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IB125-15 Foundations of Financial Management

Warwick Business School
Undergraduate Level 1
Module leader
Jesus Gorrin
Credit value
Module duration
10 weeks
Study location
University of Warwick main campus, Coventry
Introductory description


Module web page

Module aims
  • Introduce students to the key concepts of Financial Management in a way that builds sound intuition from the outset, without sacrificing rigour.
  • Prepare the foundations for more advanced study of Finance by encouraging students to develop a critical understanding of the main theories and models of Financial Management.
  • Provide students with structured opportunities to practise using the key tools and techniques of Financial Management.
  • Encourage students to read the financial press and connect with their learning in the classroom.
Outline syllabus

This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.

Financial Arithmetic: Discounted cash flow, annuities, perpetuities, Gordon growth model, net present value, internal rate of return.
Financial Markets: Equities, bonds, interest rates, currencies.
Market Efficiency: Efficient Markets Hypothesis, empirical tests, calendar anomalies, speculative bubbles.
Project Appraisal: Incremental cash flows, cost of capital, inflation, tax, economic rent, managerial flexibility and examples of real options.
Cost of Capital: CAPM, weighted average of cost of equity and cost of debt.
Company Financing: Raising financing, equity vs. debt, pecking-order hypothesis, rights issues, underwriting.
Capital Structure: Irrelevance propositions, taxes, costs of financial distress, agency effects, signalling.
Dividend Policy: Irrelevance proposition, taxes, transactions costs, signalling, agency effects, share buy-backs as an alternative to dividends.
Financial Planning: Short-term and long-term liability management.
Exchange Rates: Spot rates and forward rates, Interest-Rate Parity theorem, Purchasing-Power Parity.
Exchange-Rate: Transaction risk, translation risk, economic risk.
Internal vs. external hedging.
Risk Management.
Shareholder Value: Key shareholder ratios (e.g. earnings per share, dividend yield, price-earnings ratio). Key drivers of shareholder value.
Tesco case-study: Integrative exercise using CAPM, Gordon growth model and discounted cash-flow techniques to price Tesco shares.

Learning outcomes

By the end of the module, students should be able to:

  • Critically appraise the value added by a capital project by calculating the present value of expected future cash flows, and estimating the cost of capital.
  • Describe how inflation and tax impact project appraisal.
  • List the different forms of market efficiency, and interpret the results of key empirical tests of the Efficient Markets Hypothesis.
  • Compare and contrast the main sources of financing for a company.
  • Explain what is meant by capital structure and dividend policy, and discuss the relevance of each to corporate financial management.
  • Explain the importance of financial planning over both the short term and long term.
  • Distinguish between spot and forward exchange rates.
  • State and apply the Interest Rate Parity and Purchasing Power Parity theorems in the context of foreign exchange.
  • Define key shareholder ratios (e.g. earnings per share, dividend yield and price-earnings ratio) and use discounted cash-flow techniques to estimate share prices.
  • List and challenge the assumptions underpinning each of the key models studied.
  • Reflect critically on the limitations of each of the models studied.
Indicative reading list

Hillier, D., Ross, S., Westerfield R., Jaffe, J., and Jordan B. Corporate Finance. (Third European Edition, McGraw-Hill, 2016).
Brealey RA, Myers SC & Marcus AJ. Fundamentals of Corporate Finance (9th edition, McGraw-Hill 2017).
Pike R, Neale B, Akbar S (with Linsley P.). Corporate Finance and Investment (9th edition, Pearson 2018).
Arnold G. Essentials of Corporate Financial Management (5th edition, Pearson, 2012).

Subject specific skills

Use discounted cash-flow techniques to value financial securities and/or estimate the value added by capital projects.
Construct spreadsheets to calculate Net Present Values and Internal Rates of Return.

Transferable skills

Use spreadsheet modelling skills.

Study time

Type Required
Lectures 10 sessions of 2 hours (13%)
Seminars 9 sessions of 1 hour (6%)
Private study 48 hours (32%)
Assessment 74 hours (49%)
Total 151 hours
Private study description

Private Study.


No further costs have been identified for this module.

You do not need to pass all assessment components to pass the module.

Assessment group D2
Weighting Study time
Participation 10% 9 hours

Participation in activities on a weekly basis via my.wbs

Online Examination 90% 65 hours


~Platforms - AEP

  • Answerbook Green (8 page)
  • Students may use a calculator
Assessment group R
Weighting Study time
Online Examination - Resit 100%


~Platforms - AEP

Feedback on assessment

Feedback via my.wbs.

Past exam papers for IB125

Post-requisite modules

If you pass this module, you can take:

  • IB266-15 Fundamentals of Finance


This module is Core for:

  • UIBA-N203 BSc in International Management
    • Year 1 of N203 International Management
    • Year 1 of N203 International Management
    • Year 1 of N238 International Management with Finance
    • Year 1 of N256 International Management with Marketing
    • Year 1 of N236 Management with Digital Innovation (with Placement Year)
  • UIBA-N201 BSc in Management
    • Year 1 of N201 Management
    • Year 1 of N20B Management
    • Year 1 of N230 Management with Finance
    • Year 1 of N232 Management with Finance
    • Year 1 of N250 Management with Marketing
  • Year 1 of UIBA-N140 Undergraduate International Business

This module is Optional for:

  • Year 1 of UIBA-MN31 Undergraduate Law and Business Studies