness of the productivity of female finance professors.

Pages 1-19

EDUCATIONAL RESEARCH

#2 - Financial Research on Main Street: Productivity within Land Grant Institutions

Dave Berger and Harry J. Turtle

We consider 23 finance programs at a set of research-oriented US land grant institutions. These schools present a wide range of program offerings, staffing levels, and faculty productivity levels. We consider publications in high quality finance journals as well as journals in related disciplines. Research productivity is more widespread than would be predicted by Lotkaís Law as applied to either individuals, or institutions. There is only limited evidence of a potential critical mass effect suggesting that per cap productivity increases with overall faculty size. Our multiple regression results suggest that observed critical mass effects may relate to institutional research support. Small focused programs may be able to find a niche that allows even small programs to be successful in offering high quality peer-reviewed journal output in spite of highly limited faculty staffing levels. Observed publication data suggests that many schools choose different balances in publications in finance versus related disciplines. Our multiple regression analysis consistently finds evidence that institutional research support and graduate education improve per cap faculty journal productivity. In contrast, undergraduate program offerings appear to detract

Pages 20-44

#3 - Hollywood Tycoon: A Real Options Simulation Game

Patrick J. Larkin, Baeyong Lee, Abdoul Wane and Thomas G. E. Williams

This Excel based real options simulation game puts students in the role of a production executive at a major Hollywood movie studio. Students must decide how to allocate their production budgets among in-house films and independent projects that must be bid on against the other studios. All film projects contain embedded real options that must be correctly valued before the game is played in class if students are to have a good chance to be successful in the game. The only requirement to play the game in class is some means of projecting an Excel spreadsheet. The game can also be played outside of class time.

Pages 45-66

FINANCE PEDAGOGY

#4 - Valuation of the Small, Private Firm: An Exposition Suitable for the Classroom

Bennie H. Nunnally

The importance of the valuation concept and approach in finance cannot be overstated. Business students, at all levels, must understand the general definition and meaning of economic value. Valuing the small private firm is an excellent vehicle for better understanding valuation and placing it in the larger finance context. As the valuation of the small, private firm is especially dependent upon the level, timing, and variability of expected cash flows; opportunity cost rate determination; growth rate assumptions, and related considerations, the student must then understand those value determinants and be able to apply them in varying situations. The approach outlined herein provides that learning experience.

Pages 67-78

#5 - Adding Depth to the Discussion of Capital Budgeting Techniques

Tom Arnold and Terry D. Nixon

The subject of capital budgeting generally encompasses a significant percentage of any beginning finance course with net present value (NPV) often receiving the most attention. Even after this substantial time allotment, critical assumptions and comparisons of the different techniques (such as payback period, discounted payback period, NPV and IRR) are frequently glossed over due to time constraints. Consequently, the goal of this paper is to present these non-NPV techniques in a manner that allows the beginning finance student to expeditiously see the intuition, inherent assumptions, and any connection with the more popular NPV calculation. A small portion of this paper may be more applicable to slightly more advanced finance students and can be introduced at the instructorís discretion. Further, the lesson plan takes advantage of Excel to provide a visual presentation of how a given technique is executed (the Excel templates are also appropriate for assignments).

Pages 79-90

#6 - How to Teach M&Mís Capital Structure Irrelevance Theory: A Simple Arbitrage Approach

Eui-Kyung Lee, Joseph E. Finnerty and Kyojik Song

Using arbitrage and homemade leverage, Modigliani and Miller (1958, 1963) show that firms in the same risk class must have the same value and cost of capital regardless of leverage. Undergraduate or even MBA students do not understand the capital structure irrelevance theory easily because examples given in the class tend to be complex. This paper presents simple examples to make M&Mís theory easily understood by students using a simple arbitrage approach.

Pages 91-97

#7 - Applying Altmanís Z-Score in the Classroom

Tom Arnold and John H. Earl, Jr.

Altmanís Z-score is introduced in an Excel framework to produce a quick calculation of the Z-score with actual financial data available through the Internet. The lesson plan developed is easily introduced with topics covering ratio analysis, financial risk, bond rating changes, and bankruptcy. Given the wide use of the Z-score in practice to evaluate credit risk (or bankruptcy risk), the lesson plan produces a skill set that is very marketable.

Pages 98-103

FINANCE CASES

#8 - National Wind & Wholesale Power

Jonathan B. Welch

By 2005 National Wind and Wholesale Power Company (NWP), an unregulated subsidiary of a major utility, had become a leading provider of wind energy in the U.S. Rapid advances in technology had produced larger and more efficient wind turbines manufactured by the likes of General Electric in the U.S., Siemens in Germany, Vestas in Denmark, Gamesa in Spain and Mitsubishi in Japan. Changes in government regulation and policy had provided several incentives for companies to invest in wind energy, such as tax credits and renewable energy credits.

Pages 104-117