Finance 2

There are no pre-requisites for this course.

Finance 2 builds on Finance 1, and is a prerequisite for all BAcc optional finance courses. The course covers many issues of relevance to the financial manager, such as market efficiency, capital structure, dividend policy, corporate takeovers, leasing, option pricing, and cost of capital.

This course is a compulsory first year B.Acc course which introduces students to the fundamentals of Corporate Finance. It focuses on identifying the financial objective of the firm and on understanding how the principal financial decisions should be made within the firm in order to achieve this objective. Coverage will include sources of company finance, an introduction to capital markets, the principles of security valuation, methods of investment appraisal and an overview of portfolio theory. These ideas are developed in the second year course, Finance 2, and together these two courses provide the basis necessary for students who wish to take Finance options at Honours level.

By the end of this course, students should be able to:

Describe the nature of the decision process within the firm and the financial management function.

Describe and evaluate the principles of capital markets especially efficient market hypothesis.

Describe and evaluate other capital market principles in relation to market imperfections including transactions costs, asymmetric information, adverse selection, moral hazard.

Describe the different sources of long and short term finance to the firm.

Describe the role of diversification and how it affects the expected return and variance of return (risk) in an investment portfolio.

Explain the significance of systematic and unsystematic risk in relation to portfolio theory and the CAPM.

Describe and evaluate the role of financial ratios and statistics in decision making.

Apply finance theory in practical investment decision making.

Describe the role of time value of money in calculating values (market prices).

Analyse and calculate time value of money techniques including the present values (PV) and net present value (NPV) of various securities, e.g. share prices and bond prices, using appropriate discounting formulae.

Describe and evaluate alternative investment appraisal techniques found in practice, including non discount cash flow (DCF) methods, under capital rationing.