Unit Title: Corporate Finance Level: Advanced Diploma in Business Management Learning Outcome: 1.

Unit Code: FM

Candidates will be able to evaluate the role of the Corporate Finance Manager and his/her main links to business objectives.

Indicative Content: 1.1 Explain the role of the finance manager Key involvement in a companys investment decisions Key involvement in a companys decisions for raising funds Key involvement in dividend decisions Risk management Links to and understanding of different sources of finance and capital markets Links to and working responsibility with other professional staff in the business A communicator and coordinator 1.2 Describe the main business objectives and the links to the finance manager Profit maximisation Survival of the business Continued growth of the business Maximisation of long term shareholder wealth Achieving corporate and strategic objectives, both short term and long term Survival Social responsibility Corporate governance Examiners Tips: 1. The fundamental objective of Corporate Finance Managers is often said to be the maximisation of shareholder wealth. Have you tried considering how the role of the finance manager impacts on this fundamental objective in areas such as investment decisions (return on capital), fund raising decisions (cost of capital) and dividend decisions (different dividend models)? Try looking at the distinction between profit maximisation (that is a primary interest of accountants) and shareholder wealth maximisation (that is a primary interest of Corporate Finance Managers).

2.

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Unit Title: Corporate Finance Level: Advanced Diploma in Business Management Learning Outcome:

Unit Code: FM

2. (part 1): Candidates will be able to describe and explain the main sources of equity business finance. Indicative Content: 2.1 Outline the process for gaining a quotation on the Official List (OL) or the Alternative Investment Market (AIM) and explain the role of the different advisors in this process What is equity capital? Authorised, issued and par values Going public: what does it mean? Conditions imposed and new responsibilities of obtaining a full listing The issuing process The various different advisors involved in the listing process Different methods of issue Timetable for a new offer The main features of the Alternative Investment Market (AIM) How does the Alternative Investment Market (AIM) differ from the Official List (OL)? The costs of new issues Reasons for and against joining a recognised stock exchange Examiners Tips: 1. A good, and important, exercise for a group would be to consider (and perhaps use a live recent example of) the different types of advisors that are used in the process of seeking a quotation on the Official List (OL). 2. It would be very useful here if you could identify and describe the three main types of costs involved when a business makes an issue of equity capital.

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Unit Title: Corporate Finance Level: Advanced Diploma in Business Management Learning Outcome:

Unit Code: FM

2. (part 2): Candidates will be able to describe and explain the main sources of equity business finance. Indicative Content: 2.2 Explain the differences between, and the advantages and disadvantages of, ordinary shares and preference shares and the different types of share available. Explain the differences between a rights issue and a scrip issue Ordinary shares: the main features Authorised, issued and par values (links to learning outcome 2.1) The concepts of limited liability: private limited (Ltd) and public limited (PLC) companies Advantages and disadvantages of using ordinary share capital Preference shares: the main features Advantages and disadvantages of using preference share capital Types of preference shares Rights issues: the main features including ex-rights and cum-rights Scrip issues: the main features Warrants 2.3 Describe the equity finance that is available to the unquoted company Business Angels Venture capital (and the different types of venture capital) Venture Capital Trusts (VCTs) Private equity Enterprise Investment Schemes (EISs) Government sources Examiners Tips: 1. A good, and important, exercise for a group would be to consider (and perhaps use a live recent example of) the different types of advisors that are used in the process of seeking a quotation on the Official List (OL). It would be very useful here if you could identify and describe the three main types of costs involved when a business makes an issue of equity capital.

2.

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Unit Title: Corporate Finance Level: Advanced Diploma in Business Management Learning Outcome:

Unit Code: FM

3. (part 1): Candidates will be able to analyse the main sources of debt finance. Indicative Content: 3.1 Identify, describe and explain the main sources of debt finance available to any size of business, e.g. bank borrowing, overdrafts, term loans, trade credit, factoring, hire purchase, leasing and bills of exchange What is debt? Cost of debt Contrast debt finance with equity finance Legal implications of debt, such as no voting rights, and tax implications of debt, such as tax allowance availability through interest payments Bank borrowing: features and factors to consider Fixed rate or variable rate: factors to consider Overdrafts: features and factors to consider Term loans: features and factors to consider Trade credit: features and factors to consider Factoring: features and factors to consider Different types of factoring arrangements Hire purchase: features and factors to consider Finance lease or operating lease: differences Leasing: features and factors to consider Bills of exchange: features and factors to consider Examiners Tips: 1. 2. Have you tried writing down a short definition and explanation of the different types of debt finance that are available to any size of company? Are you able to calculate, if necessary, relevant figures for any of the above examples including any tax relief available? For example if a business buys (using say a term loan) some capital equipment (for 20,000) there will be two tax reliefs available to the business; firstly the asset will be subject to a written down allowance (WDA) on the capital expenditure, i.e. 20,000 * 25% or 5,000, and the business can reduce its taxable profits by this 5,000 in year 1. Secondly the annual interest payments are deductible when calculating taxable profits.

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Unit Title: Corporate Finance Level: Advanced Diploma in Business Management Learning Outcome:

Unit Code: FM

3. (part 2): Candidates will be able to analyse the main sources of debt finance. Indicative Content: 3.2 Identify, describe and explain the main sources of debt finance available from the financial markets, principally bonds, syndicated loans, mezzanine debts and high yield bonds, medium term notes, commercial paper, project finance, sale and leaseback, and international sources of debt finance Bonds: features and factors to consider Different types of bonds including debentures Syndicated loans: features and factors to consider Mezzanine debt and high yield bonds: features and factors to consider Medium term notes: features and factors to consider Commercial paper: features and factors to consider Project finance: features and factors to consider Sale and leaseback: features and factors to consider International sources of debt finance, such as foreign bonds and Eurobonds: features and factors to consider Examiners Tips: 1. 2. Explain the advantages and disadvantages of the different types of debt finance available from the financial market. Have a look at some external financial reports and notes to accounts and see if you can build up a picture of how that particular business is financed. What type of debt financing is the business using? Is one type of debt finance more prominent than other types?

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Unit Title: Corporate Finance Level: Advanced Diploma in Business Management Learning Outcome: 4.

Unit Code: FM

Capital project appraisal. Candidates will be able to demonstrate the ability to evaluate investment decisions using a variety of appraisal techniques.

Indicative Content: 4.1 Explain the principles, benefits and limitations of the following different methods of investment appraisal: payback, accounting rate of return, net present value (NPV), internal rate of return (IRR) Non discounted methods: features, benefits and limitations of two different methods, payback and accounting rate of return Future cash flows and the time value of money Discounted cash flow Net present value (NPV): principles, benefits and limitations Internal rate of return (IRR): principles, benefits and limitations Comparison of different methods 4.2 Evaluate the different types of investment appraisal methods identified in 4.1 above to determine the most suitable method to use in any given set of circumstances Calculate payback in terms of years and part years Calculate the accounting rate of return in percentage terms Calculate the net present value (NPV) of a project Calculate the internal rate of return of a project Evaluate different figures and calculations to determine the most appropriate method to adopt in the circumstances under consideration 4.3 Explain and calculate the influence of risk in the investment appraisal process Impact of taxation on capital investment appraisal Allowance for risk and uncertainty Sensitivity analysis Impact of inflation on investment appraisal Examiners Tips: 1. Have a look at the differences between the accounting rate of return (non discounted method) and the internal rate of return (discounted method). This is very often confused by candidates and is important. Practice of doing the necessary calculations is very important here and the more practice questions you do as a group or as individuals then the better you will get at developing your understanding and knowledge.

2.

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Unit Title: Corporate Finance Level: Advanced Diploma in Business Management Learning Outcome: 5.

Unit Code: FM

Company valuations. Candidates will be able to describe the main methods of valuing company shares and calculate the necessary share value from a given set of circumstances.

Indicative Content: 5.1 Explain and calculate the share value of a business based on the following different methods: net asset value (NAV), price earnings ratio (PER), free cash flow basis, dividend valuation methods (DVMs) Explain and calculate the value of a company share based on the method of net asset value (NAV) Explain and calculate the value of a share based on the price earnings ratio (PER) Explain and calculate the value of a company share based on a free cash flow method Explain and calculate the value of a company share based on the dividend valuation method (DVM) Identify the main features, advantages and disadvantages of each different method 5.2 Describe the qualities of a business that are likely to influence the share value such as reputation, knowledge, capabilities, attitude, market penetration, dynamism and leadership Be able to identify the main factors that are likely to have an impact on share values, for example factors such as business reputation, knowledge, capabilities, attitude, market penetration, dynamism and leadership Examiners Tips: 1. Calculations of a share value using either the net asset value (NAV) method, the price earnings ratio (PER) or the free cash flow basis have often been poorly understood and answered in the examination; have a look as a group with your lecturer at these three different methods and make sure you can do the necessary calculations. And provide the necessary explanations. As a group consider a few large organisations with which you are familiar and list those reasons why you feel they are more successful than other large organisations.

2.

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Unit Title: Corporate Finance Level: Advanced Diploma in Business Management Learning Outcome: 6.

Unit Code: FM

Dividend policy. Candidates will be able to examine the factors that determine a companys dividend policy.

Indicative Content: 6.1 Describe and explain the effects of dividends on shareholder wealth Distinction between interim and final dividends Operational and practical issues of dividends The effect of dividends on shareholder wealth 6.2 Describe and explain the main principles set down originally by Miller and Modigliani (dividend irrelevance) and alternative dividend relevance views Dividend irrelevance: features and implications Alternative dividend relevance theories: features and implications 6.3 Describe and calculate the dividend growth model Calculation of a share price using the dividend growth model Features and implications of the dividend growth model 6.4 Describe and explain the main dividend policies that companies might adopt, principally constant dividends, increasing dividends, zero dividends, fixed percentage dividends Be able to describe the main features of and advantages and disadvantages of the following different dividend policies: constant dividends, increasing dividends, zero dividends and fixed percentage dividends 6.5 Explain the main alternatives for a business to cash dividends, notably scrip dividends, share repurchases, special dividends and non-financial benefits. Be able to describe the main features of and the advantages and disadvantages of the following alternatives to cash dividends: scrip dividends, share repurchases, special dividends and non financial benefits Examiners Tips: 1. As a group or individually make sure you can explain what you understand by the two terms dividend irrelevance and dividend relevance. What are the main features, advantages and disadvantages of each? Have a look at some of your local public limited companies (PLCs) and see what, if any, non-cash dividend payments they have made.

2.

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Unit Title: Corporate Finance Level: Advanced Diploma in Business Management Learning Outcome: 7.

Unit Code: FM

Cost of capital. Candidates will be able to describe and calculate the cost of capital for a business.

Indicative Content: 7.1 Describe and calculate the costs of equity share capital, both ordinary shares and preference shares The required rate of return The cost of equity ordinary share capital The cost of equity preference share capital 7.2 Describe and calculate the cost of debt capital Factors affecting the cost of debt capital Calculating the cost of debt capital, principally irredeemable bonds, redeemable bonds and convertibles Relationship between the costs of different sources of finance 7.3 Describe and calculate the weighted average cost of capital (WACC) Calculating the weights Applying the WACC to individual projects Rates of return and different risk factors Examiners Tips: 1. 2. Make sure you can explain the different factors that might have an effect on the cost of debt capital such as interest rates. The weighted average cost of capital (WACC) is an important element of this part of the programme; as a group or individually make sure that you can calculate the WACC under different sets of figures and circumstances; the more practice you get then the easier it should become.

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Unit Title: Corporate Finance Level: Advanced Diploma in Business Management Learning Outcome: 8.

Unit Code: FM

Cost of capital. Candidates will be able to describe and explain the process behind a merger or a takeover and the similarities and differences.

Indicative Content: 8.1 Explain the City Code on Takeovers and Mergers The city institutions involved in the City Code on Takeovers and Mergers The main objectives of the takeover panel Action before the bid The bid Action after the bid Defence tactics used by target managers to prevent a successful bid Paying for the targeted company shares 8.2 Be able to describe the main justifications, financial and otherwise, for mergers and takeovers and be able to calculate the value of a share using the methods identified in learning outcome 5.1 The three broad types of takeovers Financial justifications for takeovers Other justifications for takeovers The case against takeover Calculation of a company share using the different methods of company share valuation identified in 5.1 above Examiners Tips: 1. Make sure you understand the work that is done by the takeover panel; this is very important in the context of takeovers and mergers; you might want to have a look at www.thetakeoverpanel.org.uk for more information. As a group or individually make sure you can list and describe the most important financial and non-financial justifications for mergers. Can you think of some local, national or international examples?

2.

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Unit Title: Corporate Finance Level: Advanced Diploma in Business Management Learning Outcome: 9.

Unit Code: FM

Treasury and working capital management. Candidates will be able to explain and describe 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 the entire working capital of, a business.

Indicative Content: 9.1 Explain the main areas of treasury and working capital The main areas of treasury and working capital management The objectives of working capital management The difference between current assets and current liabilities and the components of each

9.2 Establish the most appropriate balance of financing for a business The level of working capital Financing working capital requirements 9.3 Describe, explain and calculate the working capital cycle and the cash conversion or operating cycle The cash conversion cycle and working capital needs The elements of and the calculation of the cash conversion cycle and the working capital cycle 9.4 Explain and describe overtrading Typical symptoms of overtrading Typical strategies to deal with overtrading 9.5 Calculate, from a given set of figures, a working capital decision on any of the areas of working capital Using a scenario and figures relating to different aspects of current assets or current liabilities be able to calculate and determine the most appropriate working capital decision in the circumstances Examiners Tips: 1. The cash conversion cycle is an area that has been poorly answered in the past; make sure you fully understand the components of the cash conversion cycle and how it is calculated. 2. In groups or individually practise questions that ask for a working capital decision based on a set of figures and assumptions about any particular component of working capital.

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Unit Title: Corporate Finance Level: Advanced Diploma in Business Management Learning Outcome:

Unit Code: FM

10. Managing risk. Candidates will be able to describe and explain the different types of risk that a finance manager will be affected and influenced by. Indicative Content: 10.1 Describe and explain the different types of risk that will affect the finance manager such as business risk, insurable risk, currency risk and interest rate risk The reasons for risk reduction Describe and explain the significance of business risk Describe and explain the significance of insurable risk Describe and explain the significance of currency risk Describe and explain the significance of interest rate risk 10.2 Explain the significance of gearing, both operating and financial gearing Describe, explain and calculate operating gearing Describe, explain and calculate financial gearing The dangers of gearing Describe the different costs associated with managing risk Identification of the main costs for a company in managing risk Describe and explain the derivative instruments available to help manage risk, principally options, futures and forwards Describe and explain your understanding of options Describe and explain your understanding of futures Describe and explain your understanding of forwards Describe the significance and importance of managing the risk of exchange rate movements The impact of currency rate changes on the business The currency markets Types of foreign exchange rate risk The importance of managing currency rate risk

10.3 10.4

10.5

Examiners Tips: 1. The difference between and the calculation of operating and financial gearing are important; operating gearing particularly has been very poorly explained and calculated in the past. As a group or individually make sure you understand both. 2. You need to be able to identify the main elements of options, futures and forwards and demonstrate your understanding of each

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