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

Learning Outcome 1
The learner will: Understand the role of the Corporate Finance Manager and its main links to business objectives including mergers and acquisitions.

Assessment Criteria The learner can: 1.1 Explain the role and business objectives of the finance manager and also the regulatory environment in which s/he operates.

Indicative Content

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 and Higgs Reports; the Financial Services and Markets Act 2000; and the rules of the FSA. 1.1.4 The identification of key company stakeholders and the management/shareholder relationship (agency theory). 1.1.5 The primary objectives of companies both long- and short-term for national, multi-national and public sector organisations. 1.1.6 Shareholder Value Analysis.

1.2 Explain the City Code on takeovers and mergers and the other main regulatory constraints.

1.2.1 General principles, coverage and regulations of the City Code. 1.2.2 The regulations contained in the Companies Acts, Competition Code and European Union.

1.3 Explain the main justifications for, and dangers of, mergers and takeovers (financial and otherwise).

1.3.1 The strategies and justifications for growth via mergers and acquisitions. 1.3.2 The development of mega mergers. 1.3.3 The tactics for acquisitions and mergers and the main defences used to resist unwelcome bids. 1.3.4 Measuring the success of mergers and acquisitions. 1.3.5 Disinvestment.

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

Assessment Criteria The learner can: 2.1 Outline the process for gaining a listing on the Official List or the Alternative Investment Market and explain the role of different advisors in this process.

Indicative Content

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 evaluate the sources of equity finance available to an unquoted company and explain the differences between, and the advantages and disadvantages of: ordinary shares, 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 the main sources of debt finance available to any size 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.

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 the significance, advantages and dangers of different levels 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 appraisal techniques.

Assessment Criteria The learner can: 3.1 Explain the principles, benefits and limitations of the following different methods of investment appraisal: accounting rate of return, payback, net present value (NPV), Profitability Indices, and the internal rate of return (IRR) and be able to perform calculations in order to assess investment value.

Indicative Content

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 calculate the influence of risk in the investment appraisal process.

3.2.1 Risk premiums. 3.2.2 The Capital Asset Pricing Model (CAPM). 3.2.3 Adjusted present value.

3.2.4 Using probabilities.

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

Assessment Criteria The learner can: 4.1 Explain and calculate the share value of a business based on: net asset value (NAV), price earnings (PER), free cash flow and dividend valuation and discuss the relative merits of each method.

Indicative Content

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 of a business that are likely to influence the share value.

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

4.3 Explain and calculate the main accounting ratios that can be applied to organisations.

4.3.1 Liquidity. 4.3.2 Profitability. 4.3.3 Efficiency. 4.3.4 Debt/gearing. 4.3.5 Investors.

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

Assessment Criteria The learner can: 5.1 Explain and discuss the effects of dividends on shareholder wealth and the main dividend policies

Indicative Content

5.1.1 Retention policy. 5.1.2 Legal constraint.

that companies may adopt including: constant dividends, increasing dividends, zero dividends and fixed percentage dividends.

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 evaluate the main dividend policy theories including: irrelevance (Modigliani and Miller) and relevance theories.

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 main alternatives to cash dividends.

5.3.1 Bonuses. 5.3.2 Scrip dividends. 5.3.3 Stock splits. 5.3.4 Concessions.

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

Assessment Criteria The learner can: 6.1 Describe and calculate the cost of equity share capital.

Indicative Content

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 calculate the cost of debt capital.

6.2.1 Irredeemable debt. 6.2.2 Floating rate debt. 6.2.3 Convertibles.

6.2.4 Bank loans. 6.2.5 Overdrafts. 6.2.6 Tax effects.

6.3 Calculate the weighted average cost of capital and discuss 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 7
The 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 an element of, or on the entire working capital of, a business.

Assessment Criteria The learner can: 7.1 Explain the main areas of treasury and working capital and calculate the working capital cycle and the cash conversion or operating cycle.

Indicative Content

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 working capital decision on any of the areas of working capital.

7.2.1 Working capital decisions and policies.

7.3 Explain overtrading and identify its symptoms.

7.3.1 Key symptoms of overtrading. 7.3.2 Actions needed to address these symptoms.

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 ABE website (www.abeuk.com) for further recommended reading.