FIN2101 Finance Theory and Applications (FOBUS)

Semester 2 (ONC)Toowoomba (EXT)Toowoomba

Units 1.0 (Banking and Finance) Band 3A

Pre-requisite: FIN1101 and STA2300

Recommended: Pre-requisite FIN1103. Students are required to have access to a personal computer, e-mail capabilities and Internet access to USQConnect. Current details of computer requirements can be found at <http://www.usq.edu.au/business/aboutfob.htm>.

Synopsis

This course extends the material presented in FIN1101 and also introduces further more advanced theory and applications thereof. Firstly, some fundamental issues in finance such as the consumption/investment trade-off and the interaction of that decision with capital markets (under conditions of certainty) are introduced. The arithmetic of mean-variance portfolio theory is then presented. This allows portfolio theory to be developed, which then leads into the presentation of the related capital asset pricing model together with two important applications. The net present value methodology is then extended into the new and more sophisticated area of real options. The valuation of real options is further developed by way of the binomial pricing process. The important 'existence' issue of an optimal capital structure is then examined by way of the propositions resulting from Modigliani and Miller's analysis together with some alternative theories of capital structure. Empirical evidence on capital structure is examined and the various theories of capital structure assessed from a practical point of view. Various methods of evaluating the levered firm are then developed with emphasis given to the incidence of taxes. Finally, the interesting and important area of mergers, acquisitions and governance is explored.