FINANCE 2 (FINC 401)

AIM

Building on Finance 1 (FFM) and Management Accounting (F2), Finance 2 examines the theory and practice of corporate investment and financial decisions. Its aim is to provide an understanding of some of the central decision problems in corporate finance relating to the daily management of the working capital, the long-term capital investment needed to replace productive assets, the financing of both short-term and long-term assets, and the dividend policy decisions. Students will be introduced to financial concepts and theories applied to finance-related issues encountered by firms in real-life situations focusing upon the role of the Financial Manager and the theory and skills required to make sound investment and financing decisions. The course deals with the theory and techniques of financial decision-making in a corporate context. Students will gain an understanding of why maximising shareholders wealth is regarded as a primary financial objective of a firm. In addition, students will develop their comprehension of the following key financial decisions – investment, financing, dividends and risk management – as paramount to creating wealth.

  • COURSE DESCRIPTION
  • ROLE IN CURRICULUM
  • LEARNING OUTCOMES
  • STUDY PLAN
  • TEACHING METHODS
  • ASSESSMENT AND GRADING
  • TEXTBOOKS AND REFERENCES

COURSE DESCRIPTION

Finance 2 is designed to equip students with the skills that would be expected from a financial manager responsible for the finance function of a business. The course begins with the introduction of the role and purpose of the financial management function within a business. In addition the course covers the three key financial management decisions of investing, financing, and dividend policy.

The following section discusses the two stages of investment; investment in working capital and the long-term investments. The next area covers the financing decisions: the examination of the various sources of business finance, including the dividend policy and internally generated finance. 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.

Credits: 5
Lecture Hours: 75

Self-Study Hours:

  • Reading: 50 (150 pages of technical reading)
  • Review: 40 (3 case studies analysis)
  • Assignment: 60 (field research, analysis, writing & presentation)
    150

Total Study Hours: 225

ROLE IN CURRICULUM

Prerequisites

Students must have completed Finance 1 before attempting this course.

 

 

LEARNING OUTCOMES

The learning outcomes for this course cover four main areas in corporate finance: Investment decision, Financing decision, Dividend policy decision and Working capital management. On successful completion of this course, students will be able to:

1  Knowledge

Level of Learning PLO CLO Learning Outcome
Understand PK1 CK1 Explain the theory, concepts and practice of corporate financial management function and discuss the impact of economic environment on financial management
Understand PK2 CK2 Discuss working capital management techniques in a business organisation
Understand PK3 CK3 Discuss the different techniques of financial decision-making in the areas of investment, financing, dividends and risk management that an organisation may apply to maximise shareholders wealth .

2  Cognitive Skills

Level of Learning PLO CLO Learning Outcome
Create PC1 CC1 Carry out effective investment appraisal and financing analysis to guide business in making informed decision to maximise the wealth of the shareholders.
Apply PC2 CC2 Evaluate alternative sources of business finance and their respective cost to plan business growth and maximise the wealth of shareholders.
Apply PC3 CC3 Apply principles of business valuation and risk management techniques in business

3  Communication, Information Technology, and Numerical Skills

Level of Learning PLO CLO Learning Outcome
Apply PCIT1 CCIT1 Use Microsoft Excel software to analyze and demonstrate problem solving and critical skills in analysing financial information such as capital budgeting.

4   Interpersonal Skills and Responsibilities

Level of Learning PLO CLO Learning Outcome
Apply PIP1 CIP1 Work in a team to perform financial planning and control.

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.

No  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 ratios Reading: 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/KPIs Reading: BPP Text Chapter 1 pp 1-23
4

The economic environment

  1. Define and identify external, internal and connected  stakeholders (CK1).
  1. Describe principles of good corporate governance  (CK1).
 Lecture Demonstration on stakeholder’s theory Reading: 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 objectives Reading: 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 economic Reading: 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 ARR Reading: 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).
  1. 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 NPV Reading: 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).
  1. 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 IRR Reading: 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 inflation Reading: 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 allowances Reading: 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).
  1. Calculate and apply before and after discount rates (CC2, CCIT1).
 Lecture Solving exam question on the proposed investment with nominal cost of discount Reading: BPP Text Chapter 6 pp 135-156
13

Project appraisal under risk

  1. Adjusting for risk and uncertainty in investment appraisal method (CC1).
  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 risk and uncertainty analysis Reading: 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 project Reading: 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 ostponability Reading: 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)
  1. Value debt finance and loan schedule (CC2, CCIT1)
 Lecture Discussion on different sources of finance Group problem on debt valuation Reading: 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).
  1. 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 wealth Reading: 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 policies Reading: 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 analysis Reading: 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).
  1. 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 calculation Reading: 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 debt Reading: BPP Text Chapter 11 pp 233-261
22

Cost of capital (continued)

  1. Calculate weighted average cost of capital(CC2, CCIT1).
  1. De-gear and re-gear beta (CC2, CCIT1).
 Lecture Demonstrate of WACC Didactic questioning on project specific cost of capital Group exercise on WACC calculation Reading: 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 gearing Reading: BPP Text Chapter 12 pp 263-292
24

Gearing and capital structure (continued)

  1. Describe the basic principles of capital structure theories (CK1, CC1).
  1. Describe the basic principles and limitations of the Miller and Modigliani models of determining optimal gearing (CK1, CC1).
 Lecture Demonstration of financial structure Reading: 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).
  1. 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 PIZZA Reading: BPP Text Chapter 12 pp 263-292
26

Introduction to working capital management

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

Introduction to working capital management

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

Managing working capital 

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

Managing working capital (continued)

  1. Determine inventory re-order levels, minimum inventory, maximum inventory(CC1).
  1. Describe the feature of JIT inventory management (CK2).
 Lecture Demonstration of managing inventory Solving exam question on inventory management Reading: 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)
  1. Decide whether to accept to give or receive a proposed discount (CK2).
 Lecture Demonstration of receivable management Group drill and practice on settlement discount decision Reading: BPP Text Chapter 3 pp 45-106
31

Financing working capital

  1. Decide whether to accept to give or receive a proposed discount (CC2).
  1. Describe factoring and its advantages and disadvantages (CK1).
  1. List the motives of holding cash (CK1)
 Lecture Solving exam question on proposed policy and factoring offer Reading: 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)
  1. Distinguish between system risk and non-systemic risk (CK1)
 Lecture Demonstration of cash management Group drill and practice on cash flow forecast Reading: 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 management Reading: 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 business Reading: 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 appropriate Reading: 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 appropriate Reading: 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 appropriate Reading: 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 appropriate Reading: 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 currency Reading: 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 risk Reading: 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 hedge Reading: 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 hedge Reading: 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 hedge Reading: 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   
 

TEACHING METHODS

This course is primarily lecture based, case study analysis and problem application based on past examinations published by ACCA for Financial Management paper (F9) and Harvard Business School case studies. Assigned readings will support learning and serve as a reference to material covered in class. During class, approximately half of the class will be devoted to lecture with another half of the class working on case studies and problem sets and reviewing the solutions.

ASSESSMENT AND GRADING

Grades will be determined based on a grading score, calculated using the following assessments and score allocations:

Assessment Weight of each assessment Learning Outcome Assessed
CLO PLO
Attendance & Participation 5% All CK, CCIT1 PK1, PCIT1, PIP1, PIP3
In-class tests 15% All CK, CC, CCIT PK1, PC1, PC3, PC6, PCIT2, PIP1
Homework: Case Study Analysis 15% All CK, CC, CCIT PK1, PC1, PC3, PC6, PCIT2, PIP1
Assignments 20% All CK, CC, CCIT, CIP PK1, PC1, PC3, PC6, PCIT2, PIP1
Midterm exam 15% All CK, CC, CCIT PK1, PC1, PC3, PC6, PCIT2, PIP1
Final exam 30% All CK, CC, CCIT PK1, PC1, PC3, PC6, PCIT2, PIP1
Total grading score 100%  

During the course, there are two assignments:

Assignment 1 – Business Proposal

Work Group: Group of 4
Output format: Business Proposal, Presentation
Language: English
Assignment: Assignment: The first assignment is a group research that will consist of 4 students. The assignment requires the students to propose their own business and business strategy. The student is expected to give a detailed business description on the business, determine the sources of financing and capital structure, value the business, and present a sensitivity analysis of NPV. At the end the student is expected to draw a reasonable conclusion and recommendations based on the fact finding analysis. This assignment will involve desk research only. Each team is expected to present their proposal through a class presentation.

Assignment 2 – Sustainability Reporting in Cambodia

Work Group: Group of 4
Output format: APA Format Report, Presentation
Language: English
Assignment: There has been growing demand for greater corporate transparency not just in financial accounting reporting but also 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 on sustainability reporting in Cambodia.

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