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AC3059 Financial Management

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32 views4 pages

AC3059 Financial Management

Uploaded by

Isra Waheed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Course information 2023-24

AC3059 Financial management


General information
MODULE LEVEL: 6
CREDIT: 30
NOTIONAL STUDY TIME: 300 hours

Summary
This course introduces students to the concepts and theories of corporate finance that underlie
the techniques which are offered as aids for the understanding, evaluation and resolution of
financial managers’ problems.

Conditions
Prerequisite: If taken as part of a BSc degree, the following course must be must be attempted
before you can register on this course.
• AC1025 Principles of accounting

Exclusion: You may not register for this course in the same year as:
• FN2190 Asset pricing and financial markets

Aims and objectives


This course aims to cover the basic building blocks of financial management that are of primary
concern to corporate managers, and all the considerations needed to make financial decisions
both inside and outside firms.
This course also builds on the concept of net present value and addresses capital budgeting
aspects of investment decisions. Time value of money is then applied to value financial assets,
before extensively considering the relationship between risk and return. This course also
introduces the theory and practice of financing and dividend decisions, cash and working
capital management and risk management. Business valuation and mergers and acquisitions
will also be discussed.

Learning outcomes
At the end of the course and having completed the essential reading and activities students
should be able to:

• describe how different financial markets function


• estimate the value of different financial instruments (including stocks and bonds)
• make capital budgeting decisions in the world with and without tax, under both certainty
and uncertainty, and capital rationing

Please consult the current EMFSS Programme Regulations for further information on the availability of a
course, where it can be placed on your programme’s structure, and other important details.

AC3059 Financial management Page 1 of 4


• apply the capital assets pricing model in project appraisals, constructing portfolio with
desired risk, and creating risk-free arbitrage opportunity
• evaluate the pros and cons of using equity and debt for financing long-term projects
• describe how leasing works for firms
• estimate cost of capitals
• determine the value creation from mergers and acquisitions
• apply working capital techniques in managing trade receivables, inventory, and trade
payables
• determine how forwards, options, and money market hedge can be used to reduce
uncertainty of foreign currency receipts and payments

Employability outcomes
Below are the three most relevant skill outcomes for students undertaking this course which
can be conveyed to future prospective employers:
1. Decision making
2. Complex problem-solving
3. Communication

Essential reading
For full details, please refer to the reading list.
Brealey, R.A., S.C. Myers and F. Allen Principles of Corporate Finance. (New York: McGraw‐ Hill,
2023) fourteenth global edition, [ISBN 9781264080946].

Assessment
This course is assessed by a three-hour unseen written examination.

Syllabus
The subject guide examines the key theoretical and practical issues relating to financial
management. The topics to be covered in this subject guide are organised into the
following 20 chapters:
Chapter 1: Financial management function and environment
This chapter outlines the fundamental concepts in financial management and deals with
the problems of shareholders’ wealth maximisation and agency conflicts.
Chapter 2: Investment appraisals 1
In this chapter we begin with a revision of investment appraisal techniques. The main
focus of this chapter is to examine the advantages of using the discounted cash flow
technique and its application in basic investment scenarios.
Chapter 3: Investment appraisals 2
This chapter follows on from Chapter 2 to explore the application of the discounted cash
flow technique in more complex scenarios: capital rationing, price changes and inflation,
and tax effect.

Please consult the current EMFSS Programme Regulations for further information on the availability of a
course, where it can be placed on your programme’s structure, and other important details.

AC3059 Financial management Page 2 of 4


Chapter 4: Investment appraisals 3
This chapter illustrates the application of the discounted cash flow technique in further
complex scenarios: replacement decision, project deferment and sensitivity analysis.
Chapter 5: Risk and return
We formally examine the concept and measurement of risk and return in this chapter.
We also look at the necessary conditions for risk diversification, Portfolio Theory and the
Two Fund Separation Theorem. Asset Pricing Models and discussed and practical
considerations in estimating beta will be covered. Empirical evidence for and against the
Asset Pricing Models will also be illustrated.
Chapter 6: Portfolio theory and capital asset pricing model
This chapter introduces more formally the Portfolio Theory and discusses the derivation
of the Capital Assets Pricing Model.
Chapter 7: Practical consideration of the capital assets pricing model and alternative
asset pricing model
Following on from Chapter 6 we examine the techniques for estimating betas and their
conceptual and practical considerations. We also introduce an Alternative Pricing Model
based on the Arbitrage Pricing Model.
Chapter 8: Capital market efficiency
This chapter discusses the concepts and implications of market efficiency and the
mechanism of equity and debt issuance.
Chapter 9: Sources of finance – Equity
In this chapter we focus on how companies raise funds from the stock and bond markets,
and discuss the advantages and disadvantages of this financing method.
Chapter 10: Sources of finance – Debt
In this chapter we focus on how companies raise funds from the bond markets, and
discuss the advantages and disadvantages of this financing method.
Chapter 11: Capital structure 1
This chapter introduces the arguments of Modigliani and Miller on capital structure, and
discuss the implication of the Trade-off Theory.
Chapter 12: Capital structure 2
This chapter critically reviews the existing leading theories of capital structure.
Specifically, signalling effect, agency cost of equity and debt, and the Pecking Order
Theory will be examined. We will also evaluate the practical considerations of capital
structure decisions made by corporate managers.
Chapter 13: Dividend policy
This chapter aims to explore how the amount of dividend paid by corporations would
affect their market values. The tax, signalling and agency effects of dividend will be
discussed.
Chapter 14: Cost of capital and capital investments
In this chapter we discuss how the cost of capital can be adjusted when firms are
financed with a mixture of debt and equity.
Please consult the current EMFSS Programme Regulations for further information on the availability of a
course, where it can be placed on your programme’s structure, and other important details.

AC3059 Financial management Page 3 of 4


Chapter 15: Valuation of business
We introduce the valuation of equity, debt, convertibles and warrants in this chapter.
Chapter 16: Mergers
This chapter focuses on the theory and motives of mergers and acquisitions. The
determination of merger value and the defensive tactics against merger threats will also
be covered. The empirical evidence of using financial ratios to predict mergers and
acquisitions will be discussed.
Chapter 17: Financial planning
This chapter focuses on the importance of careful financial planning and examines and
evaluates the approaches to and methods of financial planning.
Chapter 18: Working capital management
The importance of managing working capital will be discussed in this chapter.
Chapter 19: Risk management – concepts and instruments for risk hedging
This chapter provides an introduction to risk management, including: the concepts of risk
management and the use of derivatives in hedging.
Chapter 20: Risk management – applications
This chapter discusses the techniques commonly used in risk hedging.

Please consult the current EMFSS Programme Regulations for further information on the availability of a
course, where it can be placed on your programme’s structure, and other important details.

AC3059 Financial management Page 4 of 4

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