BRUNEL UNIVERSITY LONDON
Department of Economics and Finance
EC2024: CORPORATE FINANCE
10 weeks - 20 credits
Lecturer: Dr. Kyri Kyriacou
Rationale:
The running of any business involves many different
functions. The decisions of ‘in what to invest’ - the
investment decision - and ‘how to finance
investments’ - the financing decision - have the
biggest impact on a company’s overall value.
This course introduces students to the financing
decision and the role of the financial manager in
modern corporations. It analyses the different types
of finance available to firms and discusses the costs
and efficient management of competing sources of
finance.
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Aims:
The aim of the course is to provide students with an
understanding of the financing decisions and policy
of modern corporations. It examines the problems
encountered by Financial Managers in their efforts
to acquire external finance.
Objectives:
On completion of the course students should be
able to:
(a) understand the concepts behind available
theoretical models and assess the relevance of
developments in financial management theory to an
enterprise.
(b) select the techniques most appropriate to
optimise the employment of resources including
the most effective method of financing.
(c) understand the working of the financial system
and evaluate alternative sources of finance.
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Outline:
Lecture Topics
(Note. Lecture topics do not necessarily correspond
with lecture weeks as some topics may take
more/less than one week e.g., Share Price Valuation
will take two weeks).
(1) Course Outline and Introduction to Financial
Management and the Financing Decision.
The role of the Financial Manager in modern
corporations.
(2) Sources of Finance: Equity Finance.
Debt vs Equity Finance
Factors to consider when choosing funding.
Ordinary versus preference shares.
Sources of equity finance.
The U.K.’s equity markets.
Methods of issuing new shares.
(3) Sources of Finance: Debt Finance.
Distinguishing features of debt.
Secured versus unsecured loan stock.
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Convertible debentures and warrants.
Bank loans.
Valuation of fixed-interest securities: redeemable
versus irredeemable debt.
Features of bonds.
(4) Share Price Valuation Models
The valuation problem.
Net asset value.
Dividend based valuation models.
Earnings based models of valuation.
(5) The Cost of Equity Capital
Calculating the cost of equity where (a) there is no
growth in dividends, and (b) where there is growth
in dividends.
Estimating the cost of equity using the Capital Asset
Pricing Model (CAPM).
(6) The Cost of Debt Capital
The cost of redeemable debt capital.
Calculating the cost of irredeemable debt capital
using linear interpolation.
Incorporating corporate taxation into the
calculations.
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(7) The Weighted Average Cost of Capital (WACC)
Calculating the cost of other forms of debt e.g.
preference shares, unquoted debt, and bank loans.
Derivation of the WACC formula.
The WACC and project risk.
The WACC and the CAPM.
(8) Capital Structure Policy
The traditional approach versus the Miller-
Modigliani theories.
Arbitrage examples.
(9) Dividend Policy
Topics to be confirmed.
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Timetable: Lectures: 10 weekly 3-hour sessions
that will include a lecture, seminar and interactive
poll using the Poll Everywhere app that you should
download.
Assessment: The final mark will be based:
100% by examination in May.
Pre-requisites:
(i) EC1030 is a pre-requisite and EC1040
is advisable.
(ii) Numeracy is essential
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Reading list:
Main textbook (also EC2025 Corporate Investment):
Hillier, D., Ross, S., Westerfield, R., and Jordan, B. (2022)
‘Fundamentals of Corporate Finance.’ Fourth Edition,
McGraw Hill. ISBN 9781526848628.
Supplementary Reading:
S. Lumby and C. Jones (2019) ‘Corporate Finance
Theory and Practice’ 10th edition, Cengage Learning.
ISBN 9781473758384
Arnold, G., (2013) ‘Essentials of Corporate Financial
Management.’ Second Edition. Pearson. 2013. ISBN: 0-
273-75887-X#
Pike, R., and Neale, B. (2018) ‘Corporate Finance and
Investments: Decisions and Strategies.’ 9th Edition. FT-
Prentice Hall. ISBN: 0-273-69561-4.
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BRUNEL UNIVERSITY
Department of Economics and Finance
EC2024 Lecture
INTRODUCTION TO INVESTMENT, FINANCE
AND THE ROLE OF THE FINANCIAL MANAGER
______________________________________________
Relevant Reading: Hillier Chapter 1.
______________________________________________
THE INVESTMENT DECISION (Capital Budgeting
Decision)
- is the decision to acquire assets.
Real Assets - assets employed within the business to
produce goods and services to satisfy consumer demand
e.g., land and buildings, plant and equipment, stock etc...
Financial Assets - claims to receive income from others
e.g., firms can buy shares and debt of other companies.
The basic problems facing the financial manager (FM)
concerning investments are:
(a) How much should the firm invest?
(b) In which assets (projects) should the firm invest?
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THE FINANCING DECISION
- is the decision of how to acquire the finance to fund the
firm’s operations - both existing and proposed.
(3) THE ROLE OF THE FINANCIAL MANAGER
Essentially, the FM runs and organises both the
investment and financing decisions of most modern
corporations.
They are concerned with:
(a) investing funds in productive opportunities and
(b) obtaining funds to finance these investments and
determining the best (optimal) mix of financing in order
to:
MAXIMISE THE COMPANY’S OVERALL
VALUE.
Thus, the FM acts as a financial intermediary between
financial markets and the firm.
This is clearly illustrated in the handout given.
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