FS5002 - Corporate Finance and Investment (2017/18)
|Module specification||Module approved to run in 2017/18|
|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 2017/18||
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 module aims to provide students with:
- a critical understanding of the theoretical and practical aspects of Corporate Finance and investment analysis
- the ability to analyse corporate and market data use it to inform corporate and market investment decisions.
- an appreciation of risk and risk management techniques with particular reference to derivative products
- a critical understanding of investment theories and theories of portfolio selection
- an appreciation security and derivative valuation
- an opportunity to develop reflective, research, academic writing, numerical, data collection, problem-solving, critical and analytical skills
Corporate objectives: wealth maximisation, agency theory, stakeholder theory, information asymmetry. The corporation interaction between the corporation and the financial markets
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.
Capital structure: in theory and practice: the Modigliani–Miller theorem: capital structure irrelevancy; taxation, bankruptcy costs and capital structure; weighted average cost of capital; Modigliani-Miller 2nd proposition; the Miller equilibrium; asymmetric information: underinvestment. Implications corporate valuation.
Mergers and acquisitions: motivations for merger activity; gains and losses from merger/takeover, empirical evidence on the success of mergers or acquisitions
Dividend policy theory and practice: the Modigliani–Miller and dividend irrelevancy; Relevancy theories; taxes and clienteles; signalling.
Working capital management: relaxed and aggressive working capital policies, liquidity, overtrading; management of cash debtors, creditors, stocks. Risk management
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;
Financial Investment Strategies: Active and passive trading strategies, fundamental analysis, technical analysis. Efficient markets Hypothesis; theory and empirical evidence, EMH testing methodology. Behavioural finance.
Valuation of securities and derivatives: Bonds, equities, futures and options
Bond Portfolio Immunisation: term structure of interest rates, duration, immunisation of bond portfolios
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
Investment performance evaluation: Sharpe and Treynor ratios, benchmark portfolios.
Learning and teaching
The module is offered over a 30 week period. It will develop a range of skills in the development of the discipline specific knowledge and understanding. Students will engage with critical thinking from the outset by exploring underlying theory and considering practical application.
The module is offered over a 30 week period. Formal lectures of two hours will take place every week 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 Datastream and 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 rish understanding of investment analsyis and corporate finance. Class exercises require students to carry out independent work prior to seminars and explore their ideas in the class with their colleagues 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. Inititative and independance 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:
- critically analyse and apply the main theoretical models for determining the fair value of
- securities and derivatives such as forward contracts, futures contracts and options.
- analyse and evaluate the construction, selection and management of investment portfolios and critically understand the concept of corporate diversification
- explain institutional trading arrangements of the capital markets and the roles of shareholders, managers and other stakeholders on the Corporate Financial Strategy
- analyse the factors which affect corporate decisions and their impact upon the company
- use corporate and market data to inform investment decision-making and undertake a review of research literature
- demonstrate the quantitative, written, critical and analytical skills required for employment in the financial services industry.
The summative assessment for this module is :
Course work assignment of 1500 words in week 8 of the module (20%). The focus of this assignment will be a reflective exercise which will require students to explore their understanding of the context of their personal development planning. This will also consider their experiences from the Activities week preceding the submission. It will require them to explore their strengths and weaknesses, motivation and career plans. This will enable formative feedback to be provided on the early stages of the module and for students to evaluate their expectations.
Coursework – and Individual essay of 2000 words in week 16. This will enable formative feedback to be provided. The coursework will require students to demonstrate skills of researching academic literature, critical understanding of concepts and the ability to write a coherent essay.
Unseen examination – 3 hours at the end of the course. This will test 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.
Arnold, G. (2008) Corporate Financial Management, 4th ed., Harlow, Financial Times Prentice Hall
Brealey R.A., and Myers S.C. 2010, Principles of Corporate Finance. (2nd), McGraw Hill
Elton, E.J., Gruber, M.J., Brown, S.J. and Goetzmann, W. (2006). Modern Portfolio Theory and Investment Analysis, 6th edition,
Fama, E.F. (1991) Efficient Capital Markets II , Journal of Finance. 46 December, 1575-1617.
Fama, E. and K. French (1992) `The Cross-Section of Expected Stock Returns’ Journal of Finance, Vol.47, No. 2, [June], pp. 427-465
Fama, E. and K. French (2004) `The CAPM – Theory and Evidence’ Journal of Economic Perspectives, Vol. 18, No. 3, [Summer] pp. 25-46
Miller M. (1977), `Debt and Taxes’. Journal of Finance, Vol. 32, No.2, [May] pp.433-443.
Miller M. H. and F. Modigliani K, 1961, `Dividend Policy, Growth and the Valuation of Shares’, Journal of Business, Vol. 34. No. 4, [October] pp.411-433
Modigliani, F. and M.H. Miller (1958) `The Cost of Capital, Corporation Finance and the Cost of Investment’, American Economic Review, Vol. 48, No.3, [June] pp.261-297.
Modigliani, F. and M.H. Miller (1963) `Corporate Income Taxes and the Cost of Capital: A Correction’. American Economic Review, Vol. 53, No.3, [June] pp.433-443.
Pike R., and Neale, B., (2009), Corporate Finance Investment, 6th ed., Harlow : Financial Times Prentice Hall
Economics 49 (3): 307–343.