FINANCE 2 (FINC 411)

OVERVIEW

1. COURSE DESCRIPTION

Finance 2 prepares students for business finance manager roles. The course begins by explaining the role and purpose of financial management in a business. The course covers investment, financing, and dividend policy, as well as the three fundamental financial management decisions. The next section examines working capital and long-term investments. The next section examines business funding sources like dividend policy and internally generated finance. The cost of capital and other factors influence the choice of capital by the business. In addition, the course covers the valuation of the business and financial assets and their impact on the cost of capital. At the end of the course, we examine the risk and the main techniques used to manage it.

2. REASON FOR THE COURSE

Building on Finance 1 (FFM) and Management Accounting (F2), Finance 2 examines the theory and practice of corporate investment and financial decisions. It aims to explain some key corporate finance decision problems, such as working capital management, long-term capital investment to replace productive assets, financing of short-term and long-term assets, and dividend policy. Students will learn how financial principles and theories apply to real-world challenges organizations face, concentrating on the financial manager’s position and the abilities needed to make good investment and financing decisions. Corporate financial decision-making theory and practice are covered in the course. Students will learn why firms prioritize shareholder wealth. Investment, finance, dividends, and risk management are also crucial to wealth creation, which students will learn.

3. STUDY HOURS

 

4. ROLE IN CURRICULUM

 

Prerequisites:
Students must have completed Finance 1 (FINC 311) before attempting this course.

SKILLS

  • COURSE LEARNING OUTCOMES (CLO)
  • ASSESSMENT AND GRADING
  • TEACHING METHODS
  • STUDY PLAN
  • TEXTBOOKS AND REFERENCES

5. COURSE LEARNING OUTCOMES (CLO)

The learning outcomes for this course cover four main areas in corporate finance: investment decisions, financing decisions, dividend policy decisions, and working capital management. On successful completion of this course, students will be able to:

Knowledge Level of Learning Related
PLO
Explain how economy affects finance (CK1)
Explain how economic conditions affect financial management and corporate finance management theory, concepts, and practice.
 Understand PK1
Discuss how companies create value (CK2)
Discuss how financial decisions in investment, finance, dividends, working capital, and risk management can maximize shareholder wealth.		  Understand PK2
Cognitive Skills Level of Learning Related
PLO
Examine financial strategies and decisions (CC1)
Carry out effective investment appraisal, working capital, and finance analysis to help businesses make informed decisions to maximize shareholder wealth.		 Analyze PC1
Evaluate corporate funding sources and costs (CC2)
Assess different corporate finance sources and their costs to plan business expansion and maximize shareholder wealth.		 Evaluate PC1
Communication, Information Technology, and Numerical Skills Level of Learning Related
PLO
Use Microsoft Excel (CCIT1)
Use Microsoft Excel software to prepare capital budgets using different investment appraisal techniques.		 Apply PCIT2
Interpersonal Skills and Responsibilities Level of Learning Related
PLO
Work ethically (CIP1)
Apply ethical behavior as a finance manager in accordance with the ACCA Code of Ethics and Conduct.
 		 Characterize PIP2

6. ASSESSMENT AND GRADING

Grades will be determined based on the following assessments and score allocations:

SKILL Assessment Skill Weighting
for Grade
Participation In-class tests Case Study Project Midterm Exam Final Exam
Explain how economy affects finance (CK1)  20% 50% 30% 15%
Discuss how companies create value (CK2) 20% 40% 40% 15%
Examine financial strategies and decisions (CC1) 60% 40% 30%
Evaluate corporate funding sources and costs (CC2)   70% 30% 30%
Use Microsoft Excel (CCIT1) 20% 20% 30% 30% 5%
Work ethically (CIP1)  100% 5%

7. TEACHING METHODS

The primary instructional approach of this course involves lectures, case study analysis, and problem application. The case studies used come from previous exams for the Financial Management paper (F9) released by the Association of Chartered Certified Accountants (ACCA), as well as case studies from the Harvard Business School. The readings that have been designated will facilitate the process of learning and function as a point of reference for the content that has been discussed during class.  During the teaching period, there will be an equal amount of time for lectures and hands-on activities like case studies, problem-solving activities, and going over the answers.

During the course, there is one project:

Assignment: Sustainability Reporting in Cambodia  (CC2, CCIT1 & CIP2)
Work Group: Group of 4
Output format: APA Format Report, Presentation
Language: English

Description:

 

There has been growing demand for greater corporate transparency not just in financial accounting reporting but also in management actions that would have an impact on companies’ sustainability over the long term, such as environmental and social impact, with the current trend moving towards sustainability reporting. This assignment aims to examine the development and evolution of sustainability reporting practices in Cambodia to identify the current practice and trend of reporting and the level of awareness of sustainability reporting in Cambodia.  Assignment Rubric:

8. STUDY PLAN

The course targets the study plan below. Implementation may vary somewhat depending on the progress and needs of students. For example, some topics may be allocated more or less than 1.5 hours.

   Lesson Learning Outcomes Teaching and Learning Activities, Assessment
1

The financial management and objectives

  1.   Describe the course learning outcomes  and assessment
  2.   Explain the main objective of financial management (CK1).
 Lecture
Demonstration of financial management
Group exercise on the
reason for disposing of surplus assets.Reading:
BPP Text Chapter 1 pp 1-23
2

The financial management and objectives

  1.   Describe financial, strategic, business, and operational strategy (CK1).
  2.   Calculate and interpret investor and profitability ratios (CK2).
 Lecture
Demonstration measuring achievement of objective
Group exercise on investor and profitability ratiosReading:
BPP Text Chapter 1 pp 1-23
3

The financial management and objectives

  1.   Calculate and interpret investor and profitability ratios  (CK2).
  2.   Describe the 3-E’s in evaluating performance (CK2).
 Lecture
Group case study of
Taing Chan Lim Co
Group drill and practice on measures of
Effectiveness/KPIsReading:
BPP Text Chapter 1 pp 1-23
4

The economic environment

  1. Define and identify external, internal and connected stakeholders (CK1).
  2. Describe principles of good corporate governance (CK1).
 Lecture
Demonstration on stakeholder’s theoryReading:
BPP Text Chapter 2 pp 25-44
5

The economic environment

  1.   Define monetary policy and describe the tools of monetary policy and how they are used to manage interest rate, inflation and economic growth (CK1).
 Lecture
Demonstration on government economic
objectivesReading:
BPP Text Chapter 2 pp 25-44
6

The economic environment

  1. Define and identify fiscal and exchange rate policy (CK1).
 Lecture
Discussion the effect of fiscal policy to economicReading:
BPP Text Chapter 2 pp 25-44
7

Investment decisions using non-discounted cash flow methods

  1. Understand the concept of time value of money(CK2).
  2. Calculate, interpret, and make investment decisions based on the basic and discounted payback period (CC2, CCIT1).
  3. Calculate return on capital employed (accounting rate of return) and discuss its usefulness as an investment appraisal method (CC2, CCIT1).
 Lecture
Demonstration of concept time value of money and investment appraisal method with non-discounted cash flow
Solving exam question on determining the proposed investment based on ROCE and ARRReading:
BPP Text Chapter 5 pp 106-134
8

Investment appraisal using discounted cash flow methods

  1. Calculate net present value of cash flows (CK1, CC2, CCIT1).
  2. Decide whether to invest in a project based on the net present value (CC2).
 Lecture
Demonstration of discount cash flow
Group drill and practice on new project NPVReading:
BPP Text Chapter 5 pp 106-134
9

Investment appraisal using discounted cash flow methods (continued)

  1. Identify relevant cash flows in evaluating net present value (CK2, CC2).
  2. Calculate, interpret, and make decisions based on the internal rate of return (IRR) (CC2, CCIT1).
 Lecture
Discussion on concept of IRR
Group exercise on the proposed investment based on NPV and IRRReading:
BPP Text Chapter 5 pp 106-134
10

Capital budgeting under inflation and taxation

  1. Describe the real terms and nominal terms approaches to investment appraisal(CK1).
 Lecture
Discussion on relevant and non-relevant cash flow and inflationReading:
BPP Text Chapter 6 pp 135-156
11

Capital budgeting under inflation and taxation (continued)

  1.   Calculate taxation effects the relevant cash flows(CC2, CCIT1).
 Lecture
Demonstration of capital allowancesReading:
BPP Text Chapter 6 pp 135-156
 12

Capital budgeting under inflation and taxation (continued)

  1. Calculate taxation effects the relevant cash flows(CC2, CCIT1).
  2. Calculate and apply before and after discount rates (CC2, CCIT1).
 Lecture
Solving exam question on the proposed investment with nominal cost of discountReading:
BPP Text Chapter 6 pp 135-156
 13

Project appraisal under risk

  1. Adjusting for risk and uncertainty in investment ppraisal method (CC1).
  2. Calculate the sensitivity of NPV to changes in inputs, with sensitivity being the change required to reduce NPV to zero (CC2, CCIT1).
 Lecture
Demonstration of risk and uncertainty analysisReading:
BPP Text Chapter 7 pp 157-200
14

Project appraisal under risk (continued)

  1. Calculate the sensitivity of NPV to changes in inputs, with sensitivity being the change required to reduce NPV to zero (CC2, CCIT1).
 Lecture
Demonstration of sensitivity and probability analysis
Group exercise on measure sensitivity of projectReading:
BPP Text Chapter 7 pp 157-200
 15

Specific investment decisions (continued)

  1. Describe soft and hard capital rationing (CK2).
  2. Apply an appropriate capital rationing method to select among both divisible and indivisible investments (CC2).
 Lecture
Group problem on capital rationing and
ostponabilityReading:
BPP Text Chapter 8 pp 173-200
 16

Sources of finance

  1. Discuss possible sources of finance for a project, and their advantages and disadvantages (CK2)
  2. Value debt finance and loan schedule (CC2, CCIT1)
 Lecture
Discussion on different sources of finance
Group problem on debt valuationReading:
BPP Text Chapter 9 & 10 pp 201-232
17

Sources of finance (continued)

  1. Calculate the theoretical ex-rights price of shares and evaluate the impact of a rights issue on existing shareholders(CC2, CCIT1).
  2. Describe the advantages and disadvantages of a rights issue (CK1).
 Lecture
Discussion on right issues
Group exercise on the effect of right issues to shareholder’s wealthReading:
BPP Text Chapter 9 & 10 pp 201-232
18

Dividend policy

  1. Describe common dividend policies and determine dividend capacity (CK1).
 Lecture
Demonstrate and didactic questioning on dividend policiesReading:
BPP Text Chapter 9 & 10 pp 201-232
 19

Dividend policy (continued)

  1. Describe common dividend policies and determine dividend capacity (CK1).
 Lecture
Demonstrate of dividend policies
Group case study analysisReading:
BPP Text Chapter 9 & 10 pp 201-232
 20

Cost of capital

  1. Calculate cost of equity using the capital asset pricing model(CC2, CCIT1).
  2. Calculate the cost of equity using the dividend growth model(CC2, CCIT1).
 Lecture
Discussion and calculate cost of equity by CAPM and DVM
Group problem on cost of equity calculationReading:
BPP Text Chapter 11 pp 233-261
21

Cost of capital (continued)

  1. Calculate the after tax cost of debt(CC2).
  2. Calculate the cost of preference shares(CC2).
 Lecture
Calculate different cost of debtReading:
BPP Text Chapter 11 pp 233-261
 22

Cost of capital (continued)

  1. Calculate weighted average cost of capital(CC2,CCIT1).
  2. De-gear and re-gear beta (CC2, CCIT1).
 Lecture
Demonstrate of WACC
Didactic questioning on project specific cost of capital
Group exercise on WACC calculationReading:
BPP Text Chapter 11 pp 233-261
 23

Gearing and capital structure

  1. Calculate and evaluate financial and operational gearing(CC2, CCIT1).
 Lecture
Calculate the different types of gearing
Group exercise on the effect of new investment to gearingReading:
BPP Text Chapter 12 pp 263-292
 24

Gearing and capital structure (continued)

  1. Describe the basic principles of capital structure theories (CK1, CC1).
  2. Describe the basic principles and limitations of the Miller and Modigliani models of determining optimal gearing (CK1, CC1).
 Lecture
Demonstration of financial structureReading:
BPP Text Chapter 12 pp 263-292
 25

Gearing and capital structure (continued)

  1. Describe the basic principles and limitations of the Miller and Modigliani models of determining optimal gearing(CK1, CC2).
  2. Describe the basic principles of pecking order theory (CK1, CC2).
 Lecture
Demonstration of M&M with and without tax
Group case study analysis on M&M PIZZAReading:
BPP Text Chapter 12 pp 263-292
26

Introduction to working capital management

  1. Calculate and interpret key working capital ratios
    (CC2, CCIT1).
  2. Identify signs and risks of over trading and over
    capitalization (CK2).
 Lecture
Demonstration of working capital component
Group case study on working capital ratiosReading:
BPP Text Chapter 3 pp 45-106
27

Introduction to working capital management

  1. Calculate and interpret key working capital ratios (CC2, CCIT1).
  2. Identify signs and risks of over trading and over capitalization (CK2).
 Lecture
Demonstration of working capital component
Group case study on working capital ratiosReading:
BPP Text Chapter 3 pp 45-106
28

Managing working capital 

  1. Calculate EOQ and determine the order quantity with a discount(CC1, CCIT1).
  2. Determine inventory re-order levels, minimum inventory, maximum inventory(CC2).
 Lecture
Demonstration of managing inventory
Group problem on policy to minimize inventory
costReading:
BPP Text Chapter 3 pp 45-106
29

Managing working capital (continued)

  1. Determine inventory re-order levels, minimuminventory, maximum inventory(CC1).
  2. Describe the feature of JIT inventory management (CK2).
 Lecture
Demonstration of managing inventory
Solving exam question on inventory managementReading:
BPP Text Chapter 3 pp 45-106
 30

Managing working capital (continued)

  1. Calculate the annualised cost of giving or receiving a settlement discount (CC2, CCIT1)
  2. Decide whether to accept to give or receive a proposed discount (CK2).
 Lecture                                          Demonstration of receivable management
Group drill and practice on settlement discount
decisionReading:
BPP Text Chapter 3 pp 45-106
 31

Financing working capital

  1. Decide whether to accept to give or receive a proposed discount (CC2).
  2. Describe factoring and its advantages and disadvantages (CK1).
  3. List the motives of holding cash (CK1)
 Lecture                                    Demonstration of receivable management
Group drill and practice on settlement discount
decisionReading:
BPP Text Chapter 3 pp 45-106
 32

Financing working capital (continued)

  1. Use the Baumol and Miller-Orr models to determine optimum cash levels (CC2)
  2. Distinguish between system risk and non-systemic risk(CK1)
 Lecture
Demonstration of cash management
Group drill and practice on cash flow forecastReading:
BPP Text Chapter 4 pp 78-106
 33

Financing working capital (continued)

  1. Distinguish between system risk and non-systemic risk(CC1)
  1. Describe the role of treasury and the benefits of centralized treasury (CK2)
 Lecture
Discussion of diversification of risk and treasury managementReading:
BPP Text Chapter 4 pp 78-106
 34

Business valuation

  1. Describe fundamental analysis, technical analysis and random walk theory(CK1, CC1).
  1. Determine the value of a business using the following methods: Dividend valuation model, discounted cash flow, book value, net realisable value, P/E method, earnings yield method (CK1, CC1, CC2, CCIT1).
 Lecture
Discussion on methods to value businessReading:
BPP Text Chapter 13 293-327
 35

Business valuation (continued)

  1. Determine the value of a business using the following methods: Dividend valuation model, discounted cash flow, book value, net realisable value, P/E method, earnings yield method (CK1, CC1, CC2, CCIT1).
 Lecture
Discussion on methods to value business
Solving exam question on method of business valuation that appropriateReading:
BPP Text Chapter 13 293-327
 36

Business valuation (continued)

  1. Determine the value of a business using the following methods: Dividend valuation model, discounted cash flow, book value, net realisable value, P/E method, earnings yield method (CK1, CC1, CC2, CCIT1).
 Lecture
Discussion on methods to value business
Solving exam question on method of business valuation that appropriateReading:
BPP Text Chapter 13 293-327
 37

Business valuation (continued)

  1. Determine the value of a business using the following methods: Dividend valuation model, discounted cash flow, book value, net realisable value, P/E method, earnings yield method (CK1, CC1, CC2, CCIT1).
 Lecture
Discussion on methods to value business
Solving exam question on method of business valuation that appropriateReading:
BPP Text Chapter 13 293-327
 38

Business valuation (continued)

  1. Determine the value of a business using the following methods: Dividend valuation model, discounted cash flow, book value, net realisable value, P/E method, earnings yield method (CK1, CC1, CC2, CCIT1).
 Lecture
Discussion on methods to value business
Solving exam question on method of business valuation that appropriateReading:
BPP Text Chapter 13 293-327
 39

Foreign currency

  1. Forecast exchange rates using interest rate parity and purchasing power parity(CK1, CC2).
 Lecture
Demonstration of exchange rate
Group exercise on conversion of foreign currencyReading:
BPP Text Chapter 14 329-361
 40

Foreign currency risk (continued)

  1. Describe and calculate the outcome of both forward contract hedges and money market hedges for exchange rate risk(CK1, CC2, CCIT1).
 Lecture
Discussion of method to hedge foreign exchange rate riskReading:
BPP Text Chapter 14 329-361
 41

Foreign currency risk (continued)

  1. Describe and calculate the outcome of both forward contract hedges and money market hedges for exchange rate risk(CK1, CC2, CCIT1).
 Lecture
Discussion of international fisher effect and money market hedge
Group exercise on foreign exchange risk whether to use forward or money market hedgeReading:
BPP Text Chapter 14 329-361
 42

Foreign currency risk (continued)

  1. Describe and calculate the outcome of both forward contract hedges and money market hedges for exchange rate risk(CK1, CC2, CCIT1).
 Lecture
Discussion of international fisher effect and money market hedge
Group exercise on foreign exchange risk whether to use forward or money market hedgeReading:
BPP Text Chapter 14 329-361
 43

Foreign currency risk (continued)

  1. Describe and calculate the outcome of both forward contract hedges and money market hedges for exchange rate risk(CK1, CC2, CCIT1).

Lecture                                          Discussion of international fisher effect and money market hedge                              Group exercise on foreign exchange risk whether to use forward or money market hedge

Reading: BPP Text Chapter 14 329-361
 44

Foreign currency risk (continued)

  1. Describe and calculate the outcome of both forward contract hedges and money market hedges for exchange rate risk(CK1, CC2, CCIT1).
 Lecture
Discussion of international fisher effect and money market hedge
Group exercise on foreign exchange risk whether to use forward or money market hedgeReading:
BPP Text Chapter 14 329-361
45 Team Presentations – Complete Report (CK1, CC1, CCIT1, CIP1) Team presentations and feedback
46 Team Presentations – Complete Report (CK1, CC1, CCIT1, CIP1) Team presentations and feedback
47 Team Presentations – Complete Report (CK1, CC1, CCIT1, CIP1) Team presentations and feedback
48 Team Presentations – Complete Report (CK1, CC1, CCIT1, CIP1) Team presentations and feedback
49 Team Presentations – Complete Report (CK1, CC1, CCIT1, CIP1) Team presentations and feedback
50 Exam Review  

9. TEXTBOOKS AND REFERENCES

Textbooks

  1. BPP Learning Media, Paper F9 Financial Management, Up to June 2021.
  2. BPP Learning Media, Practice & Revision Kit Paper F9 Financial Management, Up to June 2021.

References

  1. Kaplan Publishing, Paper F9 Financial Management, Up to December 2021.
  2. Watson, D. and Head, A. (2019) Corporate Finance Principles and Practice, Pearson. 8th Edition, Pearson.
  3. Arnold, G. (2009) The Financial Times Guide to Investing, Pearson.
  4. Brealey, R. and Myers, S. (2010) Principles of Corporate Finance—Global Edition, McGraw-Hill.
  5. Das, S. (2012) Extreme Money: The Masters of the Universe and the Cult of Risk, Pearson.
  6. Perks, R. and Leiwy, D. (2010) Accounting: Understanding & Practice, McGraw-Hill.
  7. Nofsinger, K., Kim, J.R. and Mohr, D.J. (2010) Corporate Governance, International Edition, Pearson.
  8. ACCA Technical Articles: To be assigned in class under selected topics.

Education Resources