E4.2.
BBF412: CORPORATE FINANCE
E4.2.1 Background and Rationale
In the modern world the economy revolves round corporate finance and the global
world has always been understood to have world class financial markets and
institutions. The Corporate Finance programme at Cavendish University equips
graduates to operate within these financial markets. The focus of the courses is
conceptually based and covers the two disciples of Finance viz., Corporate Finance
and Investment.
This module seeks to deepen the grasp and understanding of financial
management concepts, principles and practices introduced in an earlier module,
Financial Management, and in particular, the application of these to the corporate
world. The module will look at academic publications, case studies and other
resources to underpin the theory and practice of corporate financial management
and will also attempt at a robust and critical review of the three pillars of financial
management practice drawn from the Agency Theory Framework (ATF) namely;
a. The capital Investment Decision
b. Working Capital Management, and,
c. Financial Planning and Reporting
In this way, the student is immediately challenged and encouraged to explore the
interplay, obligations and responsibilities of the issues and parties at play in these
key areas of corporate financial management and to demonstrate a robust
understanding and knowledge of this important area of corporate strategy.
E4.2.2 Learning Outcomes:
At the end of the course students will be expected to:
1. Be able to generally discuss the importance of the agency theory to
corporate finance
2. Demonstrate a deep appreciation of the role and importance of financial
markets to sound corporate financial management practice
3. Demonstrate a sound and robust understanding of the capital investment
decision and its importance to sound corporate financial management
practice and theory
4. Demonstrate a sound understanding of working capital management
theory and practice and its critical role to the sound planning, employment
and management of financial resources in corporate entities
5. Demonstrate a sound grasp of financial reports and how these facilitate
the analysis, planning reporting and management of financial resources in
organizations
6. Demonstrate a sound grasp of the principles, theories and practice of
valuing assets and securities and, the importance of these to discussions
relating to mergers and acquisitions
7. Demonstrate a sound grasp of the discussions relating to financial
derivatives and why this area of corporate finance has increasingly
become important
8. Be able to discuss competently, the importance of risk management theory
and practice to overall sound corporate finance management practice
9. Be able to competently show and discuss the importance of corporate
financial management theory and practice to overall corporate strategy
E4.2.3 Course Content
1.0 An Overview of Corporate Finance
1.1 The Finance Function
1.2 The agency theory framework
1.3 Financial statements
1.4 The Financial Environment
1.5 The Impact of Depreciation on Capital Investment Decisions
2.0 The Capital Investment Decision I (Investment Appraisal)
2.1 Objectives of the topic
2.2 Risk and Return
2.3 The Capital Budgeting Process
2.4 The Time Dimension of Financial Decisions
2.5 Appraisal decision environments
2.6 How markets determine discount rates, interest rate futures and yield
curves
3.0 The Capital Investment Decision II (Cost of Capital)
3.1 Objectives
3.2 Concept of Cost of capital
3.3 Types of cost of capital
3.3.1 The IRR and cost of capital
3.3.2 Cost of Equity and CAPM
3.3.3 Cost of Debt
3.4 Weighted Average Cost of Capital (WACC)
3.5 Implications of cots of capital to strategy formulation
4.0 The Capital Investment Decision II (Valuation of Assets)
4.1 Objectives
4.2 Shareholder value and the concept of valuation
4.3 Methods of valuation of assets and securities
4.3.1 Net asset basis
4.3.2 Dividend valuation method
4.3.3 P/E Valuation Method
4.3.4 Free Cash Flow Method
4.3.5 The IRR and valuation
4.4 Asset valuation, Guidelines and Standards
5.0 Financial Analysis, Planning and Control (FAPC)
5.1 Objectives of financial analysis, planning and control
5.2 Technical and Fundamental Analysis
5.2.1 Financial Analysis
5.2.2 Interpretation of Financial Information
5.2.3 Evaluation of Financial Information
5.3 Financial Planning, Forecasting and Control
5.4 Strengths and weaknesses of FAPC
5.5 Short term and long term planning applications of FAPC
6.0 Working Capital Management
6.1 Components of working capital management
6.1.1 Working Capital Policy
6.1.2 Cash and Marketable Securities Management
6.1.3 Cash Management Models
6.1.4 Inventory Management
6.1.5 Credit Management and Policy
6.1.6 Short-Term Financing
6.2 Challenges of managing overtrading
7.0 Treasury Management
7.1 Foreign Currency Risk
7.2 Interest Rate Risk
7.3 Inflation Rate Risk
7.4 Hedging Risks
7.5 Treasury Management Hedging Strategies
8: Mergers and Acquisition
1. Objectives
2. Mergers and Acquisitions
3. Valuation of Assets and Securities
4. The Purchase Consideration
5. Acquired goodwill
6. Financing of Mergers and Acquisitions
7. Defences
9.0 Effect of Changing Prices on Decisions
9.1 Objectives
9.2 Nature of Changing Prices
9.3 Fiscal Policy
9.4 Historical costs
9.5 Replacement Costs
9.6 Current Costs
9.7 Value to Business
5.0 Pensions & Insurance
5.1 Objectives
5.2 Pensions Vs Insurance
5.3 Principles of Pensions & Insurance Risk
5.4 Regulatory Framework of Pensions & Insurance
5.5 Assessing and spreading risk
5.6 Valuation of Pensions and Insurance
E4.2.4 Assessment
Continuous Assessment 40%
Final Examination 60%
COMPONENTS OF NUMBER CONTRIBUTION TO OVERALL
ASSESSMENT GRADING (%)
1. CONTINUEOUS 40
ASSESSMENT
1.1. ASSIGNMENTS 02 20
1.2. TEST 01 20
2. FINAL EXAMINATION 01 60
TOTAL 100
E4.2.5 Prescribed Textbook
Richard Pike and Bill Neale(2014), Corporate Finance and Investment;
decisions and strategies.(2nd Ed), Prentice Hall India Private Ltd
Brealey, R. A., Meyers, S.C. and Marcus, A. J. (2012) Fundamentals of Corporate
Finance, 6th Edition. New York: McGraw Hill.
E4.2.6 Recommended Textbooks
Eugene, F.B. Michael, C.E (2013) Financial Management – theory and practice,
2nd Edition. London: Thompson
Atrill, P. (2015) Financial Management for decision makers, 5th Edition. London:
FT Prentice Hall
Knot, G. (2015) Financial Management, 4th Edition. London: Palgrave
Mclaney, E. J. (2017) Business Finance Theory and Practice, 8th Edition. London:
FT Prentice Hall
