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Centre for Financial and Management Studies (CeFiMS)

Corporate Finance

Course Code:
C221|C321
Unit value:

Introduction

In this course you will study the main issues in modern corporate finance. The subject 'corporate finance' is a well-established discipline, which is concerned with corporations large enough to have issued shares that are 'quoted' on a stock market. This course enables you to relate principles and practice to the financing decisions of enterprises in modern economies. The course analyses the decisions firms make about financing their investments in productive capital.

Resources

Study Guide

You will receive a looseleaf binder containing eight 'course units'. The units are carefully structured to provide the main teaching, defining and exploring the main concepts and issues, locating these within current debate and introducing and linking the further assigned readings. The unit files are also available to download from the Online Study Centre.

Textbook

David Hillier, Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, and Bradford Jordan (2010) Corporate Finance, European Edition, McGraw-Hill

Readings

You will receive a volume of Readings, which is a compilation of recently published articles or seminal writings which augment and illustrate the main text.

Excel worksheets

Worksheet exercises are available to download on the OSC.

Online Study Centre

You will have access to the OSC, which is a web-accessed learning environment. Via the OSC, you can communicate with your assigned academic tutor, administrators and other students on the course using discussion forums. The OSC also provides access to the course Study Guide and assignments, as well as a selection of electronic journals available on the University of London Online Library.

Objectives and learning outcomes of the course

When you have completed your study of this course you will be able to:

  • Describe modern principles of corporate finance and evaluate their validity
  • Rationalise corporate finance decisions in the light of agency problems and conflict of interest among corporations’ stakeholders
  • Analyse firms’ investment decisions
  • Discuss firms’ choice of capital structure and its implications for the value of the firm
  • Examine and discuss the key issues related to dividend policy and their implications for the value of the firm
  • Critically assess the reasons behind mergers and acquisitions and their welfare implications

Scope and syllabus

Course Content
Unit 1: Perspectives on Corporate Finance
  • 1.1 Introduction
  • 1.2 Core Theories of Corporate Finance
  • 1.3 Key Questions in Corporate Finance
  • 1.4 The Objective of the Firm 
  • 1.5 Agency Problems
  • 1.6 Conflict between Shareholders and Bondholders
Unit 2: Net Present Value and Capital Budgeting Decisions
  • 2.1 Introduction to Capital Budgeting Decisions
  • 2.2 Investment Principles and Net Present Value
  • 2.3 Capital Budgeting Decisions
  • 2.4 Analysing a Project: A Mini Case
  • 2.5 Sensitivity and Scenario Analysis
Unit 3: Risk, Capital Market Equilibrium and Capital Budgeting Decisions
  • 3.1 Introduction
  • 3.2 Expected Return and Risk
  • 3.3 How is the Equilibrium Return on Risky Assets Determined? - The Capital Asset Pricing Model
  • 3.4 A More General Model: the Arbitrage Pricing Theory (APT)
  • 3.5 Capital Budgeting Decisions and Risk: the Cost of Capital for Risky Projects
Unit 4: Efficiency of Capital Markets and Implications for Corporate Financing Decisions
  • 4.1 Introduction
  • 4.2 Efficient Capital Markets
  • 4.3 Weak, Semistrong and Strong Forms of Efficiency
  • 4.4 Anomalies: Bubbles and Market Crashes
  • 4.5 Implications for Corporate Financing Decisions
Unit 5: Dividend Policy
  • 5.1 Introduction
  • 5.2 Empirical Evidence on Dividend Policy
  • 5.3 The Irrelevance of Dividend Policy
  • 5.4 Taxes Can Make Dividend Policy Matter
  • 5.5 Asymmetric Information and Signalling
  • 5.6 Dividend Policy and Agency Costs
  • 5.7 Is There an Optimal Dividend Policy?
Unit 6: Capital Structure I
  • 6.1 Introduction: How Much Debt Should the Firm Issue?
  • 6.2 The Debt-Equity Irrelevance Theorem
  • 6.3 Corporate and Personal Taxes
  • 6.4 Effects of Bankruptcy Costs
  • 6.5 Implications and Limitations of the Trade-off Theory of Optimal Capital Structure
Unit 7: Capital Structure II: Information Asymmetries and Agency Costs
  • 7.1 Introduction
  • 7.2 Asymmetric Information Explanations of Capital Structure
  • 7.3 Minimising the Agency Costs of Equity and Debt
  • 7.4 The Story So Far ...
  • 7.5 Conclusions
Unit 8: Mergers 
  • 8.1 Introduction
  • 8.2 Forms of Takeover
  • 8.3 The Market for Corporate Control
  • 8.4 Some Stylised Facts about Merger Activity
  • 8.5 The Sources of Gain
  • 8.6 Review of the Unit’s Questions

Method of assessment

You will complete two assignments, which will be marked by your course tutor. Assignments are each worth 15% of your total mark. You will be expected to submit your first assignment by the Tuesday of Week 5, and the second assignment at the end of the course, on the Tuesday after Week 8. Assignments are submitted and feedback given online. In addition, queries and problems can be answered through the Online Study Centre. You will also sit a three-hour examination on a specified date in October, worth 70% of your total mark. An up-to-date timetable of examinations is published in April of each year.