25765 Corporate Finance

Subject level: Postgraduate

Handbook description

This subject introduces and exposes students to corporate financial management by initially considering an economy with no risks and no market imperfections and then relaxing these assumptions to consider a more realistic economic environment. Topics covered include capital budgeting, cost of capital, capital structure and valuation, dividend policy and mergers and acquisition. Particular attention is paid to different tax environments and agency relationships within the firm.

Subject objectives/outcomes

On successful completion of this subject, students should be able to:

1. Understand and be able to apply corporate financial theory, policy and practice in a range of firm decisions.
2. Analyse the essential nature of risk and uncertainty and apply them in capital budgeting, financial structure, cost of capital and dividend policy.
3. Understand the critical financial decisions in a simple world of certainty, and apply asset-pricing models that incorporate risk reviewing their implications for these financial decisions.
4. Evaluate the behavioural assumptions embedded in the asset pricing models and examine the implications of the resulting agency relationships for corporate financial practice.

Contribution to graduate profile

This subject provides and up-to-date understanding of the finance functions within a large organisation under different tax regimes. It also integrates with other courses offered within the program. For example, investment decision-making requires consideration of risk/return relationships and financing costs. Corporate financial analysis requires substantial examination of debt/equity and dividend decisions. International finance requires international investment, global financing and cost of capital decisions.

Teaching and learning strategies

The subject will be taught using a combination of lectures and workshops. These classes will be supplemented with both printed and electronic learning materials and resources. The UTS web-based communication tool (UTS Online) will be used to share information and encourage interaction between staff and students. Students will also use appropriate computer software such as spreadsheets and word processors to complete assigned tasks.

Content

• Investment, financing and dividend decisions under certainty
• Alternative techniques for project appraisal
• The application of the net present value approach
• Introduction to risk and Portfolio theory
• Capital Asset Pricing Model and Arbitrage Pricing Theory
• Capital budgeting under uncertainty including risk-adjusted discount rates (cost of capital)
• Decision trees, Sensitivity analysis, and scenario analysis
• The use of options
• The Implication of the Efficient Markets Hypothesis for Corporate Finance
• The financing decision
• Introduction of a classical tax system, bankruptcy costs and agency costs
• Dividend policy decision and dividend imputation tax system and its implications for corporate decision making
• A review of agency issues within the firm and resulting corporate governance considerations
• Mergers and acquisitions.

Assessment

Recommended text(s)

Ross, S.A., Westerfield, R.W., Jaffe, J.F., and Jordan, B.D. (2008). Modern Financial Management, 8th Edition, McGraw Hill.

Indicative references

Grinblatt, M. and Titman, S. (2002). Financial Markets and Corporate Strategy, 2nd ed., Irwin/McGraw Hill, (GT)

Brealey, R., Myers, S., Partington, G., and Robinson, D. (1999). Principles of Corporate Finance, Australian Ed., 1999, McGraw-Hill, (BMPR)

Peirson, G., Brown, R., Easton, S., and Howard, P. (2002). Peirson and Bird's Business Finance 8th Ed., McGraw-Hill (PB).

Graham, J. and Harvey, C. (2001). 'The theory and practice of corporate finance: Evidence from the field', Journal of Financial Economics, (on UTS Online).