Module Information

Module Identifier
Module Title
Corporate Finance
Academic Year
Semester 1 (Taught over 2 semesters)
Other Staff

Course Delivery

Delivery Type Delivery length / details
Lecture 30 Hours. One 2 hour lecture per week
Seminars / Tutorials Example/tutorial classes - 8 hours in total throughout the term
Lecture Help classes - 20 hours in total (one hour per week)


Assessment Type Assessment length / details Proportion
Semester Exam 2 Hours   Unseen written examination  80%
Semester Assessment 2000 word essay  20%
Supplementary Exam 2 Hours   Unseen written examination  Repeat Failed elements  80%
Supplementary Assessment 2000 word essay  Repeat Failed elements  20%

Learning Outcomes

On successful completion of this module students should be able to:

* Describe and explain the issues of capital structure, dividend policy and leasing versus purchase policy (and associated matters)

* Describe, derive, interpret and apply models which have been proposed to illuminate these issues

* Solve related numerical problems

* Describe, explain and illustrate the evolution of the debate upon these issues

* Compare and contrast differing opinions and positions in these debates

* Assess and criticise the models

* Relate key financial issues one to another, to associated theory and to the preferences and expectations of key stakeholders

* Select, explain and apply appropriate theory to questions and problems


This module is a core module to SMBs N400 (Accounting and Finance) and N310 (Business Finance) UG degrees; core to the Accounting and Finance 'major' and required for the Accounting and Finance minor; and core to the IMAPS degree G1N3 (Financial Mathematics).

The module covers topics in capital structure, dividend policy, leasing and working capital management, which are essential subject matter within any high-quality undergraduate degree in accounting and/or finance; and which are expected by:

Honours Degree Subject Benchmark Statement: Accounting (2007), Quality Assurance Agency for Higher Education

Honours Degree Subject Benchmark Statement: Finance (2007), Quality Assurance Agency for Higher Education

Further, the module contributes to the maintenance of (or is anticipated to contribute to the achievement of [further]) accreditation from professional accountancy bodies, including:

Institute of Chartered Accountants in England and Wales
Association of Chartered Certified Accountants
Chartered Institute of Management Accountants
Institute of Chartered Accountants of Scotland

Brief description

This module aims to provide students with a thorough treatment of the key financial decisions which are faced by the directors and managers of firms, which include: (i) capital structure; (ii) dividend policy; (iii) leasing (versus borrow and purchase) policy; and (iv) working capital management.

This will be approached by consideration of context in which decisions upon these issues are made; presentation and analysis of the debates which have surrounded (and continue to surround) them; recourse to the associated theoretic and empirical academic literature; and destruction of the idea of a set of discrete, simple solutions.

Outline syllabus

Introduction to corporate finance (including agency and signalling theories)
Relevant aspects of corporate taxation
Capital structure
Dividend policy
Leasing policy
Working capital management


The following topics are covered:


This introduction will consider the structure of firms, their possible objectives, financing decisions and implications of the Efficient Market Hypothesis for the corporate finance manager. The following topics will be covered:

(a) Firm structure and their objectives
(b) The subject area of corporate finance
(c) The Efficient Market Hypothesis
(d) Signaling and agency theory
(e) Sources of Finance
(f) Debt versus equity Financing


An understanding of the tax environment is important as tax factors can play an important part in finance. This topic will consider the UK corporate tax structure and in particular the determination of taxable profits, including capital allowances, loss relief, and advance corporation tax (ACT). The following topics will be covered:

(a) Classification of tax systems
(b) Basis of assessment and advance corporation tax (and its abolition)
(c) Basis of deduction
(d) Revenue and Capital Expenditure
(e) Relief for Capital Expenditure: Capital Allowances
(f) Trading Losses
(g) Transfer pricing


Part I: Firms can obtain finance from a number of sources, e.g. from the issue of shares (equity) to borrowing (debt). The particular combination of debt and equity that is used to finance a firm is known as its "capital structure". This topic examines both the theoretical and empirical evidence as to the existence of a link between a firm's capital structure and its market value. The existence of such a link would have implications for example when considering an investment opportunity.

Part II: The topic then considers how investment appraisal techniques can be adapted for use by firms that are financed by a combination of equity and debt. This is important when the method of financing a proposal can alter the discount rate appropriate to the project. The following topics will be covered:

(a) Cost of Capital (Ordinary shares, retained earnings, preference shares, debt, Weighted Average Cost of Capital)
(b) Gearing and Debt/equity ratio
(c) Theories of Capital Structure: Traditional and Modernist views
(d) Modigliani and Miller derivations and arbitrage examples
(e) Market imperfections
(i) Corporate and Personal Taxes
(ii) Risky debt
(iii) Bankruptcy Costs
(f) Signaling and Agency theories
(g) empirical evidence
(h) Investment appraisal- Adjusted Present Value (APV)


This topic considers the different methods of issuing equity on the stock market and the potential link between a firm's market value and the proportion of its earnings that it pays to its shareholders, i.e. its dividend policy. The following topics will be covered:

(a)Methods of issuing equity
(b) Factors affecting dividend policy, which include signaling theory, agency theory and clientele theory
(c)Dividend relevance versus irrelevance
(d) Empirical evidence
(e) Dividend policies and alternative distribution channels.

Leasing is one form of potential finance for a company. This topic considers the leasing versus purchase decision explores the differences between finance leases and operating leases and considers the reasons behind a company's decision to lease an asset, rather than purchase. The following topics will be covered:

(a)Finance Lease/ Operating Lease
(b) Financial accounting and tax accounting treatment
(c) Reasons for Leasing
(d) Lease Evaluation


Working capital management is often neglected as a source of financing for a company but is vital for a company's long term success. The following topics will be covered:

(a) Reasons for investing in WCM
(b) Objectives of WCM and policies
(c) Cash conversion cycle and WCM requirement
(d) Stock management, cash management, debtor management, creditor management
(e) overtrading and the economic order quantity model

Module Skills

Skills Type Skills details
Application of Number Develop an easy familiarity with numerical data sources and numerical data. Apply numerical data to problem solving with care and accuracy. Assess the reasonableness of and interpret numerical solutions. Support assertions/arguments with appropriately developed and presented numerical data. Apply/ Derive complex mathematical formulae.
Communication Develop confidence in and clarity of oral communication via example class/tutorial participation. Develop clarity and focus of written communication via development of answers to self study questions. Develop and use appropriate subject-specific vocabulary in oral and written communication.
Improving own Learning and Performance Identify and distil the key issues covered by lectures, tutorials and self study. Identify and use a range of learning resources. Investigate benefits of small group working on self study. Structure study to accommodate intensive learning.
Information Technology Use a variety of electronic web- and library-based resources to review available information and retrieve pertinent information. Use of word-processing skills in assignment.
Personal Development and Career planning Preparation for seminar tasks will encourage initiative, independence and self-awareness.
Problem solving Identify the precise problem to be solved. Assess which data are pertinent to the problem. Recognize that alternative solution methods might be available. Select and apply appropriate methods for solving the problem. Assess the reasonableness of problem solutions and interpret those solutions.
Research skills Identify which information sources are available to: facilitate module study (understanding, wider reading), provide data which allow application of module learning in a real world context. Properly reference/attribute information sources.
Subject Specific Skills Develop competence in understanding and appropriately applying Corporate Finance models/ theory to practice. Develop competence in understanding the key financial decisions which are faced by the directors and managers of firms.
Team work Develop experience of team work and develop team working skills via small group working on self study. Group work during seminars.

Reading List

Essential Reading
Watson and Head (2013) Corporate Finance: Principles and Practice 6th Edition Prentice Hall Primo search
Recommended Text
Brealey, R.A. and Myers, S.C. 2013 global edition McGraw Hill Emery, D.R. and Finnerty, J.D. (2007) Corporate Financial Management Pearson International Edition Primo search Levy, H. and Sarnat, M. (1994) Capital Investment and Financial Decisions 5th Edition Primo search Ross, S., Westerfield, R.W, and Jaffe, J. (2010 or 2013) Corporate Finance 9th or 10th Edition McGraw-Hill Primo search


This module is at CQFW Level 6