Introductory description

Make students critically aware of the key financial decisions taken by firms.
Develop in students a sound understanding of the main theories and models of Corporate Finance.
Make students aware of key empirical tests of models of Corporate Finance, and the implications of those empirical findings.
Provide students with structured opportunities to practice using the key tools and techniques of Corporate Finance.
Prepare students for advanced undergraduate and postgraduate studies in Finance

Module aims

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.

Capital Budgeting:
Discounted Cash Flow techniques for appraising capital projects.
Equity valuation:
Dividend growth models, P/E and other methods, growth opportunities.
Real Options:
Investment appraisal under uncertainty.
Cost of Capital:
Weighted average of cost of equity and cost of debt in the presence of taxes.
Risky Debt:
Valuation of risky debt using option pricing. Effects of volatility.
Capital Structure:
Irrelevance propositions, taxes, costs of financial distress, agency costs, signalling.
Payout Policy:
Irrelevance proposition, taxes, transactions costs, signalling, agency effects. Share buy-backs as an
alternative to dividends.
Mergers / Acquisitions:
Vertical vs. horizontal mergers, motives for mergers, methods of financing mergers, merger process.
Initial Public Offerings:
IPO process, under-pricing, under-performance.

Learning outcomes

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

• Critically assess the factors that determine the optimal investment, financing and payout decisions of a firm.
• Compute the cost of capital of a firm under alternative assumptions.
• Identify the reasons why firms raise capital.
• Define key shareholder ratios (e.g. earnings per share, dividend yield and price earnings ratio) and use discounted cashflow techniques to estimate share prices.

Indicative reading list

REQUIRED TEXT:
Hillier D, Ross SA, Westerfield RW, Jaffe J & Jordan BD, Corporate Finance (2nd ed. 2013), McGraw-Hill
OTHER TEXTS:
Berk J & DeMarzo P Corporate Finance (3
rd ed. 2013), Pearson
Copeland TE, Weston JF & Shastri K, Financial Theory and Corporate Policy (4th ed. 2005), Pearson Addison-Wesley

Subject specific skills

Solve structured numerical problems. Write informed critiques of key issues in corporate finance. Analyse case studies and construct arguments to support a particular solution.

Transferable skills

Apply option valuation techniques to value a firm's equity and debt, and its real options.

Use web-based resources to find and retrieve data on companies, and spreadsheets to process that data.

Explain and interpret corporate financial information.