Principles of Finance

Unit details
Unit code: Level: Credit point value: Unit Director: Lecturers: Teaching blocks: Prerequisites: Number of lectures: Number of tutorials: ACCG20012 2 20 Professor Daniella Acker Professor Daniella Acker Professor George Bulkley 1&2 Introduction to Accounting (ACCG10052): or Financial Accounting 1 (EFIM10002) and Managerial Finance (EFIM10004) (including weekly lecture workshop): 40 10 (fortnightly)

Assessment methods
Summative assessment Three-hour closed book examination in May/June (100%). Formative assessment Four mathematical/written exercises per year.

Main texts
Ross, Westerfield, Jaffe and Jordan, Modern Financial Management, 8th ed, McGrawHill OR Hillier, Ross, Westerfield and Jaffe, Corporate Finance, McGraw-Hill The first book is US-based, the second is UK-based. Lecturers will give page references to both books.

Unit description
The course looks at asset pricing, and investment and financing decisions.

The first half of the course provides a grounding in the pricing of financial securities issued by corporations and governments. It begins with a review of discounting, the time value of money and the present value rule. Attention then turns to the nature and pricing of fixed income securities, followed by consideration of equity markets and the pricing of stocks. Here we focus on portfolio theory and the Capital Asset Pricing Model. The first half closes with an evaluation of whether security markets are efficient, in the sense that genuine economic profits are not available from trading bonds and stocks. In the second term the course returns to discounting as part of a more detailed analysis of the capital investment decision. It then investigates how to calculate discount rates by studying the components of the weighted average cost of capital; and the effect of capital structure on these components. This leads to the traditional and Modigliani and Miller theories of gearing, and on to dividend policy.

Learning objectives

To have an understanding of basic tools of analysis used in finance. To be aware of the main issues addressed in asset pricing and corporate finance. To think logically and analytically, apply mathematical techniques to a variety of problems, and critically evaluate these techniques. To be able to explain theories and mathematical procedures in non-technical terms.

Coursework and feedback

Problem sets for tutorials are distributed by the lecturers and students are expected to attempt each problem before the tutorial. The class tutor goes through the problems in class, asking for contributions from the class, commenting on responses from students, and offering help when asked. Each student is expected to hand in two pieces of work per term for marking. Work is marked and returned in the tutorial following the one in which it is submitted. Model answers go up on Blackboard at the end of each fortnightly tutorial session, together with comments on common errors, tips for approaching the question and so on. Course lecturers have two office hours per week. These are open sessions when any students can come to discuss their work if they wish to do so. Specific appointments can be made if the office hours are not convenient .

Syllabus

Valuing bonds Portfolio theory The Capital Asset Pricing Model (CAPM) Estimating betas Market efficiency NPV with corporation tax and inflation

The dividend growth model Cost of capital Capital structure Capital investment decisions for geared (levered) firms Dividend policy