BUS 314

FINANCIAL MANAGEMENT

Course Outline and Delivery Plan

 

 

Instructor:

Course Description

 

The course unit is intended to equip the student with knowledge on the general financial framework and the financial manager’s decision making process within the corporate entity. In particular, the student will get knowledge and skills required to evaluate, interpret and analyze financial information relevant for decision making. The student should also be able to appreciate various theories in financial management in the context of a corporation/firm. The key areas of interest include: roles of financial systems and the financial manager, valuation of securities, cost of capital, capital expenditure decisions, risk-return, capital structure puzzle and the dividend debate among others.

 

Learning Outcomes

 

 

1.                  To enable the student appreciate the importance of financial management in a corporate entity.

2.                  To enable the student appreciate the financial manager’s decision making process in a firm.

3.                  To understand the general financial framework and key sectors in an economy forming the framework.

4.                  To enable the student understand key theories of financial management and roles of financial systems.

5.                  To understand the concept of risk diversification and its importance in financial risk management.

6.                  The student should eventually know how to value securities (Bonds and Stocks).

7.                  To enable the student to determine the optimal capital structure and dividend policy of the firm by choosing the optimal decisions.

Contact Hours: 3 hours

Prerequisite—BUS 309

 

 

 

 

 

 

 

 

 

 

 

COURSE OUTLINE

 

     The main topics include:

1.      Valuation of financial assets (Securities)

2.      Cost of capital

3.      Capital expenditure decisions ,risks, rationing, replacement decisions

4.      Portfolio theory, CAPM and Arbitrage pricing theory

5.      Capital structure debate

6.      Foreign exchange rates and their determination

7.      Hedging of risks both internally and externally

 

 

Course Delivery Plan

 

Lesson 1

 

Introduction to Financial Management.

-          The role of the firm

-          Agency theory, problem and solutions to the same

-          Financial management decisions

Lesson 2

 

 

 

 Capital Expenditure decisions

-          Time value of money

-          Capital Investment appraisal techniques- Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index, Payback period method, Discounted Payback period method and the Accounting Rate of Return

-           

Lesson  3

 

 

-          Capital Expenditure decisions

-          Replacement decisions

-          Abandonment decisions

-          Risk management

Lesson 4

       Valuation of securities

-Valuation of equity  ( ordinary shares and retained earnings)

-Valuation of debt      ( preference shares and debentures)

 

 

Lesson 5

Cost of Capital ( introduced)

-          The importance of the concept of Cost of Capital to a firm

-          Component Costs of Capital ( Cost of Debt, Cost of Retained Earnings, Cost of Preferred Stock and Cost of Common stock)

Lesson  6

 

Capital Expenditure decisions

-          Determining the relevant cash flows, capital rationing, taxes, depreciation, inflation, salvage/terminal values and other relevant considerations in Capital budgeting.

-          Capital investment appraisal- Projects and Fixed Assets

-          Risk adjustment in capital expenditure decisions

 

Lesson 7

 

 

 

CAT 1

Lesson  8

 

 

 

 Risk and return- Portfolio theory

-          Risk diversification by Markowitz (1952), Systematic and Unsystematic risks

-     Assumptions of Portfolio theory

-     Risk-return computations

Lesson  9  

Portfolio theory and Asset Pricing Models

 

-          Feasible portfolio, efficient set and optimal portfolio and the risk-free asset.

 

 

Lesson  10 

 

 

 

            

The capital Structure debate ( introduction)

 

The classical Modigliani-Miller (MM) theorems and the Traditionalists view (Solomon, 1963).

Capital Structure debate (concluded)

-          The Pecking order theory ( Myers, 1984; Myers & Majluf, 1984), the Static trade-off theory and other theories

 

Lesson 11

    Arbitrage Pricing Theory

Capital Asset Pricing Model (CAPM) – Sharpe (1964)

-          Systematic and unsystematic risks

Lesson 12

 

 

 

 

 

       CAT 2

 

Lesson 13

Foreign exchange rates and their determination

Demand and supply and its effect on exchange rates.

-          Foreign exchange risks.

-          Managing exchange rates risks ( internal methods) external methods)

 

Lesson 14

 

 

 

 

 

             -Management of exchange risks ( External methods)

 

Lesson  15  

  - Emerging issues in Financial management

  - Assignments and discussions on Financial management issues.                 

 

 

 

 

 

Course Delivery Methodology

 

A combination of lecture, discussions, case study, library research, and reporting.

 

Lectures will be used to introduce material on the formal aspects of the module.

 

 

Instructional Material/Equipment

Textbooks, board, Handouts and library.

 

Handouts will be provided occasionally for core topics. It must be noted that handouts are not sufficient by their very nature and the student will be required to generously supplement handout material.

 

Academic Assessment

 

Type

Weighting (%)

Examination

             50

Coursework

CAT 1 (Supervised CAT)

CAT 2 (Supervised CAT)

Assignments

             50

15

15

10

50

Total

            100 %

 

Course Materials

 

Textbooks for the Course

 

 The main textbook:

 

Pandey, I. M, (2015).  Financial Management, 11th Ed.  Vikas publishing house. New Delhi

Textbooks and Journals for Further Reading

 

Other reading materials

 

James, C. & Horn, V.  (2007)  Financial Management policy, 12th edition.

 

Brealy, R. A., Myres, S. C., Allen, F., & Mohanty, P. (2007) Principles of Corporate Finance, 8th edition.

 

Jeffe, R. W.  (2007). Corporate Finance, 7th edition.      

 

Ross S., Westerfield R. & Jaffe J. (2008). Corporate Finance 6th edition. Boston: McGraw-Hill

 

Journal of Finance

 

Journal of Financial Economics

 

 

Policies

Classes

 

1.      Punctuality is fundamental.

2.      Active participation in class discussions is encouraged

3.      Let us refrain from signing the attendance register on behalf of colleagues who are not present

 

Assignments and/or Course Work

 

1.      Plagiarism is a serious offence. If detected in any form in course work and assignments, the following will apply:

a.       In partial or non-serious cases (such as not citing whole word-for-word quotes), half the total possible marks of the assignment are duly struck off.

b.      In serious cases (such as whole duplication of a paper), a zero policy will apply i.e., all offending assignments will be awarded a mark of zero.

 

Note: The level of seriousness referred to above is at the discretion of the lecturer. Appeals are certainly possible through the relevant channels

 

2.      Notwithstanding the above, collaboration in course work is certainly encouraged as this promotes team spirit and group synergy as long provided originality is preserved.