FINC301-15S2

College of Business and Economics

COURSE OUTLINE

Corporate Finance Theory and Policy

Semester Two
Department of Economics and Finance

Course Supervisor and Lecturer

Dr. Warwick Anderson
Room 406 Law Building
Phone 364-2626
Email: warwick.anderson@canterbury.ac.nz
Lecturer
Dr Debra Reed
Room 403 Law building
Email: debra.reed@canterbury.ac.nz

2015

FINC 301 2015 S2

Course Outline

PLEASE NOTE
The lecture outline may be subject to change depending on disruption from seismic
events that may occur from time to time
It is the students responsibility to retain all course outlines
for any future assessment by professional bodies

FINC 301 2015 S2

1.

Course Outline

PURPOSE OF COURSE and LEARNING OBJECTIVES

This course is designed to give students an in-depth understanding of the theory and practice of
corporate finance. The principal contention of the course is that managers should maximize firm
value. To do this, managers make investment decisions by allocating resources to good projects.
Managers also make financing decisions by choosing the appropriate mix of debt and equity and
investing the right amount back into operations. Students will learn how to choose good
projects and how to finance these projects. The emphasis will be on the why more than the
how in understanding finance. This will prepare them to be a financial manager of a firm that
will maximize firm value.
By the end of this course students will be able to:
1.

2.
3.
4.

5.
6.
7.
8.

9.

2.

Perform a capital budgeting exercise that may include any of the following: the effect of
expected inflation, fluctuations in net working capital requirement, variable cash flows,
replacement of assets and the decision whether to buy or lease assets.
Value a bond during, the life of which, changes in prevailing interest rates are expected, and
where a call is expected.
Perform a valuation of a firm in terms of each of Miller and Modiglianis three capital
structure models, the flows-to-equity model and the adjusted present value model.
Evaluate the strengths and weaknesses of a range of dividend-setting policies for a firm with a
given set of characteristics (expected earnings, capital structure and investment opportunity
set)
Critically evaluate the advantages and pitfalls associated with a proposed takeover by one
firm of another
Calculate the net present value of a takeover proposal involving, a cash payment or payment
in terms of the acquirers ordinary shares.
Critically evaluate the strengths and weaknesses of a domestic firm becoming a multinational
firm.
Calculate a cost of capital adjusted for changes in market risk and, where cross-border
investment is contemplated the cost of capital adjusted for exchange rate and interest rate
differences
Explain in depth why maximisation of a firms market capitalisation is a financial officers
objective function and how this objective function operates as a self-correcting
mechanism.

ASSESSMENT

Assessment for the course comprises:

(a)

Assignment #1 contributing 10% of the final grade,

(b)

Term Test contributing 25% towards the final grade

(c)

Case Study contributing 25% of the final grade,

(d)

Final examination contributing 40% towards the final grade.

FINC 301 2015 S2

Course Outline

The dates of assessments are:

Assignment: Due Monday 10th August at 5 pm.
Term Test : Wednesday 9th September 7:00-9:00 pm, in lecture theatre A2
The Term test will examine the material covered in weeks 1 through 4 plus the first half of
the fifth week (to the end of the Efficient Markets (EMH) topic).
Case Study: Presentations will be made in one-hour time slots during the days of
Thursday 1st October and Friday 2nd October in the Kirkwood Village, Room KG05.
See Section 3 (next section) for Case Study details.
Final Examination:
The final examination will be held on TBA. It will be three hours long and will cover
material from weeks 5 to 12, excluding the Efficient Markets (EMH) topic of week 5.
Students are reminded that it is their responsibility to check that no clashes of examination or test
dates occur between subjects for which they enrol.
These assessments are subject to slight changes due to room requirements. Any changes will be
announced in lectures and in LEARN.
NOTE: The Department normally uses 50% as a cut-off point between a nominal pass or fail but
may adjust the pass mark up or down to ensure justice. Note that you must have a weighted average
of 50% on the term test and final examination to pass the course. I.e. if you receive a high grade on
your assignments but do not receive a 50% average on the term test and final, you will not pass the
course.
3. CASE STUDY PROJECT
The case study project will be a group project which will be a case analysis. The actual case will
be distributed in the first lecture of Week 5 (Tuesday 11th August). You will form a group of three
to do this project.
If you have trouble finding a group, contact Deb Reed.
(debra.reed@canterbury.ac.nz) You need to email your group names to Deb by the end of term 3.
Your group will provide a recommendation as if you had been hired as a professional consultant.
Each project will consist of (1) an executive summary that you will write as an individual and an
oral presentation and (2) an oral report (3) assessment of the relative contributions of each group
member.
The Executive summary is limited to 1 page. Each member of the group will write his or her own
executive summary. (See section 8. for information on academic honesty.) The executive summary
should include your recommendation and a brief justification for your recommendation. You may
refer to and attach any exhibits that your group has used, but the executive summary should be your
own work. It will be marked for both substance and style.
The oral report will be done on either 1 or 2 October. Your group will need to sign up for your
preferred time. This sign up will be available on LEARN by the end of the third week of the
course. Your group will do a formal presentation on your groups recommendations. Each group
member must contribute to the oral report. You will be marked individually for your presentation
style, but also on the quality and the understanding of the material you present. There will be a
question and answer session after your presentation. Any member of your group can be asked
follow up questions on any part of the oral report. Therefore, it is essential that you work together

FINC 301 2015 S2

Course Outline

to make sure all group members understand all aspects of your oral report. You will need to prepare
a powerpoint presentation to use in your oral presentation. Hard copies of the powerpoint slides are
due at 3:00 pm on 30 September, to be deposited in the drop box on Level 2 of the Law Building.
The powerpoints need to be provided as 3 slides to a page. There is a lateness penalty of 10% if the
3pm deadline is missed, which rises to 25% if you deposit your powerpoint slides after 4pm.
Each group member will assess the relative contribution of the other members of the group. If the
overall assessment of a members contribution is determined to be less than that of other members,
that group members mark will be adjusted accordingly.

4. TEACHING ARRANGEMENTS
Lectures are scheduled for:
Tuesday 1pm 1.50pm in A6,
Wednesday 4pm 4.50pm in A2.
Friday 2pm 2.50pm in Law 108.
Lecturer: Warwick Anderson. Phone 364-2626.
Please note there are no tutorials for this paper. Instead, the third lecture hour (Friday 2pm) will be
assigned to either lecture material, or problem solving.
In addition, each week a list of questions and solutions will be provided for you to work through in
your own time and at your own speed. These will be provided in LEARN.
The three weekly sessions are recorded with Echo 360.
5. TEXTBOOKS
The course textbook is:
Ross, Westerfield and Jaffe, Corporate Finance, 10th Edition , McGraw Hill, 2013 (RWJ)
It is also recommended that you have calculators that do financial functions and scientific functions.
A Texas Instruments financial calculator from use for FINC201 is okay. If your financial calculator
does not do functions such as inverse, exponential, logarithmic and power functions, a scientific
calculator is also required. Programmable calculators are not permitted in exams or tests.
6. CONSULTATIONS
Enquiries concerning the lecture and tutorial material should be directed to the Course Supervisor,
Dr. Warwick Anderson in room Law 406. Times may be arranged by appointment, which you can
set by phoning 364-2626 or via email, or by knocking on his door.
Class Representatives

Class representatives will be selected at the beginning of the course. These people will provide a
valuable link between the course supervisor and the students. The representatives are expected to
facilitate dialogue between the students and the course supervisor on a regular basis. This process
should help to isolate and resolve potential concerns. The communications can also be used to
provide positive feedback on elements of the course which are going well.

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Course Outline

7. LEARN
You will find course materials on The University of Canterburys learning system at
http://learn.canterbury.ac.nz/ Note: there will be incomplete powerpoint slides available for you
before lectures. Please consider how best to use these. Some students benefit most by taking notes
and then use the powerpoint slides to review after the lecture. Other students prefer to have the
slides with them at the lecture. Either way, it is the students responsibility to think about what is
being presented at lectures instead of copying down what the lecturer says without thinking.
8. COURSE POLICIESs
Return of Scripts The term test and project will be handed back in lectures in the first instance,
thereafter from the College Office on the 2nd floor of the Law building.
Missing Tests or Exams - Check now for any conflict in dates for tests or assessments. If you
miss an assessment, you will receive a zero, unless it is a university approved absence or you have a
university accepted aegrotat.
Aegrotat Consideration Students are advised to note the regulations surrounding aegrotats from
the University Calendar, in particular the following:
A student prevented from completing any major item or items of work for assessment in a course, or who
considers that his or her performance in completing any major item or items of work for assessment in a course
has been impaired by illness or injury or bereavement or any other critical circumstance may apply for aegrotat
consideration for the course. A student may apply on the basis that disrupted revision through one of these
causes has resulted in impaired performance. Please refer to Regulation 6 also.
Note: Aegrotat consideration is not available where results have been affected by impairment to a students
ability to learn the material for the course(s) concerned. The aegrotat provisions are intended to assist students
who have covered the work of a course but have been prevented by illness or other critical circumstance from
demonstrating their mastery of the material or skills at the time of assessment.

Students should also note that ongoing conditions do not qualify for aegrotat consideration.
Students with ongoing conditions or disabilities should contact Disability Support to discuss their
needs. Ongoing stress which made it hard to study does not meet the criteria.
Aegrotat considerations are for unforeseen circumstances beyond the control of the student which
directly impacted on the performance in the item of assessment itself not the course as a whole.
In case of an aegrotat, your grade for that assessment is based on your rank on other assessments. It
is a waste of your time to apply for an aegrotat when you havent passed other assessments.
Late Submission of Assignment - There will be a 25% penalty for lateness up to 24 hours (or part
thereof); 50% for 24 hours to 48 hours (or part thereof) and a 100% penalty thereafter. (Note that
penalties associated with the case study project are different.)
Examples: an assignment that earned 80% would, if it were handed in . . .
up to 24 hours late, ........ receive a mark of 80% (75)% = 60%.
up to 48 hours late, ........ receive a mark of 80% (50)% = 40%.
more than 48 hours late, receive a mark of 80% ( 0)% = 0%.

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Course Outline

Make back-ups and allow enough time! All students are urged to plan and manage their own
work in order to meet the required submission dates. This is a wicked world in which allowance
must be made for the unexpected, especially with computers. Disks become unreadable. Systems go
down. Files get overwritten. Cars get flat tyres.
Academic Honesty
Cheating (such as copying) is not acceptable and may lead to no credit
The department and the university require that the work you hand in for assessment for credit towards your
coursemust be your own work (or, for a group assessment, the work of the team alone).
What is cheating? If you submit material that is wholly or partly someone else's work as your own work
then you are cheating. In our eyes cheating includes the following, which are all very similar:
1.

Collusion: this is secretly arranging with another person to work jointly on an assessment then
submitting it as though it were your own work. (This would apply to your individual executive
summaries.)
NOTE: This definition of 'collusion' does not stop you discussing with each other, in general, your
understanding of the task, how to approach it, and incorporating the ideas coming out of such
discussions into your own individual submissions. Talkbut then write it up using your own
thoughts and your own words.

2. Copying from other students: this is submitting material (in any medium, including computer files)
that has been created by another person or persons, whether or not they gave their permission. This
includes copying from another person's examination script.
3. Internet Case Solutions: Some case solutions are available on the internet. Many of these are done
by students and therefore should not be considered correct. Using these solutions is academic
dishonesty. Using these solutions, will not prepare you for the final exam which you must pass to
pass the course. Every semester, someone is caught using these and the consequences are not
pleasant. It is plagiarism.
4.

Plagiarism: this is making use of any material without clear and academically proper acknowledgment of its author or source.
NOTES:
You may feel that you are showing respect for wise authors by using their words. But you show
respect only when you acknowledge the quotations as quotations, and name the real authors.
When you name the authors of quotations you cannot be accused of cheating.
But using too many quotations or excessively long quotations without explaining, in your own
words, why they are relevant to your argument, will be considered to be poor scholarship and
earn a lowered grade.

5.

Ghost writing: this is having another party (whether paid or not) write work for you to submit.

The regulations call all these "dishonest or improper practices". We watch for them and use computer
systems to detect them. If dishonest practices are detected an examiner may refuse to mark the assessment,
may refer it to the Proctor (the university's disciplinary officer) and the Proctor may refer it to the
Discipline Committee.
Penalties for cheating can range from zero credit for the work, zero credit for the whole course or
exclusion from the course or from the University.
So prepare for an assessment with your own study, research and thinking. Then take personal pride from
writing your submission in your own words.

FINC 301 2015 S2

Course Outline

9. Schedule of Lectures and related Text Readings

Lecture

Wk Topic

Text Chapter

14 July
15 July
17 July

Capital budgeting
Capital budgeting
Capital budgeting

RWJ 6. Revision in RWJ 4 & Ch5

21 July
22 July
24 July

Valuation
Valuation
Valuation

28 July
29 July
31 July

Cost of Equity
Cost of Equity
Cost of Equity

RWJ 9 and RWJ 11

4 August
5 August
7 August

Beta
Beta
Beta

RWJ 11, 12 and 13

11 August
12 August
14 August

Case Study Briefing

Efficient Markets Hypothesis
Capital Structure

18 August
19 August
21 August

Capital Structure
Capital Structure
Capital Structure

RWJ 8

RWJ 14
RWJ 16

RWJ 16 and 17

Mid-semester Break 22 August 6 September

8 Sept
9 Sept
11 Sept

Flows to Equity & Adjusted PV

Flows to Equity & Adjusted PV
Flows to Equity & Adjusted PV

RWJ 18

15 Sept
16 Sept
18 Sept

Dividend Policy
Dividend Policy
Dividend Policy

RWJ 19

22 Sept
23 Sept
25 Sept

Leasing
Leasing
Leasing

RWJ 21

29 Sept
30 Sept
2 October

10

Mergers and Acquisitions

Mergers and Acquisitions
Mergers and Acquisitions

RWJ 29

6 October
7 October
9 October

11

International Capital Budgeting

International Capital Budgeting
International Capital Budgeting

RWJ 31

13 October
14 October
16 October

12

Objective Function and Agency Theory

Objective Function and Agency Theory
Objective Function and Agency Theory

RWJ 1 (pp10-19)