25765 Corporate Finance

UTS: Business: Finance and Economics
Credit points: 6 cp

Subject level: Postgraduate

Result Type: Grade and marks

Requisite(s): (25742 Financial Management OR 25746 Financial Management: Concepts and Applications) AND (22747 Accounting for Managerial Decisions OR 22784 Accounting: Concepts and Applications)
These requisites may not apply to students in certain courses.
There are also course requisites for this subject. See access conditions.

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:

understand and be able to apply corporate financial theory, policy and practice in a range of firm decisions
analyse the essential nature of risk and uncertainty and apply them in capital budgeting, financial structure, cost of capital and dividend policy
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
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

Assessment item 1: Case study (Group)

Objective(s):	1-5
Weighting:	20%
Task:	This will assess students' understanding of the concepts of corporate finance in a practical application of the decisions in finance. It will also allow students to demonstrate that they can use both spreadsheets and word processing packages to tackle practical valuation problems. This assignment will allow students to demonstrate that they have met the objectives 1-5.

Assessment item 2: Mid-semester exam (Individual)

Objective(s):	1-5
Weighting:	35%
Task:	The mid semester exam is designed to assess students' understanding of the theories and concepts to demonstrate that students have met the objectives 1-5.

Assessment item 3: Final Exam (Individual)

Objective(s):	1-5
Weighting:	45%
Task:	This exam, consisting of multiple choice and short answer questions, will test students' understanding of the theory and their ability to apply the theory to financial management decisions. This will enable students to demonstrate that they have met all the objectives 1-5.

Indicative references

Ross, Westerfield, Jaffe and Jordan, Modern Financial Management, 8th edn (international edition), 2008, McGraw-Hill (RWJJ)

25765 Corporate Finance Additional Readings: This is a Custom Publication prepared by Bird and Thosar and is sold with RWJJ as a package at the Co-op Bookstore. This publication includes chapters from the following textbooks:

Peirson, Brown, Easton and Howard, Business Finance 8th ed., 2002, McGraw-Hill (PBEH)
Brealey, Myers, Partington and Robinson, Principles of Corporate Finance, Australian Ed., 2000, McGraw-Hill, (BMPR)

Graham and Harvey, 'The Theory and Practice of Corporate Finance: Evidence From the Field', Journal of Financial Economics, 2001 (GH). This paper can be downloaded from UTSOnline

Grinblatt and Titman, Financial Markets and Corporate Strategy, 2nd ed., 2002, Irwin/McGraw Hill, (GT). We will cover some material from the Grinblatt and Titman textbook. The relevant material can be downloaded from the UTSOnline.

Course notes

Lecture slides — They contain only the main points, equations and illustrative examples of the subject matter. They focus on the main topics and allow for discussion around those points in the classroom setting. The course slides are not a substitute for the recommended textbooks!
Various supplementary material included with the lecture slides
Answers to tutorial questions

Faculty of Business (2006), Guide to Writing Assignments (available through UTSOnline or at www.business.uts.edu.au/resources/guide.html)

Students will be expected to have access to all of this material and to bring it to class each week so that they can refer to the tutorial questions and other material referred to in the text or supplementary material.