AF5312

MSc in Accounting and Finance Analysis 2022/2023
Subject Code AF5312
Subject Title Principles of Corporate Finance
Credit Value 3
Level 5
Normal Duration One Semester
Pre-requisite / Pre-requisite: None

Co-requisite/
Exclusion Exclusion: AF5318 Financial Management
AF5326 Managerial Finance
AF5327 Finance for Executives
AF5331 Corporate Financial Management
Objectives This course introduces students to the foundation knowledge and

techniques in corporate finance, as well as covering more specialised
aspects of corporate finance on which other subjects can be built. This
course will help students to identify real life corporate finance issues
and explain the related observations or phenomena in terms of sound
financial theories concepts (MSc AFA Programme Outcome 1).
Students are also able to apply the up-to-date corporate finance
principles and see their impact on corporate policies and strategies.
Intended Learning Upon successful completion of this course, students should be able to:
Outcomes
a. Understand the major tasks of corporate finance;
b. Understand the role of financial markets and interest rate in

corporate financing and how they should be incorporated in
corporate financing decisions;
c. Understand the importance of time value of money and its

relevance to corporate financial decisions, and be able to apply the
up-to-date knowledge acquired in the course to solve similar capital
budgeting problems in other real case situations;
d. Understand the return-risk relation and the CAPM;
e. Understand issues of cost of capital, capital structure, and different

methods of equity and debt financing.
39
Subject Synopsis/ Key Concepts of Corporate Finance

Indicative Syllabus
Corporate finance and the financial manager; goals of corporate
management; agency problem, corporate governance and control of
the corporation; value of the firm expressed as contingency claims;
time value of money and present value.
Valuation and Capital Budgeting
Evaluation of capital investment decisions using the net present value

rule; alternative rules for capital budgeting; Risk and return; the CAPM.
Market Efficiency and Behavioral Finance
The efficient market hypothesis; behavioral finance; financial crises.
Capital Structure
Financial leverage and firm value; implications of Modigliani and Miller

propositions; capital structure and cost of capital; optimal capital
structure; limits to the use of debt; valuation and capital budgeting for
the levered firm.
Dividend Policy
Types of dividend; dividend policies; factors affecting dividend payout

policy.
Long-term Equity and Debt Financing
Public issue; alternative issue methods; cash offer; announcement of

new equity and the value of the firm; cost of new issues; rights; the
new-issue puzzle; types of bonds; public issue of bonds; bond
refunding; bond rating; private placement of securities.
Teaching/Learning The subject is structured around lectures/seminars, supplemented by

Methodology exercises within and outside class. Participants are urged to prepare
themselves well for each class and to proactively interact with both the
instructor and other students. Students should read all relevant
chapters a few times and try self-test questions assigned in class.
Assessment
Methods in Specific assessment % Intended subject learning
Alignment with methods/tasks weighting outcomes to be assessed
Intended Learning (Please tick as appropriate)
Outcomes
a b c d e
40
1. Class participation 10%     
2. Group presentation 20%     

of case study
3. Mid-term test 20%     
4. Final examination 50%     
Total 100 %
Explanation of the appropriateness of the assessment methods in

assessing the intended learning outcomes:
Class participation−Students are required to actively participate in

classroom discussion and other various classroom activities (e.g., self-
test problems) arranged by the lecturer. Performance on problem
solving will be evaluated on the effort rather than accuracy. It covers
the intended learning outcomes (a), (b), (c), and (d).
Group presentation of case study – Students can either form a group

(the minimum number of three and the maximum number of five) or
choose to be assigned to a group by the lecturer. Each group will
choose one case study (to be assigned later) and all group members
are required to make a 10-minute presentation in class and answer
questions raised by the instructor and classmates during Q&A
sessions. It covers the intended learning outcomes (a), (b), (c), and (d).
Mid-term test − A closed-book test with compulsory multiple-choice
questions and short analytical questions. It covers the intended
learning outcomes (a), (b), and (c).
Final examination − 3-hour closed book examination with compulsory

questions covering most of the intended learning outcomes.
Note: The specific requirements on individual assessment components

discussed above could be adjusted based on the pedagogical needs of
subject lecturers.
Student Study Class contact:

Effort Expected
 Lectures / Seminars 39Hrs.
Other student study effort:
41
 On average, students are expected to spend

about 39 hours for reading teaching materials 39 Hrs.
and doing exercise questions.
 On average students are expected to spend

36 hours for the group project discussion, 36 Hrs.
presentation, and report writing.
Total student study effort 114 Hrs.
Reading List and Textbook

References
Ross, Westerfield, Jaffe, and Jordan, Corporate Finance, 12th Edition,
McGraw-Hill. (ISBN: 978-1-260-09187-8)
Reference
Brealey, R., Myers, S., and F. Allen, Principles of Corporate Finance,

McGraw-Hill, latest edition.
Copeland, T., Weston, J., and Shastri, K., Financial Theory and
Corporate Policy, Pearson, latest edition.
Ross, S.A., R.W. Westerfield & B.D. Jordan, Fundamentals of

Corporate Finance, latest edition, McGraw-Hill.
Shefrin, H., Behavioral Corporate Finance, McGraw-Hill, latest edition.
42

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MSc in Accounting and Finance Analysis 2022/2023

Subject Code AF5312

Subject Title Principles of Corporate Finance

Normal Duration One Semester

Pre-requisite / Pre-requisite: None

AF5326 Managerial Finance

AF5327 Finance for Executives

AF5331 Corporate Financial Management

Objectives This course introduces students to the foundation knowledge and

b. Understand the role of financial markets and interest rate in

c. Understand the importance of time value of money and its

d. Understand the return-risk relation and the CAPM;

e. Understand issues of cost of capital, capital structure, and different

Subject Synopsis/ Key Concepts of Corporate Finance

Valuation and Capital Budgeting

Evaluation of capital investment decisions using the net present value

Market Efficiency and Behavioral Finance

The efficient market hypothesis; behavioral finance; financial crises.

Financial leverage and firm value; implications of Modigliani and Miller

Types of dividend; dividend policies; factors affecting dividend payout

Long-term Equity and Debt Financing

Public issue; alternative issue methods; cash offer; announcement of

Teaching/Learning The subject is structured around lectures/seminars, supplemented by

1. Class participation 10%     

2. Group presentation 20%     

3. Mid-term test 20%     

4. Final examination 50%     

Explanation of the appropriateness of the assessment methods in

Class participation−Students are required to actively participate in

Group presentation of case study – Students can either form a group

Final examination − 3-hour closed book examination with compulsory

Note: The specific requirements on individual assessment components

Student Study Class contact:

Other student study effort:

 On average, students are expected to spend

 On average students are expected to spend

Total student study effort 114 Hrs.

Reading List and Textbook

Brealey, R., Myers, S., and F. Allen, Principles of Corporate Finance,

Ross, S.A., R.W. Westerfield & B.D. Jordan, Fundamentals of

Shefrin, H., Behavioral Corporate Finance, McGraw-Hill, latest edition.

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