Course Corporate Finance and Investment Appraisal

By Gary Morales,2014-08-12 01:16
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Course Corporate Finance and Investment Appraisal

Course: Corporate Finance and Investment Appraisal

     Management Module MN10311

    Year: Year 1, Semester 2


    This module aims to introduce students to the issues involved in a firm’s investment and financing decisions at a basic level in preparation for further development of these subjects later in the course. Subjects covered will include- the objectives of financial management, time value of money, choosing between investment alternatives, risk and return, portfolio theory, the weighted average cost of capital, capital structure decision, the dividend decision and working capital management.

Course Structure

    The course will consist of 11 double lectures per week that all students are expected to attend. The lectures will cover the basic information. The lectures will be backed up by a seminar every two weeks for each student. Students will be expected to have attempted the problems that will have been set for each seminar. The seminars are very important, providing the student with an opportunity to try problem solving, ask questions concerning areas not fully understood and to flesh out the subject of corporate finance. They are not optional.


Assessment is by one two-hour examination.

Recommended course book is:

     thPrinciples of Corporate Finance, 9 edition, by Brealey, Myers and Allen.

    Publisher, McGraw Hill

    Note. Chapter references will be to Brealy, Myers and Allen but any standard financial text will cover the subjects covered in the course. Principles of Corporate Finance (PCF) has a number of aids for students e.g. progress tests.

Lecturer: Mr A N Birts

     X 3675

     WH 8.56

Seminar tutor: TBA


Course outline

Session 1

Introduction to Corporate Finance and Investment Appraisal

    - objectives of the organisation - agency theory

    - structure of financial area

Time Value of Money

    - compounding (future value) - discounting (present value) - annuities

    - bond valuation

    - APR

     th ed Chs 1-4 Reading: PCF Chs 1- 5, 8


Sessions 2 and 3

The Investment Decision

    - capital budgeting

    - a process of choice

    - payback, RoI, NPV, IRR

    - the correct method to use - complications

Reading: PCF Chs 6 - 7

     PCF Ch 11 & 12 for those that wish to read further. th8 ed Ch 5-6 and 10 and 11

    Sessions 4 and 5

Risk and Return

    - definition

    - measures used:- expected return, variance, standard deviation

    - normal probability distribution - introduction to portfolio theory

Reading: CPF Ch 8

Sessions 6

The Cost of Equity

    - the Capital Asset Pricing Model - alternative models:- Gordon Dividend Growth, Arbitrage Pricing Theory

    Weighted average Cost of Capital (WACC) - cost of debt


- cost of equity

    - proxy companies

    - adjustment for gearing

Reading Ch 9 and and ch 10 sects 1-3, 20

Sessions 7 and 8

    The Capital Structure Decision - how much debt and how much equity - why we need to decide

    - it does matter

    - it does not matter

    - practical implications

    - guides to good practice

The Dividend Decision

    - will dividend policy effect cost of equity

    - theory

    - and practice

Reading: CPF Chs 17- 19

    Session 9 Funding the Business

    How to finance a company - Equity

    - Debt: short, medium and long - Criteria to use

    - Some technical adjustments Reading Chs 15-16, 25,31

Session 10

Working Capital

    - the cash cycle

    - managing working capital

    Reading: CPF Ch 30 and 31

Session 11

Revision and spillover


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