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Level 6 • Accounting & Finance

Financial Management

BAF 234 — Semester IV
Course CodeBAF 234
TypeB
ECTS5
SemesterIV

Course Description

BAF 234 - Financial Management course aims to introduced to concepts and tools that enable them to think critically about the financial opportunities and challenges faced by an organization. This course covers different topics such as financial statements analysis, budgeting, analyze investment options, and determine the best means of financing business endeavors. This course allows students discover ways of assessing both the return and the risk involved in a firm's financial decisions. The focus of this course is on solving practical business problems similar to those encountered in the workplace.

Course Objectives

This course is designed to introduce students to the fundamental issues of financial management and to the quantitative techniques used to address them. The main focus of Financial Management is on valuation criteria and decisions on capital investment through the cost of capital, risk and return. It helps to better understand the decisions on capital structure, dividend policies and the methods used by companies to raise capital.

Key Concepts

  1. Capital Budgeting: The process of planning and managing a firm’s long-term investments.
  2. Capital Structure: The mixture of debt and equity maintained by a firm.
  3. Cost of Capital: The minimum required return on a new investment.
  4. Leverage: The use of borrowed funds in financing the assets or any investment.
  5. Risk and Return : Risk implies future uncertainty about deviation from expectations and Return is the profit accruing from an investment.
  6. Expected Return: is the profit or loss that an investor anticipates on an investment that has known historical rates of return.
  7. Variance: is the average of the squared differences from the mean.
  8. Standard Deviation: is a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance.
  9. Scenario Analysis: The determination of what happens to net present value estimates when we ask what-if questions.
  10. Sensitivity Analysis: Investigation of what happens to net present value when only one variable is changed.

Course Outline

WeekTopics
1Review of Syllabus. Introduction to the course.
2Quick look on Financial Statements, Cash Flows and Investment Criteria. Recap of the first part of Making Capital Investment Decisions (Project Cash Flows: A First Look; Incremental Cash Flows; Pro-forma Financial Statements and Project Cash Flows; More on Project Cash Flows; Evaluating NPV Estimates; Scenario and Other What If Analysis; Additional Considerations on Capital Budgeting) (pages 375-309)
3Continuing Making Capital Investment Decisions (Project Cash Flows: A First Look; Incremental Cash Flows; Pro-forma Financial Statements and Project Cash Flows; More on Project Cash Flows; Evaluating NPV Estimates; Scenario and Other What If Analysis; Additional Considerations on Capital Budgeting) (pages 375-309)
4Somme Lessons from Capital Market History (Returns; The Historical Record; Average Returns: First Lesson; The Variability of Returns: Second Lesson; More on Average Returns; Capital Market Efficiency) (pages 310-349)
5Introduction to Risk and Return (Expected Returns and Variances; Portfolio; Announcements, Surprises and Expected Returns; Risk: Systematic and Unsystematic; Diversification and Portfolio Risk; Systematic Risk and Beta; Security Market Line; The SML and Cost of Capital (pages 350-388) + Quiz
6Continuing Risk and Return (Expected Returns and Variances; Portfolio; Announcements, Surprises and Expected Returns; Risk: Systematic and Unsystematic; Diversification and Portfolio Risk; Systematic Risk and Beta; Security Market Line; The SML and Cost of Capital (pages 350-388)
7Cost of Capital (The Cost of Capital; The Cost of Equity; The Cost of Debt and Preferred Stock; The Waited Average Cost of Capital; Divisional and Project Cost of Capital; Company Valuation with the WACC) (pages 389-423)
8Review for Midterm Exam
9Midterm Exam
10Introduction to Leverage and Capital Structure (The Capital Structure Question; The Effect of Financial Leverage; Capital Structure and the Cost of Equity Capital; Corporate Taxes and Capital Structure; Bankruptcy Cost; Optimal Capital Structure; Observed Capital Structure; A Quick Look at Bankruptcy Process) (pages 424-456)
11Continuing Leverage and Capital Structure (The Capital Structure Question; The Effect of Financial Leverage; Capital Structure and the Cost of Equity Capital; Corporate Taxes and Capital Structure; Bankruptcy Cost; Optimal Capital Structure; Observed Capital Structure; A Quick Look at Bankruptcy Process) (pages 424-456)
12Dividends and Dividend Policy (Cash Dividends and Dividend Payment; Does Dividend Policy Matter; Stock Repurchases: An Alternative to Cash; What We Know and Do Not Know About Dividend; Stock Dividends and Stock Splits) (pages 457-486)
13Raising Capital (The Financing Life Cycle of a Firm: Early-Stage Financing and Venture Capital, Selling Securities to the Public: The Basic Procedure, Alternative Issue Methods, Underwriters, IPOs and Underpricing New Equity, Sales and the Value of the Firm, The Cost of Issuing Securities, Issuing Long-Term Debt, Shelf Registration)(487-520)
14Review Before Final Exam

Learning Outcomes

  1. To understand the fundamental principles of financial management
  2. To learn the generation and valuation of cash flows in capital investment decisions
  3. To learn how to measure risk and return and how to use it in portfolio selection
  4. To learn more on dividends, dividend policy, stock splits and reverse splits
  5. To analyze complex, unstructured qualitative and quantitative problems, using appropriate tools and techniques
Assessment
MethodQty% Each
Midterm Exam(s)130
Quiz110
Final Exam150
Attendance10
Textbooks

Essentials of Corporate Finance, Stephan A. Ross, Randolph W. Westerfield and Bradford D. Jordan, 10th edition

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