The course introduces students to financial theory and traces the development of financial theory from the academic literature. The module is structured as a readings based course where students are expected to engage with the academic literature that underpins our knowledge of finance. The arguments presented in the literature will be analysed from the perspective of the practitioner with a focus on areas relevant to corporate finance. The aim of this module is to facilitate students in developing a solid understanding of the theoretical concepts underpinning the financial markets and the financial environment in which firms operate. In addition students should understand the importance of finance in company decision making and its place in the broader business mix. The module also aims to develop the self study skills of students with a view to preparing them to carry out critical reviews of literature in the financial area.
Finance Vehicles
An examination of Debt, Equity and Hybrid sources of finance from the perspective of both the issuer and the user. Issues relating to cost, control and the risk return framework.
Market Efficiency
Efficient Markets Hypothesis, Empirical Evidence including Value vs. Growth investment, Contrarian investment and the case for a New Finance.
Valuation and Performance
Financial analysis. Appraising firm performance and valuation. Traditional and modern methods including ratio analysis, shareholder value analysis and economic value added. Examining financial reports.
Capital Structure and Dividend Policy
The importance of capital structure and its place in financial strategy and decision making. Whether an optimal capital structure exists and whether it affects firm value. The static trade off and pecking order theory propositions. The relationship between earnings and dividends. Dividends and capital structure, firm ownership and whether dividend decisions can affect the value of the firm.
Investment Appraisal
Implementation and critical assessment of appraisal methods. Estimating project cash flows. Accounting for uncertainty and flexibility in the appraisal process.
Working Capital Management
The concept of working capital and the cash conversion cycle. Methods for managing stock, debtors and creditors. Methods for managing cash.
The Market for Corporate Control
Mergers and Acquisitions and links between ownership and control. Corporate diversification.
Portfolio Theory
Incorporates modern portfolio theory, asset pricing, CAPM, APT and issues relating to market efficiency.
Risk Management
Basic derivative securities. Hedging. Risk metrics including Value at Risk.
Finance and Strategy
Examines the relationship between financial strategy and whether it can affect firm value.
Behavioural Corporate Finance
Behavioural foundations, Valuation, Capital Budgeting, Perceptions about Risk and Returns, Inefficient Markets and Corporate Decisions, Capital Structure, Dividend Policy, Agency Conflicts and Corporate Governance, Group Process, Mergers and Acquisitions
Investment Appraisal
Forecasting project cash flows. Appraising projects using NPV, IRR, MIRR, Payback Period and ARR. Accounting for uncertainty. Capital rationing. Asset replacement. Empirical research.
Long-Term Financing
Types of equity and debt. Valuing equity and debt.
Cost of Capital
Models and methods for calculating cost of equity and cost of debt. Weighted average cost of capital.
Capital Structure
MM Irrelevancy Theory. Theories of capital structure. Empirical research.
Dividend Policy
MM Irrelevancy Theory. Theories of dividend policy. Other distribution methods. Empirical research.
Working Capital Management
The nature of working capital and working capital cycle. Managing inventory, trade receivables, trade payables and cash.
Short- and Medium-term Sources of Financing
Bank financing. Inventory financing. Money markets. Lines of credit. Leasing and hire purchase.
Capital Markets and Market Efficiency
Stock exchange. Financial intermediaries. Efficient Market Hypothesis. Behavioural finance. Empirical research.
This module is taught using the following techniques:
1. Traditional teaching supported by white board explanations
2. Online material
3. Problem based learning, based on case studies and class discussions
4. Written essays and practical questions
This course is focused on corporate finance theory and research, and the implementation of financial models. Consequently the learning style will facilitate students in engaging with academic and practitioner journals, as well as undertaking practical financial processes.
| Module Content & Assessment | |
|---|---|
| Assessment Breakdown | % |
| Formal Examination | 60 |
| Other Assessment(s) | 40 |