Financial Theory and Corporate Policy
311 Friday 1500 - 1700; 417 and 504 Wednesday 1400 - 1600
You can contact staff by:
- Calling +64 7 838 4466 select option 1, then enter the extension.
Extensions starting with 4, 5 or 9 can also be direct dialled:
- For extensions starting with 4: dial +64 7 838 extension.
- For extensions starting with 5: dial +64 7 858 extension.
- For extensions starting with 9: dial +64 7 837 extension.
This paper covers capital budgeting, capital structure and working capital management. Three key important questions are answered in this course: What long-term investments should the firm take on? Where will we get the long-term financing to pay for the investment? How will we manage the everyday financial activities of the firm? The paper will also covers the effects of biases and heuristics on financial management decisions. Presents the behavioral case for market inefficiency and related evidence pro and con.
Provide quick access to the whys and how of dealing with the three most important questions in finance: Capital Budgeting, Capital Structure and Working Capital Management.
Provide easy-to-understand information, including equations and examples that can be quickly applied to most problems of corporate finance.
Provide knowledge about the difference between accounting income and cash flow as well as how to determine a firm’s cash flows.
Provide knowledge about how to make capital budgeting decision.
Provide knowledge about how to determine a firm’s cost of capital.
Provide knowledge about how to manage a firm’s daily financial activities.
There will a 3-hour lecture and 1-hour tutorial in each week. Students should get prepared before attending the lectures and tutorials.
Note: Tutorials start from the second week i.e. Week starting Monday 6 March 2017. Each tutorial deals with learning materials from the previous week's lecture. Students are required to enroll in one of the tutorial groups during the first week of lectures.
Students who successfully complete the course should be able to:
Developing Deep Understanding with Corporate Finance [LO1]
Evaluate the role of financial manager and goals of financial management. Appraise the key aspects of financial management environment.Linked to the following assessments:
Estimation of Project Cash Flows; Estimation of Risk and Return [LO2]
Identify the difference between accounting income and cash flow. Realize how to determine a firm’s cash flows. Be aware of where to find the information to calculate cash flow.Estimation of Risk and Return [LO2]
Understand how to calculate risk and return and the relation between them. Develop the security market line with an intuitive approach that bypasses much of the usual portfolio theory. Realize the CAPM model and discuss beta estimation.Linked to the following assessments:
Cost of Capital and Capital Structure [LO3]
Understand how to determine a firm’s cost of equity capital, cost of debt and overall cost of capital. Explain the effects of financial leverage on cash flows and the cost of equity. Identify the impacts of taxes and bankruptcy on capital structure choice.Linked to the following assessments:
Cash and Liquidity Management [LO4]
Understand how to compute the operating cycle and the cash cycle. Identify the differences between a flexible short-term financing policy and a restrictive one. Explain the pros and cons of each.Linked to the following assessments:
Behavioral Finance [LO5]
Understand the effects of biases and heuristics on financial management decisions. Presents the behavioural case for market inefficiency and related evidence pro and con.Linked to the following assessments:
To be eligible to pass this paper, students must achieve a minimum 40% for the final examination and an overall grade of at least 50% in the whole paper
The assessment includes both individual and group components.
The internal assessment/exam ratio (as stated in the University Calendar) is 1:1. There is no final exam. The final exam makes up 50% of the overall mark.
The internal assessment/exam ratio (as stated in the University Calendar) is 1:1 or 0:0, whichever is more favourable for the student. The final exam makes up either 50% or 0% of the overall mark.
Error: Assessment components must add up to 100%
At least one Assessment Component needs to be entered
|Component Description||Due Date||Time||Percentage of overall mark||Submission Method||Compulsory|
|1. Assignment Set I||
29 May 2017
|2. Mid-term Test||
6 Apr 2017
|3. Assignment Set II||
29 May 2017
Required and Recommended Readings*
Textbook: Fundamentals of Corporate Finance by Ross, Westerfield, and Jordan. Standard 10th Edition
Ross, S. A., Westerfield, R. W. and Jaffe, J. (2010), Corporate Finance, 8th Edition, USA: McGraw Hill.
PPT, marking guideline and related teaching materials will be available in MyWeb.
The course has about 48 (4X12) contact hours (lectures and tutorials). The rest of the 200 hours expected workload in this 20-point paper can be distributed as follows: 40 hours to complete the two Assignments, 42 hours to prepare for and attend the Mid-term Test and 70 hours to prepare for and attend the Final Exam.
Linkages to Other Papers*
ECON204 and FINA201 or equivalent