Final o 5-3-2014

ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD

(Department of Business Administration)

CORPORATE FINANCE (8524)

CHECKLIST
SEMESTER: SPRING 2014

This packet comprises the following material:

1.
2.
3.
4.

Text Book (one)

Course Outlines
Assignment No. 1, 2
Assignment Forms ( 2 sets )

In this packet, if you find anything missing out of the above mentioned material, please
contact at the address given below:
The Mailing Officer
Mailing Section, Services Block No. 28
Allama Iqbal Open University
H-8, Islamabad.
Phone Nos. 051-9057611-12
Ms. Nadia Rashid
(Course Coordinator)

ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD

(Department of Business Administration)
WARNING
1.
2.

PLAGIARISM OR HIRING OF GHOST WRITER(S) FOR SOLVING

THE ASSIGNMENT(S) WILL DEBAR THE STUDENT FROM AWARD
OF DEGREE/CERTIFICATE, IF FOUND AT ANY STAGE.
SUBMITTING ASSIGNMENT(S) BORROWED OR STOLEN FROM
OTHER(S) AS ONES OWN WILL BE PENALIZED AS DEFINED IN
AIOU PLAGIARISM POLICY.

ASSIGNMENT No. 1
(Units: 14)
Course: Corporate Finance (8524)
Level: MBA (3 Years / 2 Years) / M.Com

Semester: Spring 2014

Total Marks: 100
Pass Marks: 50

Q. 1 Zeeshan wants to save money to meet three objectives. First, he would like to be
able to retire 30 years from now with retirement income of Rs.20,000 per month
for 20 years, with the first payment received 30 years and one month from now.
Second, he would like to purchase a plot in Vihari in 10 years at an estimated cost
of Rs.325,000. Third, after he passes on at the end of the 20 years of withdrawals,
he would like to leave an inheritance of Rs.750,000 to his nephew Sarim. He can
afford to save Rs.2,000 per month for the next 10 years. If he can earh an 11
percent EAR before he retires and an 8 percent EAR after he retires, how much
will he have to save each month in years 11 through 30?
(20)
Q. 2 Anees Industrial Systems Company (AISC) is trying to decide between two
different conveyor belt systems. System A costs 430,000, has a four-year life, and
requires Rs.120,000 in pretax annual operating costs. System B costs Rs.540,000,
has a six year life, and requires Rs.80,000 in pretax annual operating costs. Both
systems are to be depreciated straight line to zero over their lives and will have
zero salvage value. Whichever project is chosen, it will not be replaced when it
wears out. If the tax rate is 34 percent and the discount rate is 20 percent, which
project should the firm choose?
(20)
Q. 3 Ansar has Rs.100,000 to invest in a portfolio containing Stock X, Stock Y, and a
risk free asset. He must invest all of his money. His goal is to create a portfolio that
has an expected return 13percent and that has only 70 percent of the risk of the
overall market. If Stock X has an expected return of 31 percent and a beta of 1.8,
Stock Y has an expected return of 20 percent and a beta of 1.3, and the risk free rate
is 7 percent, how much money will he invest in Stock X? Also give interpretation
to the answer.
(20)

Q. 4 Discuss in detail the techniques a financial manager can identify as a principal threats
to a projects success. Briefly describe how you would use each technique being a
financial manager of a corporation?
(20)
Q. 5 Describe in detail what market inefficiency can mean for the financial manager of a
corporation. Also write down the strategies that can be used by the financial
manager when markets are not efficient.
(20)
GUIDELINES FOR ASSIGNMENT No. 1
You should look upon the assignments as a test of knowledge, management skills, and
communication skills. When you write an assignment answer, you are indicating your
knowledge to the teacher:

Your level of understanding of the subject;

How clearly you think;

How well you can reflect on your knowledge & experience;

How well you can use your knowledge in solving problems, explaining situations,
and describing organizations and management;

How professional you are, and how much care and attention you give to what you do.
To answer a question effectively, address the question directly, bring important related
issues into the discussion, refer to sources, and indicate how principles from the course
materials apply. The student must also be able to identify important problems and
implications arising from the answer.
The references should be given at the end of the assignment. For citing references,
writing bibliographies, and formatting the assignment, APA format should be followed.

Total Marks: 100

ASSIGNMENT No. 2

Pass Marks: 50

This assignment is a research-oriented activity. You are required to obtain information

from a business/commercial organization and prepare a report of about 1000 words on
the issue allotted to you to be submitted to your teacher for evaluation.
You are required to select one of the following issues according to the last digit of your
roll number. For example, if your roll number is P-3427180 then you will select issue # 0
(the last digit):Issues/Topics:
0.
Making Investment Decision with Net Present Value Rules
1.
Measurement of Portfolio Risk for a Project
2.
Decision Trees and Subsequent Decisions
3.
Means and Modes of Corporate Financing
4.
Financial Distress and its Cost
5.
Financial Analysis of a Company
6.
Merger, its Cost and Gains
7.
Financial Planning Process in a Corporation
8.
Financial Lease and its Valuation
9.
Process of Financing Foreign Operations of an International Corporation

GUIDELINES FOR THE PREPARATION OF ASSIGNMENT # 2

The Report Should Follow the Following Format:
1.
Title page
2.
Acknowledgements
3.
An abstract (one page summary of the paper)
4.
Table of contents
5.
Introduction to the issue (brief history & significance of issue assigned)
6.
Data collection methods
7.
Practical Study related to the topic assigned
8.
Conclusion (one page brief covering important aspects of your report)
9.
Recommendations (specific recommendations relevant to issue assigned)
10. References (as per APA format)
11. Annexes (if any)
Other Guidelines:

1.5 line spacing

Use headers and subheads throughout all sections

Organization of ideas

Writing skills (spelling, grammar, punctuation)

Professionalism (readability and general appearance)

Do more than repeat the text

Express a point of view and defend it.

You should use transparencies and any other material for effective presentation. The
transparencies are not the presentation, but only a tool; the presentation is the
combination of the transparencies and your speech. Workshop presentation transparencies
should only be in typed format.
You are required to prepare two copies of 2nd assignment. Submit one copy to your tutor/
teacher for evaluation and the second copy for presentations in the workshop in the
presence of the resource person and classmates, which will be held at the end of the
semester prior to the final examination.
GUIDELINES FOR WORKSHOP PRESENTATION:

Make eye contact and react to the audience. Don't read from the transparencies or
from report, and don't look too much at the transparencies (occasional glances are
acceptable to help in recalling the topic to cover).

A 15-minute presentation can be practiced several times in advance, so do that until

you are confident enough. Some people also use a mirror when rehearsing as a
substitute for an audience.
WEIGHTAGE OF THEORY & PRACTICAL ASPECTS IN ASSIGNMENT # 2 &
WORKSHOP PRESENTATIONS:
Assignment # 2 & workshop presentations are evaluated on the basis of theory & its
applicability. The weightage of each aspect would be:
Theory
Applicability (practical study of the organization)

60%
40%

COURSE OUTLINE
Course: Corporate Finance
Level: MBA (3 Years / 2 Years) / M.Com

Course Code: 8524

Credit Hours: 03

Unit1

Value
1.1. Role of Financial Manager
1.1. Present Value and Opportunity Cost of Capital
1.2. Present Value Calculations for Financial Instruments
1.3. Capital Budgeting Techniques
1.4. Making Investment Decision with Net Present Value Rules

Unit2

Risk and Return

2.1. Risk Measurement and Diversification
2.1.1 Measurement of Portfolio Risk
2.1.1 Factors Affecting Individual Securities Portfolio Risk
2.1.2 Diversification and Value Additivity
2.1. Risk and Return Relationship Theories
2.2.1 Markowitz Portfolio Theory
2.2.1 Validity and Role of Capital Asset Pricing Model
2.2.2 Arbitrage Pricing Theory
2.2. Capital Budgeting and Risk
2.3.1 Company and Project Cost of Capital
2.3.1 Beta Measurement and Adjustments

Unit3

Practical Tools for Capital Budgeting

3.1.
Project Analysis Tools
3.1.1 Sensitivity Analysis
3.1.1 Monte Carlo Simulation
3.1.2 Decision Trees and Subsequent Decisions
3.1.
Capital Investment Decisions and Strategies

Unit4

Financing Decisions and Market Efficiency

4.1.
Efficient Market
4.1.1 Efficient Market: Concept and Forms
4.1.1 Lessons of Market Efficiency
4.1.
Means and Modes of Corporate Financing

Unit5

Dividend Policy and Capital Structure

5.1. Dividend Payments Decision and Stock Repurchases
5.1. Controversy about Dividend Policy
5.1.1 Rightist
5.1.2 Taxes and Radical Left

5.2.
5.3.
5.4.
5.5.

5.1.3 Middle-of-the-Roaders
Financial Leverage Impact upon Competitive Tax-Free Economy
Cost of Financial Distress
Pecking Theory of Financing Choices
Financing and Valuation
5.4.1 After-Tax Weighted-Average Cost of Capital
5.4.2 Business Valuation

Unit6

Options
6.1. Corporate Liabilities and Valuation of Options
6.1.1 Calls, Puts, and Shares
6.1.2 Holding Calls, Puts, and Shares in Combination
6.1.3 Determination of Option Values
6.1. Real Options
6.2.1 Option to Expand
6.2.2 Timing Option
6.2.3 Option to Abandon
6.2.4 Flexible Production Facilities
6.2. Warrant and Convertibles
6.3.1 Concept of Warrant and Convertible Bonds
6.3.2 Process of Issuing Warrants and Convertibles

Unit7

Debt Financing
7.1. Types of Interest
7.1. Interest Rate Fluctuations and Bond Prices
7.1.1 Duration and Volatility
7.1.2 Managing Interest Rate Risk
7.1.3 Explaining Term Structure
7.1.4 Different Kinds of Debt
7.1.5 Valuation of Financial Leases

Unit8

Financial Planning
8.1. Analysis of Financial Performance
8.1.1 Financial Ratios
8.1.2 Earning Record
8.1.3 Application of Financial Analysis
8.1. Approaches to Financial Planning
8.2.1 Concept of Financial Planning
8.2.2 Requirements for Effective Planning
8.2.3 Financing Planning Models
8.2.4 External Financing and Growth
8.2. Short Term Financial Planning

Unit9

Mergers and International Finance

9.1.
Mergers
9.1.1 Sensible Motives for Mergers

9.1.

9.1.2 Reasons for Mergers

9.1.3 Estimating Costs and Gains of Mergers
9.1.4 Mechanics of a Merger
9.1.5 Merger Tactics
9.1.6 Leveraged Buy-Outs
9.1.7 Mergers and Economy
International Financial Management
9.2.1 Foreign Exchange Markets
9.2.2 Insuring Against Currency Risk
9.2.3 International Investment Decisions
9.2.4 Cost of Capital for Foreign Investments
9.2.5 Financing Foreign Operations
9.2.6 Political Risk
9.2.7 Hedging Financial Risk

Recommended Books:
Brealey et al. (2008). Principles of Corporate Finance (9th ed.). Illinois, U.S.A.:
McGraw-Hill/Irwin
Ross et al.(2005). Fundamentals of Corporate Finance (7th ed.). Illinois, U.S.A.:
McGraw-Hill/Irwin
Vishwanath S.R.(2007). Corporate Finance: Theory and Practice (2nd ed.). New Delhi,
India: Sage Publication.
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