Text book, notes and Moodle
The textbook for the course is Corporate Finance by Hillier, Ross, Westerfield and
Jordan 2ndt European
In this topic we consider what should and should not be included in the cash flows
in the calculation of the NPV of a project.
6.1 RELEVANT CASH FLOWS
An investment appraisal exercise should include only items which are (i)
Q. What does security market efficiency mean?
Prices are correct. They reflect all information in the public domain relevant to the
shares value. There are no identifiable over- priced or under-priced shares.
Companies raise capital by selling shares and bonds, collectively known as securities.
The subscribers to these securities can sell them to other investors on the Stock Market.
The stock market value of se
5.1 INTRODUCTION - MAXIMISING WEALTH
Investment appraisal is the process of deciding how major expenditure projects
should be assessed. It covers decisions about the acquisition of assets, decisions on
which products to manu
Why are they different?
Tesco: the employee did it
BHS:another person bought it
Way:destroy the company BHS
The way they exposed:
How to avoid?
1.A non-executive director (abbreviated to non-exec, NED or NXD) or external
director is a member of the board
Some notes on pecking order theory
We made reference to Pecking Order Theory (POT) in the final lecture. It isnt covered in Gowthorpe,
but its a very useful explanatory theory which helps us understand human behaviour and corporate
financing decisions. Li
LEVERAGE AND THE COST OF CAPITAL
The cost of capital is the minim return required by investors in the company and is therefore
the cut off rate which the company should use in assessing investment projects.
So far in the course we have assumed that compan
Tutorial 2nd semester Solutions
New shares = 100m/100p = 100m = 1 for 2
Ex rights = ([2 x 160p] + [1 x 100p])/3 = 140p
At 1 for 2 Ms Jones is entitled to 5,
Companies need to know their investors required return, r, the cost of capital, in
order to assess potential projects
Investors are risk averse therefore the riskier the companys business, the higher
the return, r, the
We now need to apply portfolio theory to identifying the cost of capital for a company.
We do so by identifying the systematic risk of the companys shares.
8.1 MEASURING A SHARES SYSTEMATIC RISK
The rational investor wi
FINANCIAL MANAGEMENT 2014/15 1ST SEMESTER
MONDAY 20TH OCT
You plan to buy a plot of land in 4 years time. The plot costs 60,000 just now but
you estimate that the price will increase by 5% per annum over the next 4 years.
What equal sum must
FINANCIAL MANAGEMENT PRACTICE QUESTIONS & ANSWERS 1st SEMESTER
1. You buy an item of furniture. You have the choice of paying 1,000 immediately
followed by 1,900at Y1, or paying 800 p.a. for the next 4 years [i.e. starting at Y1].
If interest is 8
FINANCIAL MANAGEMENT SEMESTER 1 TUTORIAL 2
The shares of L plc are quoted at 350p. L has just paid a dividend [D0] of 30p
and the market expects annual growth of 6% indefinitely from this level.
The company is considering two projects the first of whic
FTSE ACTUARIES SHARE INDICES
Produced in conjunction with the Institute and Faculty of Actuaries
FTSE 100 (100)
FTSE 250 (250)
FTSE 250 ex Inv Co (212)
CLASS TEST 13TH DECEMBER 2010
Time 11.15am 12.45pm
Answer all six questions - they have equal marks [16.67%]
Assessment will take account of presentation
(i) A company is comparing lending terms offered by two banks. Bank A
TABLE 3 Present value (i.e.discount) factor for 1 at i % per period for n periods
CLASS TEST 3rd Dec.2012 1 hours
Answer all five questions - they have equal marks [20%]
Show all your relevant workings.
Assessment will take account of presentation
A company has borrowed 500,000 to be repaid by 5 equa
DETAILS OF ILLUSTRATIONS MARKED
ILLUSTRATION 1.2 [Comp. Single Sum T1]
240 x 1.551 = 372.24
360 x 1.04512 = 360 x 1.696 = 610.56
ILLUSTRATION 1.3 [Compound annuity T2]
(ii) 150 x 4.641 = 696 450 x 7.336 = 3,301
ILLUSTRATION 1.4 (PV of a Sing
The valuation principle underlying bonds is also applicable to equities [shares],
namely that the price of a share should represent the present value of the cash
flows expected from the investment. In th
This is covered in considerable detail in Chs.1 & 2 of the textbook. You dont need
all ofthe content of the chapters. Below are the lecture headings which indicate the
important points you should concentrate on.
FINANCIAL MANAGEMENT TUTORIAL 2ND SEMESTER 2015
Give an example of a non UK Sovereign Wealth Fund which has invested in one or more UK
Company W has decided to raise 100 million by way of a rights issue. The company