Advances in
Financial Education

Shareholders want managers to invest in all positive net present value (NPV) projects, and to avoid those with negative NPV. Using a simple model of firm value, we explain why stock options—when issued by firms with high price-to-book value ratios—do not always provide the incentive for managers to pursue these value-maximizing policies. This is noteworthy because option usage in the late 1990s was concentrated in the sort of firm—those with high P/B ratios—in which they can be least effective. Our model gives students the opportunity to integrate and apply concepts from stock valuation and capital budgeting, and to think critically about the relative merits of stock options and restricted stock as forms of incentive compensation.

This paper proposes a model that identifies the net cash flows associated with credit sales. First, the revenues from collected credit sales are estimated. Costs associated with credit sales come from uncollected sales, financing expenses and the incremental taxes on the additional income. Subtracting these costs from the revenues yields the net cash flow from credit sales.

There exists a vast and growing body of literature that describes the mechanisms by which innovations diffuse through a population, as well as factors that affect the speed of adoption of an innovation. This body of literature tends to focus on incidences of successful innovations. However, study of innovations that fail to diffuse widely may be equally valuable. Furthermore, major diffusion research has not addressed financial innovation in a meaningful way [Rogers, 2003]. This paper focuses on complex state-of-the-art financial innovations, developed and proposed by academicians as solutions to real-world problems. This paper (1) discusses a novel financial strategy based on the use of sophisticated financial engineering products; (2) the adoption (or lack thereof) of complicated real option evaluation models to augment capital budgeting decisions; and (3) a case study to highlight implementation issues for a highly complex fixed income option model.

Most of the financial information and analytical tools necessary for investment analysis and selection are available online on numerous finance-related websites and databases. This paper illustrates an effective way to introduce students to investment analysis using an Internet-based research project which requires students to utilize online financial information, data, and analytical tools. The project also reinforces topics encountered in the typical introductory investments course.

The purpose of this research is two-fold. First, it provides a valuable resource for finance educators to use for classroom examples, reading assignments, and certainly for discussion as different ethics articles pertain to various topics in any particular finance course. Second, it also identifies the wide variety of possible outlets for ethics research that are available to finance scholars (and those who choose to pursue research in this area). In this study, 23 business-ethics journals were analyzed over a 45-year period (1960-2004). Our data indicate that finance faculty’s preferred outlets for business ethics research are the Journal of Business Ethics and Business and Professional Ethics Journal.

The growth in the number of financial services credentials has created confusion for the general public and finance students alike. Students may wonder whether and which of these numerous credentials to pursue. The two most numerous, and perhaps best known, of these designations are the CFP and CFA. This research focuses on these two credentials, first by presenting a consolidated comparison of the educational, content, and other requirements for CFA designation and CFP certification, and secondly, by presenting survey results from a sample of financial professionals who hold both the CFA and the CFP designations. This survey examines why individuals earned both designations, the perceived effort required to obtain each designation, and, most importantly, their perceptions of the specific financial services that each designation best prepared them to perform. These survey insights along with the comparative analysis of the designations should enable students to make a more informed career choice.

A Goal Seek macro with a constant, a cell reference, or a formula in the target value cell is presented to perform a sensitivity analysis of the net present value of a capital investment to any specified input variables, alone or in combination, for many cases simultaneously. We demonstrate that the Goal Seek macro to perform sensitivity analysis in Excel is easier, more effective, and offers additional capabilities over the build-in Goal Seek or Solver tools as well as the Data tables.

This paper provides an alternate proof to the seminal article by Modigliani and Miller (1961) on dividend-irrelevance theorem by employing only simple algebraic manipulations and the sum of geometric series formula. In our classroom experience hitherto, we realize that students with limited math preparation beyond the freshman level react positively to the alternate proof. It's our intent to share the alternate proof with more extant and future colleagues who teach the dividend-irrelevance theorem in the classrooms.