Introductory description

Corporate Finance is the study of financial decision-making processes for corporations. Unlike privately owned firms, corporations are structured on the basis of separation of ownership and control: while a corporation is owned by its shareholders, these do not run the day-to-day business of the firm. Instead, the shareholders appoint financial managers who are responsible for the firm’s investment and financing decisions. In other words, Corporate Finance deals with questions such as the following:

What are the decisions that financial managers are required to make?
What are the objectives that (should) govern these decisions?
What are the constraints imposed by the economic and regulatory environment?
How can the different available choices be evaluated and ranked?
Can conflicts of interest deriving from separation of ownership and control distort the manager’s incentives to pursue their goals?

Module web page

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
NPV and IRR and other Appraisal Methods.
Free cash flows

Capital Structure
MM irrelevance proposition, Taxation, Bankruptcy, Agency Conflicts.
Cost of Capital and Leverage

Payout Policy
Types of Payouts (Dividends, Repurchases…)
MM irrelevance proposition, Taxation, Asymmetric Information

Mergers and Acquisitions and Corporate Governance
Types of Mergers, Sources of Synergy, Boards and Shareholder activism

Learning outcomes

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

• Define different sources of corporate financing (e.g. retained earnings, debt, equity …), and explain their respective advantages/disadvantages.
• Define the factors that influence the firm’s capital structure and payout policy, and explain how each affects the optimal decisions.
• Identify the factors (e.g. risk, cost of capital) that affect investment appraisal, and explain how each affects project value.
• Identify the testable implications of a theoretical concept, and assess its validity using empirical analysis.
• Analyze and critically evaluate real-world cases, and communicate the findings either in writing or in a verbal presentation.

Indicative reading list

Core texts (dependent on variant):

Richard Brealey, Stewart Myers, Franklin Allen, and Alex Edmans, 2022, Principles of Corporate Finance (14th edition) New York: McGraw-Hill;

Atrill, P and McLaney, E. (2021) Accounting and Finance for Non-Specialists (12th edn) Harlow, England: Pearson

Rice, A. (2016) Accounts Demystified (7th edn) Harlow, England: Pearson

Subject specific skills

Estimate a firm’s cost of capital, and understand how this changes as a function of leverage, taxation, and other factors.
Evaluate and rank in real-word cases the (seemingly conflicting) factors influencing corporate decision-making.
Use various data sources (e.g. web, publications, databases …) to obtain and analyze financial data.
Use spreadsheets (e.g. Excel …) to compute the values of projects or securities, and perform sensitivity analyses.

Transferable skills

Written communication