UNIVERSITY OF TECHNOLOGY, JAMAICA

SYLLABUS OUTLINE
COLLEGE/FACULTY: Business and Management
SCHOOL/DEPT: Business Administration
COURSE OF STUDY: Bachelor of Business Administration- Finance
LEVEL: 3
MODULE TITLE: Corporate Finance
MODULE CODE: FIN3003
DURATION (Hours): 45 hours
CREDIT VALUE: Three (3)
PREREQUISITIES: Financial Management (FIN 3001)

1.0 MODULE DESCRIPTION

This module focuses predominantly on the concepts and techniques needed to analyse
and evaluate financial opportunities. The areas to be covered include: capital budgeting,
cost of capital, capital structure theory policy, long-term financing decisions, working
capital management and corporate restructuring.

2.0 MODULE OBJECTIVES/LEARNING OUTCOMES

At the end of this module students should:

1) Understand the basic principles and fundamental concepts in the determination of
cost of capital
2) Evaluate capital projects using various capital budgeting techniques
3) Evaluate the factors that influence capital structure theory and policy
4) Appraise various long-term financing options.
5) Devise strategies for implementing working capital policy management.
6) Evaluate the techniques and policies used in corporate restructuring and corporate
governance.

3.0 MODULE CONTENT AND CONTEXT

Unit One: Cost of Capital

At the end of this unit, students should be able to:

1.1 identify the components of the cost of capital

1.2 calculate the weighted average cost of capital (WACC)
1.3 discuss factors that affect the overall cost of capital
1.4 evaluate the primary determinant of the cost of capital for an investment
1.5 use different valuation concepts and models to derive the cost of capital
1.6 examine the problems with cost of capital estimates

Content (3 Hours)
Definitions of the components of the cost of capital
Weighted average cost of capital (WACC)

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 Factors affecting the cost of capital
Cost of debt, preferred, retained earnings, common stock
Factors that affect the overall cost of capital
Primary determinant of the cost of capital for an investment
Adjusting the cost of capital for risk
Valuation concepts and models

Unit Two: Capital Budgeting Process

At the end of this unit, students should be able to:

2.1 define capital budgeting
2.2 evaluate different capital budgeting plans using capital budgeting techniques
2.3 calculate payback, discounted payback, Net Present Value (NPV) and Modified Internal
Rate of Return (MIRR)
2.4 express the decision rule of the NPV and IRR

Content (3 Hours)
Definition of capital budgeting
The justification of net present value
Independent versus mutually exclusive projects
Present value calculations
Payback calculations
Problems with payback
Discounted payback calculations
Internal rate of return (IRR)
Problems of IRR with independent projects
Multiple rates of return
No rates of return
Problems of IRR with mutually exclusive projects
Timing
Scale
Steps involve in capital budgeting
Decisions that utilize capital budgeting techniques

Unit Three: Application of Capital Budgeting Techniques

At the end of this unit, students should be able to:

3.1explain the concept of incremental/relevant cash flow
3.2 identify types of incremental/relevant cash flow
3.3 compute the different types of cash flow necessary for capital budgeting
3.4 use the cash flows to determine a projects NPV and IRR

Content (3 Hours)
Brief review of capital budgeting
Relationship between cash flow and accounting income
Important considerations in determining cash flows
Incremental cash flows
Opportunity costs
Taxes
Working capital and capital budgeting
Inflation and capital budgeting
o Interest rates and inflation
o Cash flow and inflation
o Discounting nominal versus real
Direct cash flows effects of purchase and sale of capital assets
Initial outlay
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 Depreciation
Resale of used assets
Expansion and replacement projects
Abandonment shut down projects
Projects with unequal lives

Unit Four: Capital Structure Theory and Policy

At the end of this unit, should be able to:

4.1 discuss the concepts of capital structure theory and policy
4.2 explain the concepts of business risk, financial risk, financial leverage, operating
leverage, optimal and target capital structure
4.3 illustrate the concepts of degree of operating leverage, degree of financial leverage,
degree of total leverage and break even analysis
4.4 examine a publicly listed companys capital structure

Content (3 Hours)
Efficient capital markets and capital structure
Implications for corporate managers
Basic issues of capital structure
The goal of the manager
o Maximizing the value of the firm
Relationship between firm value and stock price
How to maximise value
o The traditionalist approach
The effect of leverage on value
The effect of leverage on required rate of return
o Modigliani-Miller Proposition
Capital structure policy
Determinants of a firms cost of equity
Target capital structure
Capital structure that maximizes the value of the firm
Relationship between the WACC and the value of the firm
Impact of financial leverage on stockholders
Cost of financial distress
Operating and Financial leverage
Degree of operating leverage
Degree of total leverage
Recapitalization

Unit Five: Long Term Financing Decisions

At the end of this unit, students should be able to:

5.1 critique the dividend irrelevance theory, bird in hand theory and tax preference
theory
5.2 assess dividend payout policy based on the residual dividend model
5.3 outline the implications for managers and shareholders when using preferred stocks
5.4 compare the lease versus borrow and buy decisions
5.5 examine the use of warrants and convertibles for corporations and investors

CONTENT (3 Hours)

Dividend versus capital gains Investors preference

o Dividend irrelevance theory
o Bird in hand theory and tax preference theory
Signalling theory
Dividend payout policy
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 o Establishing the policy in practice
Residual dividend model
o Constraints
o Investment opportunities
o Alternate source of capital
o Effect of dividend policy on ks
o Stock dividends and stock splits
o Effects on stock price
o Stock repurchases
Advantages and disadvantages
Common and preferred stocks
Lease financing options
o Types of leases
Sale and leaseback
Operating leases
Financial or capital leases
o Evaluate lease or buy decisions
Financial Warrants
o Use of warrants in financing
o Wealth effects and dilution due to warrants
o Problems with warrant issues
Convertibles
o Conversion ratio and conversion price
o Use of convertibles in financing

Unit Six: Working Capital Policy Management

At the end of this unit, students should be able to:

6.1 audit different working capital policy to determine which policy result in a better return
on equity
6.2 calculate the a firms operating and cash conversion cycles
6.3 discriminate between alternate current asset financing policies.
6.4 calculate the cash budget for different periods and different credit policies
6.5 compute the surplus or deficit from the cash management process
6.6 identify the ways in which mangers can reduce inventory cost
6.7 break down at least two inventory management ratios to determine the effectiveness of
the firm in managing inventory
6.8 explain the four elements of a firms credit policy
6.9 evaluate the effect of account receivables management on the firms revenue generation

CONTENT (3 Hours)

Working capital policy and financing

The cash conversion cycle
o Calculating target and actual conversion cycle
Alternate current asset financing policies
o Maturity matching or self-liquidating approach
o Aggressive approach
o Conservative approach
o Choosing between the approaches
Cash budget
o Forecasting cash flows
Inventory management
Cash and marketable securities management
Receivables and credit policy
o Credit policy
o Setting and implementing credit policy
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 o Monitoring accounts receivable

Unit Seven: Corporate Restructuring

At the end of this unit, students should be able to:

7.1 list at least five reason why companies merge

7.2 describe the importance of synergistic mergers
7.3 find examples of mergers
7.4 define each of the four types of mergers
7.5 differentiate between hostile and friendly mergers
7.6 outline the process of evaluating a company for merger analysis

Content (3 Hours)

Mergers and acquisitions

Divestitures, holding companies
Leverage buyout
Corporate control and corporate governance

Unit Eight: Corporate Governance

At the end of this unit, students should be able to:

8.1 explain how effective corporate governance improves shareholder wealth and the wealth
of other corporate stakeholders
8.2 discuss why a corporate governance system must be clearly articulated, monitored,
adapted and controlled
8.3 explain how corporate governance structure should be delicately balanced to specify
rights and responsibilities of each stakeholder group.

Content (3 Hours)
Define corporate governance
Stakeholders and corporate performance
Four pillars of corporate governance
o Accountability
o Fairness
o Transparency
o Independence
Underlying principles of corporate governance
o Transparency
o Judgement
o Reputation
Elements of corporate governance
o Good board practices
o Control environment
o Transparent disclosure
o Well-defined shareholder rights
o Board commitment
Corporate governance provisions under a firms control
Agency theory
Ethics and strategy
Philosophical approaches to ethics
The Private Sector Organization of Jamaica Code on Corporate Governance

4.0 LEARNING AND TEACHING APPROACHES

The teaching/learning experience will involve a combination of lectures, presentations,
and guided independent study. Lectures are designed to introduce students to the key
elements of each topic and provide the basis for further independent reading and solving
of problem sets. Presentations offer an opportunity for critical discussion and review of
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 problem sets. Completion of a case study will provide practical experience of capital
budgeting process. Students are required to read all assigned chapters prior to the lecture
period during which the topic is to be discussed.

UNITS TEACHING LEARNING

STRATEGIES
Cost of Capital Lectures with discussion.
Application of concepts to
local corporations.

Capital Budgeting Process Classroom sessions: Text book

and article based
presentations, discussion and
explanations.

Application of Capital Budgeting Techniques Assessing the Financial

statement of firms.

Capital Structure Theory and Policy Case Studies: Applying the

learned concepts and tools on
real world problems,.

Long Term Financing Decisions Case Studies to assess Borrow

and Buy Versus Leasing

Working Capital Policy Management Simulation exercise using

different Working Capital
polices

Corporate Restructuring Case Studies, debates

Corporate Governance Presenation of Corporate

Goverance Policies in different
countries

5.0 ASSESSMENT PROCEDURES

Course work test one (Units 1&2) 20%
Course work test two (Units 3&4) 20%
Case Analysis (All Units) 20%
Final examination (4-8) Units 40%
Total marks 100%

6.0 BREAKDOWN OF HOURS

Lecture 13
Tutorials 26
Assessment 6
45

7.0 TEXTBOOK AND REFERENCES

Required Text: Keown, A., Martin, J. & Petty, J. (2013). Financial Management:
principles and applications. (13th ed.). Prentice Hall.

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 Brigham. E and Houston. J. (2013) Fundamentals of
Financial Management, Thirteenth Edition. Cengage.

Recommended Text: Brealey, R., Myers, S. & Allen, F. (2013). Principles of Corporate
Finance. (11th ed.). McGraw-Hill School Education Group.
Ross, S., Westerfield, R. & Jaffe, J. (2012). Corporate Finance (10th ed.).
McGraw-Hill Education

8.0 NAME OF SYLLABUS WRITER/DEVELOPER

........................................................................................................................................

8.1 Date of Presentation ..............................................

8.2 Name/s of Syllabus Reviewer/s

First reviewers: Gregory Linton and Lennox Turner (2012)

Second reviewer/s: Samuel Parkes, Ewan Shaw and Gregory Linton

..........................................................................................................................

8.3 Date/s of Revision June , 2012 & June, 2015..............................

9.0 APPROVAL

8.1 Programme Director (PD)

Gregory Linton...................................................................................................................

9.2 Signature of PD ................................................................................

9.3 College/Faculty Curriculum Committee

.........................................................................................................................

9.4 Signature of Committee Chair

10.0 ACCEPTANCE BY OFFICE OF CURRICULUM DEVELOPMENT &

EVALUATION (OCDE)
.

10.1 Date of Acceptance by OCDE ..