UNIVERSITY OF ZIMBABWE

BUSINESS STUDIES DEPARTMENT

CORPORATE FINANCE 1: COURSE CODE: BS204
Lecturer in charge: G Muponda

LECTURE DAYS
Tuesday

1400 hrs 1600 hrs (NLT 400)

Wednesday

1200 hrs 1300 hrs (NLT 400)

Thursday

1600 hrs 1700 hrs (HLT 500)

TOTAL CONTACT TIME

Lectures:

45 hours

Tutorials:

15 hours

TARGET GROUP
Corporate Finance BS204 is a second-year first semester course which is compulsory for all
students on the following Degree Programmes:
Bachelor of Business Studies (Finance and Banking)
Bachelor of Business Studies (Marketing)
Bachelor of Business Studies (Management)
Bachelor of Accountancy.
For a student to be allowed to register for this course he or she must have passed the
following prerequisite courses:
Business Statistics: BS106
Business Maths: BS107

Students on the Bachelor of Science (Economics) degree programme are also allowed to
register for this course as an elective. However, the student must have passed both
Mathematics for Economics and Introduction to Statistics with at least a 2.1 classification.
PURPOSE OF THE COURSE
The purpose of this course is to lay the foundation towards the study of corporate finance by
introducing the basic principles of financial management to the student.
OBJECTIVES OF THE COURSE
At the end of the course, the student is expected to:
a. Appreciate the importance of the concept of the time-value of money,
b. Apply the concept of the time-value of money to the amortization of loans, the
creation of sinking funds, the appraisal of capital expenditure budgets, and the
valuation of a companys securities.
COURSE CONTENT
The course is divided into the following three sections.
Time-value of money
The time-value of money is a concept which pervades all facets of corporate finance, such as
capital budgeting, the cost of capital, and company valuation. This section will cover the
following areas.
a. Financial mathematics: Calculation of future values and present values using simple
interest and compound interest.
b. Effective annual rates and continuous compounding.
c. Different types of Annuities: present value and future value.
d. Money market securities: Treasury Bills, NCDs, and Bankers Acceptances.
e. Analysis of pension funds, construction of sinking funds, and amortization of loans.
Introduction to capital expenditure budgeting
The acquisition of assets is an important decision which must be carefully considered before
it is undertaken because it affects the value of the firms assets and the shareholders equity.
This section will address the following areas.
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a. The structure of a capital budget and project cash flows.

b. Appraisal of capital budgets using various techniques: Payback Period, Net Present
Value, Profitability Index, and the Internal Rate of Return.
Valuation of Debt and Equity securities
The firm obtains funds from two principal sources: debt and equity. The cost of these funds
to the firm is also the rate of return that is expected by the investor supplying the funds to the
firm. It is important for us to be to know the long-term sources of funds, including different
types of debt and equity securities, and their cost to the business. This section will cover the
following areas:
a. Different types of debt and equity securities
b. Calculating the various types of yield on debentures and bonds
c. Bond valuation and risk, including duration and convexity.
d. Calculating the required rate of return on equity using the Capital Assets Pricing
Model.
e. Equity valuation using Gordons Dividend Growth Model
The weighted average cost of capital (WACC)
The WACC is the discount rate that we use in evaluating a companys projects and
estimating the value of a companys equity securities. In this section we will discuss the
following issues:
a. The Capital Assets Pricing Model: Estimating the parameters and application.
b. Estimating the Weighted Average Cost of Capital (WACC)
c. The Marginal Weighted Average Cost of Capital (MWACC)

METHODS OF TEACHING
The methodology used in this course is the lecture method. Students are therefore advised to
attend all lectures. Students will also be provided with prepared lecture notes and other
assignments in the form of handouts during lecture times. Tutorials will also be arranged for
students to explore difficult concepts in depth in smaller groups.

METHODS OF ASSESSMENT
Students will be assessed continuously during the semester using the following methods:
Two in-class tests

20 percent.

One group assignment

10 percent.

The final assessment mark will be determined as follows:

Continuous assessment (coursework):

30 percent

Final Examination:

70 percent.

Please note that a student who does not have any coursework marks or fails the continuous
assessment (coursework) by 12 percent or less will not be allowed to write the final
examination.
Recommended text books.
a. Megginson, W, Smart, B and Lucey, B (2008) Introduction to Corporate Finance.
South-Western Cengage Learning, Australia.
b. Van Horne JC (2006). Financial Management and Policy (International edition).
Prentice-Hall.
c. Weston F and Brigham, EF (2002) Essentials of Managerial Finance, Harcourt Brace
Publishers.