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School of Accounting & Finance

Postgraduate Modular Finance Scheme

BAM008 Financial Management


Module Handbook 2010-11

Module Leader: Dr. Yiannis Anagnostopoulos Room 380 Tel: 65602 Email: Y.Anagnostopoulos@kingston.ac.uk Teaching Team: Dr. Yiannis Anagnostopoulos, Dr. George Alexandrou Module Leader: Dr. Yiannis Anagnostopoulos

BAM008 FINANCIAL MANAGEMENT Rationale


The demands of the increasing sophistication of financial markets on businesses require rigorous training of those who assume a senior financial management role in organisations. Senior management in general and financial managers in particular need education, training and knowledge in how to manage financial resources. They have to be aware that their decisions affect corporate value and can affect the achievement of corporate objectives. This course aims to equip students with the skills required to fulfill a senior financial management position in a modern organization. Towards this end the course addresses such key decision areas of the finance director as funding and capital raising, working capital management, forecasting and financial modeling, corporate restructuring, mergers and corporate control, asset/business acquisition, capital structure and dividend policy, corporate governance, etc. Emphasis is placed on the practical use of financial management concepts, computerized financial models for planning, forecasting and project evaluation purposes.

Aims
The aims of the module are: y to develop critical knowledge and understanding of the set of theories that constitute modern finance theory and how these theories can be applied to corporate financial policies y to develop knowledge of how firms raise and utilize finance capital y to examine strategic financial management issues y to explore the relationships between firms and investors and to present a critical analysis of the shareholder value literature

Learning Objectives
The objective of this course is to teach participants the theory and practice of financial management. On successful completion of this module course participants should be able to: y Demonstrate a critical understanding of the theories and empirical evidence related to modern finance theory y illustrate the insights and applications of modern finance theory in specific decision making contexts y Understand the limitations of modern finance theory and illustrate those limitations through the use of real data y Evaluate the impact of strategic financial decisions (such as capital structure choices) for shareholder value y Analyze the financial implications of specific incentive mechanisms and configurations for the delivery of organizational goals and shareholder value y Demonstrate a critical understanding how companies determine their capital structure, seek funds in the financial markets and the inferences for corporate strategy and capital investment decisions y Apply the theory of financial options to evaluate the value of strategic choices available to management in the context of capital investment y Demonstrate and illustrate the complexity of the relationships between firms and their investors and how those relationships can be improved or damaged by financial decision making y Convey and communicate the meaning of modern finance theory to a non-expert audience 2

Assessment
The assessment of the module is based on a coursework and an examination and the final mark is the weighted average of coursework and exam marks. Students will have to achieve an overall pass mark of 50% to complete the module successfully. It is not a requirement that any major assessment category must be passed separately to achieve an overall pass for the module.

Core Textbook
Arnold, G. (2008) Corporate Financial Management, 4th Ed., Financial Times/Prentice Hall Alternative/Equivalents to the textbook above are also: Brealey, R., Myers, S. and Allen, F., (2010) Principles of Corporate Finance, McGraw Hill, 10th Ed., (Global Edition) Berk J. and DeMarzo P. (2010), Corporate Finance, Pearson, 2nd ed. (Global Ed.) Additional reading Bodie, Kane and Marcus (2005), Investments, 6th International Edition, McGraw-Hill. Sudarsanam S. (2003), Creating Value from Mergers and Acquisitions, Prentice Hall. Megginson and Smart (2006), Introduction to Corporate Finance, Thomson-South-Western. You will find other useful material in the Library around class mark 658.15. In addition to the textbooks, you are expected to read widely from other sources, such as academic journals and publications from the financial press, such as The Financial Times and The Economist, both of which have reduced subscription rates for students and are available in the Library. Students are strongly encouraged to follow developments in finance by reading The Financial Times regularly and by watching the financial programmes on the TV. Bank of England Quarterly Bulletins provide up-to-date reports on corporate finance issues. Information and Data Sources The following websites provide a variety of data and sources on company information: Financial Times: www.ft.com Economist: www.economist.com Management and finance articles: http://www.mckinseyquarterly.com Glossary of economic terms: http://www.econterms.com Corporate reports: http://www.corpreports.co.uk Annual reports on line: http://www.carol.co.uk The London Stock Exchange: http://www.londonstockexchange.com The New York Stock Exchange: http://www.nyse.com The American Stock Exchange: http://www.amex.com

COURSE OUTLINE Lecture 1 Mergers and Acquisitions Reading: Arnold Chapter 23. Berk & DeMarzo Chapter 28. Lecture 2 Corporate Restructuring Reading: Arnold Chapter 23. Berk & DeMarzo Chapter 28 Lecture 3 Corporate Financing and the Issuance of Securities Reading: Arnold Chapters 10, 11, 12. Berk & DeMarzo Chapter 23 Lecture 4 Valuation and Financial Modelling Reading: Berk & DeMarzo chapter 19 Lectures 5 Evaluating Capital Investment Decisions Reading: Arnold Chapters 2-5. Berk & DeMarzo Chapter 6 Lecture 6 Capital Structure and the Value of the Firm Reading: Berk & DeMarzo Chapter 14, 15, 16 Arnold Chapters 19, 21. Lecture 7 Dividend Policy and the Value of the Firm Reading: Arnold Chapter 22. Berk & DeMarzo Chapter 17 Lectures 8& 9 Management of Working Capital Reading: Arnold Chapters 12, 13. Berk & DeMarzo Chapters 26-27 Lectures 10 & 11 Derivatives and the Management of Risk Reading: Arnold Chapters 24, 25. Berk & DeMarzo Chapters 20, 21, 22 Lecture 12 Revision. T. WEEK COMMENCING TOPIC 1 01/02/11 Mergers and Acquisitions 2 3 4 5 6 7 8 9 10 11 08/02/11 15/02/11 22/02/11 01/03/11 08/03/11 15/03/11 22/03/11 29/03/11 05/04/11 12/04/11 19/04/11 - 26/04/11 02/05/2011 09/05/2011 Corporate Restructuring Corporate Financing and the Issuance of Securities Valuation and Financial Modelling Evaluating Capital Investment Decisions Capital Structure and the Value of the Firm Dividend Policy and the Value of the Firm Management of Working Capital 1 Management of Working Capital 2 *Derivatives and the Management of Risk 1

LECTURER GA GA YA YA YA YA YA YA YA *TK

READING WEEK / NO LESSONS


EASTER BREAK NO LESSONS Derivatives and the Management of Risk 2 Revision

YA YA

*Provisional Guest Lecturer: Mr Thanos Karagiannidis (ING Risk Management)

IN-COURSE ASSIGNMENT - BAM008: Formal Report Assessed coursework (i) There will be a report of 2,500 words in total length, setting out recommendations and the justification for them, in the light of a two-case analysis of the position in which companies find themselves. The report should be typewritten, in formal style and language and should be submitted as a hard copy. The report delivers 30% of available marks in the course, submitted to the deadline of Monday of the first week of May. Written Coursework Submission Deadline: by 17:00pm strictly, Monday, 02 May 2011. The assessed project comes in two parts (1,250 words each): 1) Following the disposal of a number of non-core operating assets, in 2002 Marks and Spencer (M&S) restructured its capital through the creation of a new holding company, whereby existing shareholders received a mixture of new ordinary shares and redeemable B shares. For every ordinary M&S share currently held investors received one of these new B shares. In addition, M&S reduced its share capital by issuing 17 new ordinary shares in exchange for every 21 ordinary shares currently held. These B shares could be redeemed for cash plus interest at a series of dates in the future. You are required to critically evaluate the method of returning cash to M&S shareholders described above (5 MARKS) as an alternative to a traditional stock repurchase (5 MARKS) or increased dividend payout (5 MARKS) in light of the theories of corporate payout policy that you are aware of. There are references to academic literature in the relevant textbook chapter(s) and using these, along with other material covered during your own reading, is likely to increase the quality of your work. 2) Locate Vodafones Annual Reports for years 2000 and 2001; access the following URL for Vodafones annual reports for these years: http://www.vodafone.com/assets/files/en Research also the following press releases relating to Vodafones acquisitions over the course of the corresponding financial years. http://www.vodafone.com/start/media_relations/news/group_press_releases/2000.__param__.filterMai nParSys72945_page.12.html Read the reports relating to Board Structure, the remuneration committees reports, corporate governance, as well as the managements and analysts forecasts in these PDF files. Use the information to critically evaluate the financial incentives provided through executive compensation to the directors of Vodafone. You should look to evaluate these incentives in light of: a) The agency problems that are likely to be faced by the company and; (7.5 MARKS) b) The impact that write-offs of assets and heavy indebtedness can have on the valuation of the company. (7.5 MARKS) (Total assignment: 30 marks) Word limit total: 2,500 words 5

There is no limit to accompanying appendices Report Assessment Criteria: y y y y y Resources accessed and the integration of case material with research [20%] Effective organization and presentation of the report [10%] Depth and quality of analysis of appropriate problems and issues [30%] Relevance and practicality of the report's recommendations for action [20%] Demonstration of background literature review and integration with the analysis [20%]

IMPORTANT INFORMATION PERTAINING TO THE COURSE OF STUDIES:


CODE OF CONDUCT & COURSEWORK DETAILS:

Students need to be informed by the module leaders and the teaching team of the following points:  Coursework deadlines may not subsequently be altered without consultation with the teaching team. There is a regulation that failure to submit by the deadline without an extension will cause the mark for the work to be capped at a maximum of 50% and that failure to submit within 7 days after the deadline will cause the work to be marked as F0 and for the entire module mark to be capped at a maximum of 50%.  Unless groups are being allocated by module leaders, students who have difficulty getting themselves into a group should be referred to the Student Liaison Officer who runs a group member finding service.  The assumption is that students will work for equal marks. Any difficulties in group working leading to a different allocation must have been notified (even if not resolved) before submission either to the Student Liaison Officer or to the Module Leader. The Student Liaison Officer will attempt to sort out difficulties in group working in the first instance without referring to the module leader.  Academic misconduct in group-work/paired work: the normal rule is that if a piece of group work is tainted in any way by academic misconduct, every member will be penalized in the same way.  Full details and any supporting materials relating to either lectures or seminars will be posted into StudySpace rather than included in hard copy versions.  Students should also take account of the Schools recent Faculty Board decisions about submission through Turnitin: electronic submission through Turnitin is required for any part of any coursework which is capable of being submitted in this way.  Late admission to lectures: the Faculty policy on late arrival at lectures dictates that late students must wait outside once the lecture has started and will be let in as a group at a convenient moment (i.e. before or after the break - a little way into the lecture)