Course Corporate Finance and Investment Appraisal

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					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:

Principles of Corporate Finance, 9th 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

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

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.
8 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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Description: Course Corporate Finance and Investment Appraisal