BUSINESS SCHOOL

Unit of Study Outline

Unit Code FINC2012
Unit Title Corporate Finance II
Semester 1, 2014
Pre-requisite Units: FINC2011 or FINC2001
Co-requisite Units:
Prohibited Units: FINC2002
Assumed Knowledge and/or Skills: You are assumed to be familiar with all content covered in Corporate
Finance I, particularly financial mathematics.
Unit Coordinator: Dr Hui Zheng
Address: Room 443, The Business School Building(H69), The University of Sydney NSW 2006
Email: hui.zheng@sydney.edu.au Phone: 9351 6448
Consultation Hours: Please go to Blackboard for details of all staff consultation times.
Class Day(s): Thu 16:00-18:00 Bosch Lecture Theatre 3
Required Text / Resources:
Required Textbook: Brealey R., Myers, S., Allen, F. 2014, Principles of Corporate Finance, 11th Edition, McGraw
Hill.
Copies of the text are readily available in the library.

Supplemenatry Textbook: Brealey R., S. Myers, G. Partington, and D.Robinson, Principles of Corporate Finance,
Australian edition, McGraw-Hill 2000.
Copies of the text are readily available in the library. Students are not recommended to own this textbook since we
will only use some chapters of this book.
More details about these textbooks will be explained in class.

You may also find the following resources useful throughout the course:
- Bishop S. R., H. R. Crapp, R. W. Faff & G. J. Twite, Corporate Finance, 4th Edition, Prentice Hall, 2000.
- Ross, Westerfield, Jaffe, Corporate Finance, 6th Edition, McGraw Hill, 2002.
- Hull, Options, Futures and Other Derivatives, 7th Edition, Pearson Prentice Hall, 2009.

This unit of study outline MUST be read in conjunction with

The Business School Unit of Study Common Policy and implementation information that applies to every unit of study offered by the
Business School (http://sydney.edu.au/business/currentstudents/policy). All assessment rules, such as standards used, penalties etc, are
covered.
The Business School Student Administration Manual - for information about all processes such as illness, appeals etc (
http://sydney.edu.au/business/currentstudents/student_information/student_administration_manual) When deciding applications and
appeals relating to these matters it will be assumed that every student has taken the time to familiarise themselves with these key policies
and procedures.

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The Business School seeks feedback from students and staff in order to continually improve all units offered. For information on previously
collected feedback and innovations made in response to this feedback, please see
http://sydney.edu.au/business/learning/planning_and_quality/feedback/student

1. Unit of Study Information

This unit builds on FINC2011 Corporate Finance I, by extending basic concepts in corporate financing, investing
and risk management. The unit presents current theories of corporate financing and their practical application in
corporate investment and capital budgeting. The unit also examines securities and securities markets with an
emphasis on pricing, investment characteristics and their use by corporations to manage risk. The securities
examined include: bonds and related fixed income products; futures and options. The goal of the unit is to broaden
students' knowledge of corporate finance in preparation for further study in finance in 300 level courses.

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2. Program Learning Outcomes and Unit Learning Outcomes

The Program Learning Outcomes for this Program are located at
http://sydney.edu.au/business/learning/staff/leadership/program_directors/outcomes
Unit Learning Outcomes
Unit Learning Outcomes
On the successful completion of the Unit you should be able to:
Apply modern portfolio theory to design investment strategies

Program Learning Outcomes

1. Business Knowledge
2. Critical Thinking
3. Business Analysis and
Problem-Solving
Apply the CAPM model to asset pricing problems
1. Business Knowledge
2. Critical Thinking
3. Business Analysis and
Problem-Solving
Evaluate corporations using derivative pricing models
1. Business Knowledge
2. Critical Thinking
3. Business Analysis and
Problem-Solving
Analyze financial capital structures, financial assets and financial actions of 1. Business Knowledge
corporations (group assignment)
2. Critical Thinking
3. Business Analysis and
Problem-Solving
4. Communication
Communicate professionally within corporate finance context (homework
1. Business Knowledge
and group assignment)
2. Critical Thinking
3. Business Analysis and
Problem-Solving
4. Communication

3. Assessment

Assessment Name
Essay
Mid-Semester Exam
Final Exam
Tutorial Homework
Academic Honesty

Individual/ Assessment
Group
Conditions
Group
Individual
Individual
Individual

Compulsory
Compulsory
Compulsory
Compulsory

Program
Learning
Outcomes
Assessed
1, 2, 3, 4
1, 2, 3
1, 2, 3, 4
1, 2, 3, 4

Length

Weight Due Date

Closing Date

10 pages
N/A
N/A
N/A

20%
25%
50%
5%

02-Jun-2014
17-Apr-2014
N/A
N/A

19-May-2014
17-Apr-2014
N/A
Weekly
Week 4

For the meaning and operation of this table, see policy information in the box on the front page or click here

Assessment details
Essay

Task Description
This is a group assignment. You should form a group of two or three people. The essay is due on Monday, 19
May 2014 at 23:59:59. Essay must be submitted electronically via TurnItIn on the Blackboard.

Please ensure that a cover sheet is attached to the front of the essay which specifies the names and full

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student IDs of your group members and the tutorial stream that you are allocated to. The essay should only
be submitted by one group member. Failure to do so will result in a 10% penalty and delay in the assessment
process of your essay.

A 10% penalty will be incurred for each calendar day the assignment is late by. The closing date is 2 June,
2014 at 23:59:59. No essay will be accepted after the closing date.

The Task:

Project evaluation is a critical process for corporations. However, by its nature future is unknown. Therefore,
scientific techniques have been developed to assist decision makers to better understand the risk and return
relation associated with different projects, and hopefully to achieve better outcomes.

Compare and contrast the real option method with the NPV/DCF method on project or corporate valuation. In
particular, provide a thorough analysis for the following questions:
1.

Are these methods mutually exclusive or complementary to each other? Why?

2.

How should corporations consider which method to use?

3.

Are there any other alternative valuation techniques?

4.
Illustrate your answers to the above questions within a companys specific situation. For example, which
technique(s) were used or should have been used by the company for its projects? Note that companies differ
in their risk profiles and nature of business, and your analysis should be specific to the company you select.
You should select a company listed on the Australian Securities Exchange and perform this analysis. ASX
Listed companies can be found at:
http://www.asx.com.au/asx/research/listedCompanies.do

Mandatory Requirements:
1.

A synopsis of no more than 100 words is to preface the essay.

2.
The maximum length of the essay is 10 pages. The maximum length limit does not include the cover
page, synopsis, reference list and any appendices if you choose to have. Essays exceeding the page limit will
be penalised at 10% per additional page. The essay should have a normal margin, font in Times New Roman
and font size of 12, and 1.5 line spacing. A 10% penalty applies for violation of the above resentation
requirement.
3.

All essays must include a list of references in academic form using the author-date (Harvard) citation

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style[1]. All sourced material, including direct quotations, must be appropriately acknowledged.
4. Your final assignment will be assessed based on the quality of analysis you conduct and the construction
and presentation of your essay (such as clear expression, logics and coherence, etc.). Each group member is
expected to be involved in the preparation, drafting, proofing and checking of all aspects of this group
assignment including ensuring no breaches of academic honesty. Members will be held jointly responsible for
the entire submission and awarded the same merit mark. In the event of a breach of academic honesty the
penalty will apply to all group members irrespective of which member(s) caused the breach.

You are responsible to form your group and work on this assignment as required above. The suggestions
below are set to help you achieve this target.
1. You should try to form a group by 3 April 2014 (Week 5).
2. For those who fail to form a group by 3 April 2014, the lecturer will randomly assign them into groups
during the lecture on 10 April (Week 6). Therefore, it is important for you to physically attend this lecture
should you wish to be assigned into a group.
3. For those who still dont have a group after 10 April 2014 (e.g. if you miss the lecture on 10 April), you
should contact the lecturer immediately, and your name and email address will be listed on the
Blackboard for people to contact you if they want you in their group.
4. If you still dont have a group after Step 1-3, and still want to submit this assignment, you have to work by
yourself. No penalty or special consideration apply in this case. However, it is highly recommended not to
do so and hence you should try to follow the procedure and find and work in a group.
5. For those who work in a group, it is recommended that you should record evidence on individual
contribution to the final group work, such as meeting attendance, suggestions and work contributed by a
member, etc. As specified above, all group members will share the same mark in the end. However, in
case of dispute on free riding problems it is your responsibility to present evidence to support your claim.
6. A final reminder. An excellent essay must come from a well functioning group. Dispute and disaster are
typically companions. You should aim to ensure a good teamwork from the beginning.

[1] See: http://libguides.library.usyd.edu.au/content.php?pid=160012&sid=1510179

Assessment Criteria
1. Conforming with instructions (e.g. word length, font, other instructions)
2. Presentation, communication & style (written)
3. Clarity of expression (incl. accuracy, spelling, grammar, punctuation)
4. Referencing
5. Use of literature/ Knowledge of theory
6. Methodology used is the most appropriate to the aims and objectives of the task
7. Data/information gathering/processing
8. Analysis
9. Critical reasoning / critical thinking
10. Time management/self management

Feedback - What, when and how feedback will be provided for this assessment
Assignment results will be released on Blackboard within two weeks after submission deadline.
Assignment hard copies will be returned to students during tutorial classes. They will also contain comments
and/or suggestions from the tutor who marked the assignment.

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Students will be able to communicate with their tutors on any specific questions they may have for their
assignments either during tutorial classes or tutor's consultation time.

Mid-Semester Exam

Task Description
Lectures 1-5 will be covered in the mid-term, and this material will be included in the final exam. The
midterm exam will be a multiple choice exam. It will be held on Thursday, 17 April 2014 during normal
lecture time. Exam venues will be announced in class and on Blackboard prior to the exam.

Assessment Criteria
1. Attention to purpose
2. Use of literature/ Knowledge of theory
3. Methodology used is the most appropriate to the aims and objectives of the task
4. Data/information gathering/processing
5. Context in which subject is used
6. Analysis
7. Problem solving
8. Conceptualisation
9. Critical reasoning / critical thinking
10. Time management/self management

Feedback - What, when and how feedback will be provided for this assessment
Midterm exam questions will be reviewed during the tutorial class following the week of the exam. Students
will be able to ask questions and communicate with their tutors in class.
While individual feedback is not possible, every student will receive feedback about the particular topic he or
she performed worst among all topics examined in the midterm exam.

Final Exam

Task Description
The final will cover all the material covered in the course. It will be typically short-answer questions
that involve both quantitative and qualitative analysis. Further details of the structure of the exam will
be provided during the final lecture. The exam will be held during the formal university exam period.
Assessment Criteria
1. Presentation, communication & style (written)
2. Clarity of expression (incl. accuracy, spelling, grammar, punctuation)
3. Use of literature/ Knowledge of theory
4. Methodology used is the most appropriate to the aims and objectives of the task
5. Data/information gathering/processing
6. Analysis
7. Problem solving
8. Conceptualisation
9. Critical reasoning / critical thinking
10. Time management/self management

Feedback - What, when and how feedback will be provided for this assessment
Final mark will be released suject to the University policy and timetable arrangement.

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Tutorial Homework

Task Description
Students are required to hand in their work on tutorial questions to the tutor in charge of their assigned tutorial
stream 4 times during the semester, each worth 1.25%. The actual classes that students need to hand in their
tutorial work will be announced during lectures. The assessment of the tutorial work is based on the
correctness of the answers, as well as the effort and seriousness that students demonstrate through their
work. No late submission will be accepted.
Assessment Criteria
1. Conforming with instructions (e.g. word length, font, other instructions)
2. Presentation, communication & style (written)
3. Clarity of expression (incl. accuracy, spelling, grammar, punctuation)
4. Use of literature/ Knowledge of theory
5. Methodology used is the most appropriate to the aims and objectives of the task
6. Data/information gathering/processing
7. Problem solving
8. Conceptualisation

Feedback - What, when and how feedback will be provided for this assessment
Answers to tutorial questions will be explained in tutorial classes in the same week.

4. Other Resources for Students

All lectures and seminars are recorded and will be available within Blackboard for student use. Please note the
Business School does not own the system and cannot guarantee that the system will operate or that every
class will be recorded. Students should ensure they attend and participate in all classes.

Based on the feedback from last semester additional practice questions will be provided for this semester. In
particular the McGraw-Hill Connect Learning tools will be used, which is an on-line system that allows you to
work at a time suitable for you. This is a supplementary and non-compulsory resource, so working on these
practice questions is voluntary, and not assessed or assisted by the teach staff (similar to the PASS program
below). More information will be provided during lecture.

Pass Program
Peer Assisted Study Sessions. This program helps to improve students' academic performance providing extra
free learning opportunities with trained student facilitators, including problem solving practice where relevant, in
areas directly related to understanding the unit concepts more thoroughly. Students register for PASS online at:
http://sydney.edu.au/business/learning/students/pass Email all enquiries about the PASS program to:
business.pass@sydney.edu.au

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5. Unit Schedule
Week
1
3 Mar 2014
2
10 Mar 2014
3
17 Mar 2014
4
24 Mar 2014
5
31 Mar 2014
6
7 Apr 2014

Required Reading(s)

Lecture/Tutorial

Ch. 7

Portfolio Theory

Ch. 8

CAPM

Ch. 20 & Ch. 26

Ch. 21

Introduction to Forwards, Futures and

Options
Contingent Claims II:
Valuation

Ch. 22

Real Options

Ch. 17 & Ch. 18

Capital Structure I

7
N/A
14 Apr 2014

Assessments Due

Mid-Semester Exam No Lecture

Midterm exam on 17/04/2014.

During normal lecture time.
Covers Week 1 - 5. Venues
TBA.

Common week 21 Apr to 27 Apr

8
28 Apr 2014
9
5 May 2014
10
12 May 2014
11
19 May 2014
12
26 May 2014
13
2 Jun 2014

Ch. 18 & Ch. 24

Capital Structure II

Ch. 3 & Ch. 23

Debt Valuation: Riskless and Risky Cases

Ch. 16

Dividend Policy

Ch. 19

Valuation and the Cost of Capital

Ch. 15

Issuing Equity

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Review of midterm exam in

tutorial class.

Essay Due Monday

19/05/2014 23:59:59

Review Lecture