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Module Title: Corporate Finance

Module Director: Professor Aziz Jaafar

Available Routes:

Core Module Full Programme

Module Overview:

Corporate Finance is a key management activity, with a broad range of activities to address. The understanding of the financial manager’s key decisions forms the heart of this module, with emphasis on selection of profitable investments, utilising financial instruments, choosing the best mix of funds, risk and dividend policy. The importance of cash flow, and the theories underpinning dividend decisions is also emphasised. Students will gain an understanding of the different types of investment and the return expected by investors. The module also examines the concept of risk, moving to a review of the nature of capital markets and the nature of the instruments issued and traded within them.

Module Aims & Objectives:

On completing this module students will be able to:

  • Understand the theories underpinning capital budgeting and be able to apply and discuss these;
  • Understand the concepts of the costs of capital and funds and be able to apply these to real world scenarios
  • Understand the theories and concepts underpinning dividend decisions; analyse and apply these in the real world;
  • Understand the concepts of discount rates and how these relate to financial instruments and risk;
  • Understand the issues relating to long-term finance; critically evaluating the relevant models and applying the most relevant when reviewing financial decisions;
  • Have a thorough understanding of the role of the financial manager and the role played by corporate finance in the banking and financial industries.

Key Text:

Corporate Finance (4th Edition) Berk, J and DeMarzo, P - Pearson

Means of Assessment:

This module is assessed by means of an individual assignment (40%) and examination (60%)

The course is divided into three Units which broadly break down as follows:

Unit 1

Unit 1 deals with underlying technical aspects of valuation – time value of money, discounting, etc. and gives us the necessary technical underpinning to move on to making decisions in Unit 2.

Unit 2

The second unit, Unit 2, takes theses technical aspects and starts to apply them to the valuation of projects. It starts with simple problems and moves on to more complicated investment decisions in relation to investment in plant and equipment. The key idea is whether a particular investment promises greater cash flows than the cost of the investment. This, of course, applies to many investment decision – whether to invest in a machine or to buy a company or to launch an advertising campaign or to initiate a research and development programme. All these opportunities seem very different but they all have the same goal of generating more cash than the cost of getting the cash!

Unit 3

The third unit, Unit 3, deals with the financing side of the company . Unit 1 and Unit 2 help us to decide whether it makes sense to acquire a particular asset. Unit 3 looks at the financing of that decision in terms of the capital markets, sources of finance and also the issues of capital structure (how much you should borrow) and dividend policy.

Each unit of these units is further broken down into individual topics, ten in total.

One point that might strike you as you work your way through the module is that is that some of the material appears a little removed from the financial services industry, because, for instance, there is little investment in plant and equipment in this industry (except for IT equipment, of course). However, do bear in mind that those of you who are lenders will have customers who are (or should be applying these techniques) while others who work in investment banks in the mergers area will have grappled with the problem of valuing possible acquisitions.

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