l6 corporate finance dec11

8/3/2019 L6 Corporate Finance Dec11

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Unit Title: Corporate FinanceGuided Learning Hours: 210Level: Level 6Number of Credits: 25

Learning Outcome 1The learner will: Understand the role of the Corporate Finance Manager and its main links to

business objectives including mergers and acquisitions.

Assessment CriteriaThe learner can:

Indicative Content

1.1 Explain the role andbusiness objectives of thefinance manager and alsothe regulatory environmentin which s/he operates.

1.1.1 The main types of corporate form.

1.1.2 The regulatory framework for companies.

1.1.3 The Corporate Governance requirements detailed in the:Combined Code, Cadbury, Greenbury, Hampel, Turnbull andHiggs Reports; the Financial Services and Markets Act 2000;and the rules of the FSA.

1.1.4 The identification of key company stakeholders and themanagement/shareholder relationship (agency theory).

1.1.5 The primary objectives of companies both long- andshort-term for national, multi-national and public sectororganisations.

1.1.6 Shareholder Value Analysis.

1.2 Explain the City Codeon takeovers and mergersand the other mainregulatory constraints.

1.2.1 General principles, coverage and regulations of the CityCode.

1.2.2 The regulations contained in the Companies Acts,Competition Code and European Union.

1.3 Explain the mainjustifications for, anddangers of, mergers andtakeovers (financial andotherwise).

1.3.1 The strategies and justifications for growth via mergersand acquisitions.

1.3.2 The development of mega mergers.

1.3.3 The tactics for acquisitions and mergers and the maindefences used to resist unwelcome bids.

1.3.4 Measuring the success of mergers and acquisitions.

1.3.5 Disinvestment.


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Learning Outcome 2The learner will: Understand the main sources of debt and equity funding and the significance

of financial gearing.


Indicative Content

2.1 Outline the process forgaining a listing on theOfficial List or theAlternative InvestmentMarket and explain therole of different advisors inthis process.

2.1.1 Placing and selective marketing.

2.1.2 Offers for sale.

2.1.3 Sale by tender.

2.1.4 Rights issues.

2.1.5 Pricing shares for a flotation.

2.1.6 Issuing shares without raising capital.

2.2 Explain and evaluatethe sources of equityfinance available to anunquoted company andexplain the differencesbetween, and theadvantages anddisadvantages of: ordinaryshares, preference shares,rights issues and scrips.

2.2.1 Types of share capital.

2.2.2 Share categories.

2.2.3 Penny shares.

2.2.4 Value.

2.2.5 Authorised and issued capital.

2.2.6 Dividends.

2.2.7 Share repurchases.

2.2.8 Small business equity.

2.3 Identify and explain themain sources of debtfinance available to anysize of business.

2.3.1 Debentures and bonds.

2.3.2 Loans.

2.3.3 Overdrafts.

2.3.4 Mortgages.

2.3.5 Convertibles.

2.3.6 Warrants.

2.3.7 Leasing.

2.3.8 Hire purchase.

2.3.9 Medium-term notes.

2.3.10 Commercial paper.


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2.3.11 Project finance.

2.3.12 Sale and leaseback.

2.3.13 Licensing.

2.3.14 Debt sources for small business.

2.4 Explain thesignificance, advantagesand dangers of differentlevels of financial gearing.

2.4.1 Operating gearing.

2.4.2 Financial gearing.

Learning Outcome 3

The learner will: Be able to evaluate investment decisions using a variety of appraisaltechniques.


Indicative Content

3.1 Explain theprinciples, benefits andlimitations of thefollowingdifferent methods ofinvestment appraisal:accounting rate of return,payback, net present value(NPV), Profitability Indices,and the internal rate ofreturn (IRR) and be able toperform calculations inorder to assess investmentvalue.

3.1.1 Time value of money.

3.1.2 Accounting rate of return.

3.1.3 Payback.

3.1.4 Discounted cash flow and net present value.

3.1.5 Annuities.

3.1.6 Multiple time periods.

3.1.7 Perpetuities.

3.1.8 Impact of taxation and Inflation.

3.1.9 Capital rationing.

3.1.10 Sensitivity analysis.

3.1.11 Simulation.

3.1.12 Certainty equivalents.

3.1.13 Lease versus buy.

3.2 Explain and calculatethe influence of risk in theinvestment appraisalprocess.

3.2.1 Risk premiums.

3.2.2 The Capital Asset Pricing Model (CAPM).

3.2.3 Adjusted present value.


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3.2.4 Using probabilities.

Learning Outcome 4The learner will: Understand and be able to calculate the main methods for valuing company

shares.


Indicative Content

4.1 Explain and calculatethe share value of abusiness based on: netasset value (NAV), price

earnings (PER), free cashflow and dividend valuationand discuss the relativemerits of each method.

4.1.1 NAV method.

4.1.2 PER method.

4.1.3 Dividend valuation methods.

4.1.4 Discounted cash flow methods.

4.1.5 Berliner method and free cash flow.

4.1.6 Use of the CAPM.

4.2 Discuss the qualities ofa business that are likelyto influence the sharevalue.

4.2.1 Non financial factors that affect share and companyvaluation: reputation, knowledge, capabilities, attitude,penetration, dynamism and leadership.

4.3 Explain and calculatethe main accounting ratiosthat can be applied toorganisations.

4.3.1 Liquidity.

4.3.2 Profitability.

4.3.3 Efficiency.

4.3.4 Debt/gearing.

4.3.5 Investors.

Learning Outcome 5The learner will: Understand the factors that determine a companys dividend policy.


Indicative Content

5.1 Explain and discussthe effects of dividends onshareholder wealth andthe main dividend policies

5.1.1 Retention policy.

5.1.2 Legal constraint.


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that companies may adoptincluding: constantdividends, increasingdividends, zero dividendsand fixed percentagedividends.

5.1.3 Availability of internal funds.

5.1.4 Profits.

5.1.5 Effect on share prices.

5.1.6 Signalling.

5.1.7 Shareholder expectations.

5.1.8 Company law on dividends.

5.2 Explain and evaluatethe main dividend policytheories including:irrelevance (Modigliani andMiller) and relevancetheories.

5.2.1 Clientele effects.

5.2.2 Modigliani and Miller theory.

5.2.3 Relevance theory.

5.2.4 Dividend growth model.

5.3 Explain the mainalternatives to cashdividends.

5.3.1 Bonuses.

5.3.2 Scrip dividends.

5.3.3 Stock splits.

5.3.4 Concessions.

Learning Outcome 6The learner will: Understand the concept of, and know how to calculate, the cost of capital of

a business.


Indicative Content

6.1 Describe and calculatethe cost of equity sharecapital.

6.1.1 Ordinary shares.

6.1.2 Dividend yield.

6.1.3 Preference shares.

6.1.4 Retained earnings.

6.1.5 CAPM.

6.2 Describe and calculatethe cost of debt capital.

6.2.1 Irredeemable debt.

6.2.2 Floating rate debt.

6.2.3 Convertibles.


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6.2.4 Bank loans.

6.2.5 Overdrafts.

6.2.6 Tax effects.

6.3 Calculate the weightedaverage cost of capital anddiscuss its usefulness.

6.3.1 Methods.

6.3.2 Assumptions.

6.3.3 Required rate of return.

6.3.4 Effect of risk.

6.3.5 Effect on market value.

Learning Outcome 7The learner will: Understand the different elements of treasury and working capital and be able

to perform calculations from a given set of data to determine the effect on anelement of, or on the entire working capital of, a business.


Indicative Content

7.1 Explain the main areas oftreasury and working capital

and calculate the workingcapital cycle and the cashconversion or operatingcycle.

7.1.1 Cash management.

7.1.2 Stocks.

7.1.3 Debtors and credit control.

7.1.4 Creditors.

7.1.5 Short-term investments.

7.1.6 Rate of turnover of working capital.

7.1.7 Key working capital ratios.

7.2 Calculate, from a given

set of figures, a workingcapital decision onany of the areas of workingcapital.

7.2.1 Working capital decisions and policies.

7.3 Explain overtrading andidentify its symptoms.

7.3.1 Key symptoms of overtrading.

7.3.2 Actions needed to address these symptoms.


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Assessment:

Assessment method: written examination (unless otherwise stated).

Written examinations are of three hours duration.

All learning outcomes will be assessed.

Recommended Reading:

Corporate Finance ABE Study Manual.

Please refer to the Tuition Resources section of the Members Area of the ABEwebsite (www.abeuk.com) for further recommended reading.

l6 corporate finance dec11

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