5585-Corporate Finance (AIOU)

ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD

(Commonwealth MBA/MPA Program)

COPORATE FINANCE (5585)

CHECKLIST

SEMESTER: AUTUMN, 2010

This packet comprises the following material:

1. Text Books   
2. Course Outlines
3. Assignment No. 1,2
4. Assignment Forms ( 2 sets )

Note:    In this packet, if you find anything missing out of the above mentioned material, please contact at the address given below:

Mailing Officer

Services Block No. 28

Allama Iqbal Open University

H-8, Islamabad

 

INSTRUCTIONS

(a)     All written assignment must be well organized, presented in an easy-to-read format and neat. Moreover, pay particularly close attention to grammar, spelling, punctuation and understandability. Communication is extremely important in this course.

(b)     Documentation is likewise very important. Un-supported statements or opinions are worth less to the reader, who desires to verify your finding. Complete and specific documentation is mandatory. Also, your references should be to primary sources, except in rare unusual situation.

(c)     Quoting should be kept to an absolute minimum.

Guidelines for Doing Assignments

We expect you to answer each question as per instructions in the assignment. You will find it useful to keep the following points in mind:

(1)         Planning: Read the assignments carefully, go through the Units on which they are based. Make some points regarding each question and then rearrange them in a logical order.

(2)         Organization: Be a little selective and analytical before drawing up a rough outline of your answer. Give adequate attention to question’s introduction and conclusion.

Make sure that:

a)            The answer is logical and coherent,

b)            It has clear connections between sentences and paragraphs,

c)            The presentation is correct in your own expression and style.

(3)         Presentation: Once you are satisfied with your answer, you can write down the final version for submission. It is mandatory to write all assignments neatly. If you so desire, you may underlining the points you wish to emphasize. Make sure that the answer is within the stipulated word limit.

Wishing you all the best

                                                                                             Salman A. Qureshi

                                                                                             (Course Coordinator)

ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD

(Commonwealth MBA/MPA Programme)

WARNING

1.         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.

2.         SUBMITTING ASSIGNMENTS BORROWED OR STOLEN FROM OTHER(S) AS ONE’S OWN WILL BE PENALIZED AS DEFINED IN “AIOU PLAGIARISM POLICY”.

Course: Corporate Finance (5585)                                   Semester: Autumn, 2010

Level: Executive MBA/MPA                                                       Total Marks: 100

ASSIGNMENT No. 1

Q.1    (a)     Identify the various business forms and their implications for obtaining financing?

         (b)     Explain the different types of financial institutions and there regulatory authorities?

         (c)     Explain the types of financial markets and there importance for organizations?

Q.2    Perform the ratio analysis of any business or commercial organization, write in depth interpretations of each ration calculated. You are required to take past three years financial statements for the ratio analysis. Calculate at least 10 ratios. (Also make line chart to show the trend of each ratio).

Q.3    (a)     What is operating and financial lease? Briefly discuss the characteristics of a lease agreement that transform a lease agreement into a financial lease.

         (b)     Ajax Finance Corp has received a request from a customer to lease a fire truck. If the cost of the vehicle is $1,000,000, determine the monthly lease payments based upon the following parameters:

                  ¨      Lease term – 5 years

                  ¨      Interest rate – 10%

                  ¨      Estimated salvage value at the end of the lease - $500,000

                  Determine the monthly payment assuming that payments are made at the end of the month.

Q.4    Marks-Write Pen Company has an outstanding issue of convertible bonds with a $1,000 par value. These bonds are convertible into 50 shares of common stock. They have a 10 per cent coupon and a 10-year maturity. The interest rate on a straight bond of similar risk is eight per cent.

         (a)     Calculate the straight bond value of the bond.

         (b)     Calculate the conversion value of the bond when the market price of the stock is $30/share.

         (c)     What is the least you would expect the bond to sell for at a market price of common stock of $18/share?

Q.5    As An organization expands its operations into different countries there is an increase in political risk as there are more levels of government to deal with and varying government regulations and policies. It is important that a company understand the risk that exists in all countries they operate in. Please critically comment on this statement with the help of examples.

ASSIGNMENT No. 2

(Marks: 100)

Instructions:

1.      This assignment is a research-oriented activity. You are required to develop a term paper and submit to the tutor for evaluation prior to the final examination. The last date of this assignment will be notified separately by our directorate of regional services and the same will be communicated to you directly as well as through approved study centres assigned to you.

2.      You will have to participate in the activity fully, actively, and practically to be eligible to sit in the final examination of the course. Please send one copy of this assignment to COL MBA/MPA Programme office, Block No. 11, Allama Iqbal Open University, Sector H-8, Islamabad.

3.      For the preparation of this assignment, you should first thoroughly review the conceptual framework of the topic and develop a scholarly material of the same giving references, quotations, and extracts of various scholars and experts. Then visit any business/commercial organization and study the relevant practical aspects there. Combining the theoretical and practical aspects, develop a comprehensive paper consisting of at least 20 to 25 types pages to be submitted to your tutor.

         (a)     Introduction to the topic

         (b)     Important sub-topics

         (c)     Practical study of the organization with respect to the topic

         (d)     Review of theoretical and practical situations, merits, de-merits deficiencies or strengths of the organization with respect to the topic under study.

         (e)     Conclusion and recommendation

         (f)     Annex, if any

4.      Prepare a copy of this assignment submit to your tutor for your evaluation.

5.      You should add any illustrative material/data/tables/analysis for effective submission.

6.      If you fail to submit this assignment in the class, then you will not be able to sit in the final examination conducted by AIOU.

7.      A number of topics given below are the general aspects of the course and you are required to select one of the topics according to the last digit of your roll number. For example, if the roll number is N-9337241, you will select topic number 1, and if the roll number is O-3427185 then you will select topic number 5 (the last digit).

1.             Goal of Corporate Financial Management

2.             Impact of Market and the Corporation

3.             Financial Statement and Long-Term Financial Planning

4.             Capital Investment Decision

5.             Present and Future Values of Multiple Cash Flows

6.             Valuing Stock and Bonds

7.             Investment Criteria

8.             Security Market Line and Return, Risk.

9.             Short Term Finance and Planning

10.         Global impacts on corporate financing activities in Pakistan

COPORATE FINANCE (5585)

OUTLINES

Block 01: The Financial System and the Economy

         Objectives and Introduction

         Introduction: Finance

         Forms of a Business Organization

Ø            Sole Proprietorship

Ø            Partnership

Ø            Corporations

Ø            Summary ­– Forms of Business

         Role of the Financial Manager

Ø            Finance and Accounting

Ø            Finance and Economics

         Goals of an Organization

Ø            Profit Maximization

Ø            Maximization of Shareholder Wealth

Ø            Agency Problem and Control

         Financial Institutions, Markets, and Regulation

Ø            Financial Institutions

Ø            Financial Markets

Ø            Primary vs. Secondary Markets

Ø            The Capital Market

Ø            The Canadian Security Exchanges

Block 02: Financial Modelling

         Objectives and Introduction

         Introduction: Financial Modelling

         Financial Ratio Tools

Ø            Liquidity Rations2.2 Activity Ratios

Ø            Leverage (Debt Ratios).

Ø            Profitability Ratios

Ø            Market Ratios

Ø            Shareholder Value and the DuPont Identity

         Cash Flow Budget

Ø            Cash Receipts

Ø            Cash Disbursements

         Financial projections/Pro Forma Statements

Ø            Pro Forma Income Statement

Ø            Pro Forma Balance Sheet

Block 03: Leasing

         Introduction: Leasing

         Operating versus Financial Leases

Ø            Examples of Accounting for Operating and Financial Leases

Ø            Operating Lease

Ø            Financial Lease

         Determining the Magnitude of Lease Payments

         Tax Treatment of Leases

         Lease or Buy?

Ø            Advantages of Leasing

Ø            Disadvantages of Leasing

Block 04: Derivatives and Hybrids

         Objectives and Introduction

         Introduction: Derivatives and Hybrids

         Convertible Securities

Ø            Features of Convertible Securities

Ø            Why Issue Convertible Securities?

Ø            Determining the Value of a Convertible Bond

         Stock Purchase Warrants

Ø            Determining the Value of a Warrant

Ø            Implied Value of a Warrant

Ø            Theoretical Value of a Warrant

Ø            Warrants and Leverage

Ø            Example of a Warrant Issue

         Options

Ø            Option Gains/Losses

Ø            Gains/Losses on Call Options

Ø            Gains/Losses on Put Options

Ø            Why are Options Purchased/Sold?

Block 05: Managing Financial Risk

         Introduction: Managing Financial Risk

         Financial Risk

Ø            Risk Avoidance

Ø            Loss Prevention and Control

Ø            Risk Retention

Ø            Risk Transfer

         Hedging and Insurance

Ø            Hedging vs. Insurance Example

         Hedging Tools

Ø            Hedging Using Forward and Futures Contracts

Ø            Terminology of Forward Contracts

Ø            Swap Contracts – for Currency and Interest Rates

Ø            Hedging by Matching Assets to Liabilities

Ø            Matching Example

Ø            Interest Rate Caps

Block 06: Mergers and Acquisitions

         Introduction: Mergers and Acquisitions

         Building the Business Case for an Acquisition or Merger

Ø            Additional Revenue

Ø            Cost Savings

Ø            Tax Savings

Ø            Reduction in Fixed and Working Capital

         Legal Structure

Ø            Sample Merger – TCPL Merger with Nova

Ø            Acquisition with Share/Cash or a Mixture Thereof

Ø            Asset Purchase: An Alternative to Acquiring Shares

         Taxes and Acquisitions

         Accounting for Mergers and Acquisitions

         Structuring the Purchase Consideration

Ø            Example: X takes over Y, making it a wholly owned subsidiary

Ø            Case A: Cash Acquisition

Ø            Case B: Share Acquisition

Ø            Considerations in Choosing Cash versus Stock

         Defensive Strategies

         Going Private and Leveraged Buyouts

         International Mergers

Block 07: International Managerial Finance

         Introduction: International Financial Management

         Borderless Trading

         World Trade Organization (WTO)

         The International Organization

Ø            Taxation

Ø            Accounting

         Risk

Ø            Political Risk

Ø            Exchange Risk

         Financing Decisions

         Impact on Capital Projects

         Personnel and Management

         Recommended Books:

1)            Title: Principals of Corporate Finance

                  Author: Richard A. Brealey and Stewart C. Myers.

2)            Title: Advanced Corporate Finance

Author: Joseph Ogden, Frank C. Jen, Philip F. O’Connor

3)            Title: Fundamentals of Corporate Finance

Author: Stephen Ross, Randolph Westerfield, Bradford Jordan