Syllabus

Part One: The Investment Decision

Unit 1: Introduction to Financial Management

Section 1: Individual Consumption and Investment

Introduction

1.1 Consumer choice in a perfect market

1.2 Consumption-investment decision

1.3 Consumption, investment and the concept of utility

1.4 Wealth maximisation with borrowing and lending opportunities

Section 2: Fisher's Separation Theorem and Capital Market Efficiency

Introduction

2.1 Fisher's Separation Theorem

2.2 Capital market efficiency

2.3 Random walk concept

Section 3: Efficient Market Hypothesis

Introduction

3.1 EMH and financial management

3.2 EMH as 'bad science'

Unit 2: Capital Investment Appraisal

Section 1: Review of Capital Investment

Introduction

1.1 Capital budgeting decisions

1.2 Methods of capital investments appraisal

1.3 Time value of money

1.4 Internal rate of return

1.5 Computational and conceptual difficulties of IRR

1.6 Net present value

Section 2: Making Investment Decision

Introduction

2.1 Ranking and acceptance under IRR and NPV

2.2 Incremental IRR

2.3 Capital rationing and NPV

Section 3: Other Factors Affecting the Investment Decision

Introduction

3.1 Relevant cash flows

3.2 Capital budgeting and taxation

3.3 NPV and purchasing power risk

Section 4: Risk and Probability in Investment Decisions

Introduction

4.1 Uncertainty and investment appraisal

4.2 Concept of expected net present value

4.3 Standard deviation

4.4 Mean variance analysis

4.5 Certainty equivalent approach

4.6 Investment appraisal in practice

Unit 3: Working Capital Management

Section 1: Nature of Working Capital and its Management

Introduction

1.1 Objectives of working capital management

1.2 Structure of working capital

1.3 Accounting concept of working capital

1.4 Liquidity and accounting profitability

1.5 Working capital cycle

1.6 Operating efficiency

1.7 What happens in the real world

Section 2: Credit Management Strategies

Introduction

2.1 Credit management

2.2 Effective credit price

2.3 Effective discount price

2.4 Decision to discount

2.5 Opportunity cost of capital

2.6 Getting the right balance

2.7 Modelling the credit impact

2.8 Alternative credit policies and corporate profitability

2.9 What happens in the real world?

Part Two: The Dividend Decision

Unit 4: Equity Valuation, Stock Market Data and Investment

Section 1: Equity Valuation

Introduction

1.1 Capitalisation of dividends

1.2 Constant dividend valuation model

1.3 Dividend growth and capital gains models

1.4 Split growth in dividends

1.5 Equity value and capital gains

1.6 Estimating the growth rate in dividends

1.7 Earnings valuation models

Section 2: Interpreting Financial Ratios

Introduction

2.1 Dividend yield and PE ratio

2.2 Guide to stock exchange listings

Section 3: Corporate Investment Appraisal

Introduction

3.1 Cost of equity and investment appraisal

3.2 Taxation and the cost of equity

Unit 5: Dividend Decision and Valuation of Corporate Equity

Section 1: The Dividend Decision: Theoretical Considerations

Introduction

1.1 Dividend policy and equity value

1.2 Dividends as a passive residual

1.3 Shareholder preferences

1.4 Dividend irrelevancy hypothesis

1.5 Modigliani-Miller and the law of one price

1.6 Dividend policy under conditions of uncertainty: the Gordon Growth Model revisited

Section 2: Relevance and Reality of Dividend Policy

Introduction

2.1 Dividend policy and growth

2.2 Dividend policy and taxation

2.3 Clientele theory

2.4 Information content of dividend signalling

Part Three: The Finance Decision

Unit 6: Cost of Capital, Corporate Investment and Market Valuation

Section 1: Marketable Securities: Debentures

Introduction

1.1 Cost of debenture capital

1.2 Impact of taxation

1.3 Taxation lags and issue costs

Section 2: Alternative Sources of Finance and Capital Costs

Introduction

Section 3: Weighted Average Cost of Capital

Introduction

3.1 Defining a company's WACC

3.2 Assumptions underpinning WACC

3.3 Problems of estimating WACC in practice

Section 4: Shareholder Wealth and Capital Costs

Introduction

4.1 Shareholder wealth

4.2 MVA, EVA and free cash flow (FCF)


Unit 7: Financial Policy and Capital Structure

Section 1: Capital Structure and Gearing

Introduction

1.1 Capital structure, risk and investor returns

1.2 Capital structure and shareholder return

1.3 Capital gearing and the traditional view

Section 2: Capital Structure and Modigliani-Miller

Introduction

2.1 MM cost of capital hypothesis

2.2 Proposition I and the arbitrage process

2.3 Proposition I and market equilibrium

2.4 Proposition II and market equilibrium

2.5 Proposition III and market equilibrium

Section 3: MM in the Real World

Introduction

3.1 Rising cost of debt in a tax-less world

3.2 MM model, corporate taxation and value

3.3 MM formulation of capital costs with tax

3.4 Increasing costs of debt and bankruptcy in a taxed world

3.5 Personal taxation and the Miller model of general equilibrium

3.6 Brearley and Myers' reconciliation of debt and taxes

3.7 Market imperfection, behavioural theory and optimal


Part Four: The Portfolio Decision

Unit 8: Portfolio Decision and Risk Management

Section 1: Modern Portfolio Theory

Introduction

1.1 Development of modern portfolio theory

1.2 Combined risk of two investments

1.3 Correlation between two investments

1.4 Risk reduction, diversification and the correlation coefficient

Section 2: Minimising Risk: Portfolio Analysis

Introduction

2.1 Minimisation of risk for a two-asset portfolio

2.2 Finding the minimum variance of a two-asset portfolio

2.3 Multi-asset portfolio

2.4 The optimum portfolio

2.5 Significance of covariance terms

Section 3: Portfolio Analysis, Tobin, Risk and CAPM

Introduction

3.1 Market portfolio and Tobin's Separation Theorem

3.2 Systematic and unsystematic risk

3.3 Beta values and systematic risk

3.4 Traditional Capital Asset Pricing Model

3.5 Criticisms of the CAPM

3.6 Arbitrage Pricing Theory

3.7 Capital budgeting and CAPM

3.8 Estimation of project betas

3.9 Capital structure and the beta coefficient

3.10 Capital structure and the CAPM

3.11 Modigliani-Miller and the CAPM

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