FE5002 - Corporate Finance and Investment (2018/19)
|Module specification||Module approved to run in 2018/19|
|Module title||Corporate Finance and Investment|
|Module level||Intermediate (05)|
|Credit rating for module||30|
|School||Guildhall School of Business and Law|
|Total study hours||300|
|Running in 2018/19||
The module focuses upon the theory and the practice of Corporate Finance and Financial Investments. It provides a theoretical and practical framework for understanding the relationship between markets and corporations and the interactions between them. The module will critically explore the current theoretical perspectives and consider their practical application in relation to investment strategies and corporate decision making.
The contents of the module covers corporate objectives, investment appraisal techniques and decisions making, capital structure, mergers and acquisitions, dividend policy theory and practice, working capital management, financial markets and instruments, financial Investment Strategies, valuation of securities and derivatives, bond portfolio immunisation, Risk and return, evaluation of investment performance.
Analysis of theories in finance and investment and financial models include the Efficient Market Hypothesis, The portfolio Theory, The Capital Asset Pricing Model, the Arbitrage Pricing Theory and Dividend Valuation Model.
The module provides thorough knowledge of finance and guides students on assessing risks and managing risks for businesses and investment. The module builds up strong quantitative, written, critical and analytical skills required for employment in the finance industry.
A blended teaching and learning approach includes use of websites, videos, guest talks from industry and support for employability enhancing classroom activities.
Bloomberg will be used to deliver teaching sessions.
Corporate objectives: wealth maximisation, agency theory, stakeholder theory, information asymmetry. The interaction between the corporation and financial markets. LO1
Corporate investment decisions: Hirschleifer analysis and Fisher separation; the NPV rule and IRR rules of investment appraisal; comparison of NPV, IRR, Payback and accounting rate of return. LO1
Capital structure and sources of finance: capital structure and capital structure irrelevancy; taxation, the finance mix and weighted average cost of capital. LO1
Mergers and acquisitions: motivations for merger activity; gains and losses from merger/takeover, empirical evidence on the success of mergers or acquisitions. LO1
Dividend policy theory and practice: Modigliani–Miller and dividend irrelevancy; Relevancy theories; taxes and clienteles; signalling. LO3
Working capital management: relaxed and aggressive working capital policies, liquidity, overtrading; management of cash debtors, creditors, stocks. Risk management. LO1
Financial markets and instruments: money markets, forex markets, bond markets, equity markets, financial derivative markets, unit trusts, investment trusts, market regulation; market data and ratios.
History of financial markets: social, technological and financial change and innovation. LO2
Financial Investment Strategies: Active and passive trading strategies, fundamental analysis, technical analysis. Efficient markets Hypothesis; theory and empirical evidence, EMH testing methodology. Behavioural finance. LO3, LO4
Valuation of securities and derivatives: Equities, bonds, futures and options. LO3
Bond Portfolio Immunisation: term structure of interest rates, duration, immunisation of bond portfolios. LO3
Risk and return: statistical estimation of return and risk, Beta; types of risk; Diversification, portfolio theory, Capital Asset Pricing Model, Arbitrage Pricing Theory. Risk management, VaR, hedging and speculation with derivatives. LO4
Evaluation of investment performance evaluation: Sharpe and Treynor ratios, benchmark portfolios. LO4
Balance of independent study and scheduled teaching activity
Teaching is structured by lectures and seminars. The formal lectures of two hours will take place every week and these will be interactive, requiring students to participate in in-class exercises and discussion.
The lectures are be supported by one-hour seminars. Seminars typically provide a forum for discussion of class exercises based on either theory, case studies or the practical application of topics explored in the lecture. Some seminar time will be allocated to use of IT resources such as spreadsheets and retrieval and analysis of market data from sources such as Bloomberg.
Both lecture and seminar activities are structured to enable students to initially develop basic knowledge and then to progress to develop a deep and rich understanding of corporate finance and analysis of investment. Class exercises require students to carry out independent work prior to seminars and explore their ideas in the class with their peers and the tutor.
Professional and transferable skills are developed in lectures and seminars, and through independent directed learning and assessment. Skills development is enhanced through problem solving practiced in seminars and preparing examinations. Initiative and independence is developed progressively throughout the module such that students are required to take greater responsibility of their work.
On completion of this module students will be able to:
1. explain corporate objectives, the roles of shareholders, managers and other stakeholders in relation to Corporate Financial Strategy, and use corporate and market data to inform investment decision-making and discuss the factors which affect corporate decisions on capital structure and their impact upon the company.
2. critically apply the main theoretical models for determining the fair value of securities and derivatives such as forward contracts, futures contracts, and options.
3. evaluate the construction, selection and management of investment portfolios and critically understand the relationship between risk and return and the concept of corporate diversification.
4. demonstrate the quantitative, written, critical and analytical skills required for employment in the finance industry.
The summative assessment for this module includes three assignment components as below:
1. Coursework: An academic essay of 1,500 words will be due in week 8. The weighting of this coursework is 20%. The focus of this assignment will be a reflective exercise which will require students to explore their understanding and knowledge gained from the first 6 weeks. Case study of a listed corporation will allow students to apply their knowledge gained from the first 6 weeks. This will also enable formative feedback to be provided on the early stages of the module.
2. In-class test: An in-class test will be held in week 15. The duration of this examination will be 1.5 hours and the weighting will be 30%. The knowledge points to be examined will be from week 1 to week 12. This will examine students’ ability to articulate written answers to unseen questions. The questions will require students to demonstrate understanding of theory, its practical application and quantitative skills.
3. Coursework: A group report of 3,000 words will be due in week 28. The weighting of this coursework will be 50%. This envisages group work and students will be required to form groups to undertake research activities, collect secondary data and prepare for the report. Groups will benefit from formative assessment provided by the tutor in addition to peer assessment provided by fellow students. The coursework will require students to demonstrate skills of researching, academic literature review, critical understanding of concepts and the ability to write a coherent report.
Feedback on assessments will be provided in accordance with University guidelines.
Pike and Neal, (2009), Corporate Finance and Investment – Decisions and Strategies, 6th Edition, Pearson Education Limited, Harlow.
Other useful texts
Brealey, Myers and Allen (2007) Principles of Corporate Finance, 8th Edition., McGraw Hill Irwin
Copeland, Weston and Shastri, (2005), ‘Financial Theory and Corporate Policy’ - 4th Edition, Pearson EducationRoss,
Westefield & Jaffe, (2006), Corporate Finance, 8th Edition, McGraw Hill Education, Europe
Watson and Head, (2010), `Corporate Finance: Principles and Practice’ 5th Edition, Financial Times/Prentice Hall.
Pilbeam, K., (2012), Finance and Financial Markets, 3rd Edition, Palgrave Macmillan, Basingstoke
Other useful texts
Elton, E.J., Gruber, M.J., Brown, S.J. and Goetzmann, W. (2006). Modern Portfolio Theoryand Investment Analysis, 6th Edition,
Brealey R.A., Myers S.C. and Franklin A., (2007), Principles of Corporate Finance. 9th Edition, McGraw Hill
Levy, H.(2003), Fundamentals of Investments. Pearson Education Limited
Lofthouse, S. (Editor), (1995), Readings in Investments. John Wiley. (Out of print but available in the library)
Redhead, K., (2003), Introducing Investment - a personal finance approach. Pearson Educational. Edinburgh.
The Journal of Finance
The Journal of Economics and Finance