Module Code and Title:   FIN201 Fundamentals of Corporate Finance

Programme:                          Bachelor of Commerce 

Credit Value:                         12

Module Tutor:                       Gagan Mongar, Kabita Chhetri, Tirtha Raj Puri, Ritu Barna  .          .                                         Adhikari, Madhav Verma

Module Coordinator:           Gagan Mongar

General objective: This module provides students with the ability to apply financial management techniques to common business problems. Students evaluate the time value of money, use leverage, design efficient capital structures, analyse sources of financing (debt and equity), create capital budgets for business projects, and apply the concepts of risk and return in business.   

Learning outcomes – On completion of the module, students will be able to:

1. Use spreadsheet tools to calculate the time value of money, including perpetuities, annuities and mortgages.
2. Rate the feasibility of business opportunities using the time value of money and other analytic techniques for a sample business.
3. Apply concepts of risk and return in specific business decisions.
4. Evaluate business risk and return, and apply these concepts in specific business decisions.
5. Discuss common capital structures for various business situations.
6. Apply the capital asset pricing model to business situations.
7. Propose basic capital budgeting structures for a specific business.
8. State the advantages and disadvantages of basic dividend policies in business settings. 
9. Evaluate capital projects using payback period, internal rate of return, net present value and profitability index techniques.

Teaching and Learning Approach:

Assessment Approach:

In each of two class tests (5%), student will follow a standard problem solving process to analyse common business problems, and also answer fact-based questions to evaluate their knowledge of specific factual financial topics

Select and analyse a financial project in a group using techniques taught in class to determine if the project is financially feasible. The paper will be approximately 2000 words, and include problem definition, data collection, financial analysis, conclusions and references. The group presentation will be approximately 15 minutes.

1%       clear definition of a problem

2%       using appropriate financial techniques

2%       gathering data and information from financing sources

2%       quality of the writing (language, organization, referencing)

3%       individually marked presentation score

Students will be given two business cases to analyse and solve the related problems. Their score will be as follows:

            2%       clear identification of the issues or problems

            3%       Critical analysis of the case

            2%       able to present the ideas clearly

            2%       quality of writing

            1%       individual assessment through Q&A session

Students will take a written exam of 2 hours duration covering topics up to the mid-point of the semester.

The module will have a semester-end exam for 2 hours covering the entire syllabus. The question will be divided into two parts – Part A (carrying 40% of the exam weightage) will be mostly of short answer including objective questions. Part-B (carrying almost 60% of the exam weightage) will be mostly of essay type or an extended response to the given question. This part of the question requires students to apply, analyse, and evaluate or construct knowledge and skills. Cases will also be used to test the levels of knowledge.

Pre-requisites: None

Subject matter:

1. Nature of Financial Management                                                                
   1. Scope of finance & financial management
   2. Finance functions, financial manager’s role
   3. Objective of financial management
   4. Organization chart of Finance Dept. Business 
   5. Tax structure & financial environment

1. Time value of money                                                            
   1. Future Value: one –period case, multiple –period case; future value and compounding
   2. Present value and discounting:  perpetuity, annuity and mortgages
   3. Apply to problems using spreadsheets
   4. Finding the interest rate and effective rate of interest. 

1. Risk and Return concept                                                                             
   1. Identify and assess both qualitative and quantitative financial risks
   2. Expected return and risk of single asset and portfolio
   3. Portfolio variance, standard deviation, covariance, coefficient of variation, correlation coefficient, systematic and unsystematic risk and beta, beta estimation, determinants of beta
   4. Qualitative risks, e.g. political, supply chain risks, fraud, etc.
   5. Apply to problems using spreadsheets
   6. Portfolio return, portfolio variance, standard deviation, covariance, coefficient of variation, correlation coefficient
   7. Capital Asset Pricing Model (CAPM) & beta

1. Introduction to Fixed Income Securities                                       
   1. Types of fixed income instruments and basics of bond and bond valuation
   2. Introduction to interest rate risk, Zero Coupon Bonds, Fixed and Floating rate bonds (students will also be introduced to the Government and corporate bonds). 
   3. Assessing risks of each type of investment
   4. Bond markets, inflation & interest rates

1. Capital Budgeting Decisions                                                          
   1. Meaning and Importance of Investment Decisions, Types of Investment Decisions,
   2. Techniques for evaluating investment proposals (discounted cash flow methods-NPV, PI, IRR; Non-Discounted Cash Flow Methods- Payback Period, ARR) Simple numerical exercises.
   3. Apply to problems using spreadsheets
   4. Pro forma financial statements & project cash flows. Establish appropriate assumptions for projections
   5. Approaches of determining operating cash flows (OCF)

1. Financing Decisions                                                                                     
   1. meaning & importance of Capital Structure, 
   2. Factors affecting Capital Structure Capitalization (Meaning, Theories of Capitalization, over & under Capitalization)
   3. Cost of capital, cost of equity & debt, cost of capital with debt, 
   4. Weighted average cost of capital (WACC)
   5. Financial leverage and firm value
   6. Factoring in financial risks, contingency plan

1. Dividend Policy Decision                             
   1. Reasons for Paying Dividends, Considerations of Dividend Policy, Stability of Dividends, Forms of Dividends
   2. Criteria for setting dividend policy in different business environments
   3. Dividend theory & policy, stock dividends & stock split, dividend re-investment plans

Reading List:

1. Essential Reading
   1. Stephen, A. R. & Randolph, W. W. (2014). Corporate Finance. New Delhi: McGraw Hill
   2. Brealey, R. & Myers, S. (2014). Fundamentals of Corporate Finance. McGraw-Hill Education.
   3. Brigham, E. & Ehrhardt, M. (2017). Financial Management: Theory and Practice (15^th ed.). Cengage Learning.
   4. Brigham, E.& Houston, J. (2014). Fundamentals of Financial Management (8^th ed.). Concise.

1. Additional Reading
   1. Pandey, M. (2010). Financial Management (10th ed.), (Vikas Publication House: Kolkata, India. 
   2. Marzec, E. (2015). Three Primary Methods Used to Make Capital Budgeting Decisions. Retrieved from: http://smallbusiness.chron.com/three-primary-methods-used-make-capital-budgeting-decisions-11570.html.
   3. Van Horne & John Wachowicz. (2008).Fundamentals of financial management (13th ed.).Pearson Education, Limited: Harlow, Essex, England.
   4. Data on individual stocks from Morningstar. (current website data). Morningstar. Retrieved from: http://www.morningstar.com/.

Date:  July, 2017