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FIN3101 Finance Theory and Applications

Semester 6, 2015 External Toowoomba
Units : 1
Faculty or Section : Faculty of Business, Education, Law and Arts
School or Department : School of Commerce

Contents on this page


Examiner: Taiji Watanabe
Moderator: Chandrasekhar Krishnamurti


Pre-requisite: FIN1101 and FIN1103

Other requisites

Recommended - pre-requisite FIN2105.

Students are required to have access to a personal computer, e-mail capabilities and Internet access to UConnect. Current details of computer requirements can be found at //


The collapse of the sub-prime mortgage market in the US followed by the global financial crisis makes it absolutely essential for students and managers to understand the role that finance plays in the global economy, their companies, and their own lives. To this end, FIN3101 builds on the basic finance concepts learned in earlier courses and develops theories and practical applications that are essential to the emerging finance manager.


This course extends the material presented in FIN1101 and FIN2302. It 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 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 particular emphasis given to the incidence of taxes in a dividend imputation tax system. Finally, the interesting and important area of mergers, acquisitions and governance is explored. Formerly FIN2101.


On successful completion of this course, students should be able to:

  1. explain how a company's manager can make financial decisions that will be supported by all shareholders through the existence of a capital market, which in turn determines an optimal investment/dividend policy under conditions of certainty
  2. demonstrate the numeracy skills required by a company's manager by calculating all the necessary measures of risk and return that become the building blocks of mean-variance portfolio theory
  3. understand and apply in appropriate circumstances, modern portfolio theory together with the related capital asset pricing model to solve problems facing a company's manager or a financial planner
  4. understand the theory behind cost of capital measurements of a firm and apply them
  5. analyse competently and coherently communicate advice to management in respect of capital structure decisions, including the major theories of capital structure
  6. (a) outline the empirical evidence from recent studies on capital structure and assess the implications of the evidence for the trade-off, pecking order and free cash flows theories; (b) prepare practical applications of EBIT-EPS analysis
  7. examine the interaction of the investment and financing decisions, and apply techniques for incorporating the effects of the financing decision into capital budgeting including due recognition of the dividend imputation system
  8. understand the theory behind the different forms of payouts to shareholders and its applications in the Australian context
  9. provide a framework of analysis for mergers and acquisitions and discuss the issues related to corporate control and governance.


Description Weighting(%)
1. Investment and the capital market 6.00
2. Portfolio risk/return analysis 8.00
3. Portfolio theory 10.00
4. CAPM and its applications 12.00
5. Cost of capital: theory and estimation 8.00
6. Principles of capital structure 12.00
7. Capital structure decisions 8.00
8. Payout policy: theory and practice 12.00
9. Investment and financing decisions 12.00
10. Mergers, corporate control and governance 12.00

Text and materials required to be purchased or accessed

ALL textbooks and materials available to be purchased can be sourced from USQ's Online Bookshop (unless otherwise stated). (

Please contact us for alternative purchase options from USQ Bookshop. (

  • Peirson, G, Brown, R, Easton, S, Howard, P & Pinder, S 2012, Business finance, 11th edn, McGraw-Hill, North Ryde, New South Wales.

Reference materials

Reference materials are materials that, if accessed by students, may improve their knowledge and understanding of the material in the course and enrich their learning experience.
  • Atrill, P & McLaney, EF 2011, Financial management for decision makers, 6th edn, Financial Times Prentice Hall, Harlow, England.
  • Besley, S, Bringham, EF, Henry, D & Watanabe, T 2013, Corporate finance: the essentials, 1st edn, Cengage Learning, South Melbourne, Victoria.
  • Brealey, RA, Myers, SC & Allen, F 2014, Principles of corporate finance, 11th edn, McGraw-Hill/Irwin, New York.
  • Ross, SA, Westerfield, RW & Jaffe, J 2010, Corporate finance, 9th edn, McGraw Hill/Irwin, Boston, Massachusetts.
  • Van Horne, JC & Wachowicz, JM Jr 2009, Fundamentals of financial management, 13th edn, Financial Times Prentice Hall, Harlow, England.

Student workload requirements

Activity Hours
Assessments 20.00
Directed Study 36.00
Private Study 109.00

Assessment details

Description Marks out of Wtg (%) Due Date Notes
QUIZ 1 20 20 09 Oct 2015
QUIZ 2 30 30 23 Nov 2015
2-HOUR EXAMINATION 100 50 End S6 (see note 1)

  1. The examination date will be available via UConnect when the official examination timetable has been released.

Important assessment information

  1. Attendance requirements:
    External/Online: If you are an international student in Australia, you are advised to attend all classes at your campus. For all other students, there are no attendance requirements for this course. However, it is the students' responsibility to study all material provided to them or required to be accessed by them to maximise their chance of meeting the objectives of the course and to be informed of course-related activities and administration.

    On-campus: It is the students' responsibility to attend and participate appropriately in all activities (such as lectures, tutorials, laboratories and practical work) scheduled for them, and to study all material provided to them or required to be accessed by them to maximise their chance of meeting the objectives of the course and to be informed of course-related activities and administration.

  2. Requirements for students to complete each assessment item satisfactorily:
    To satisfactorily complete an individual assessment item a student must achieve at least 50% of the marks. (Depending upon the requirements in Statement 4 below, students may not have to satisfactorily complete each assessment item to receive a passing grade in this course.)

  3. Penalties for late submission of required work:
    Students should refer to the Assessment Procedure (point 4.2.4)

  4. Requirements for student to be awarded a passing grade in the course:
    To be assured of receiving a passing grade a student must achieve at least 50% of the total weighted marks available for the course.

  5. Method used to combine assessment results to attain final grade:
    The final grades for students will be assigned on the basis of the aggregate of the weighted marks obtained for each of the summative assessment items in the course.

  6. Examination information:
    This is a restricted examination. Candidates are allowed access to specific materials during the examination. The only materials that candidates may use in the examination for this course are:
    1. writing materials. These must be non-electronic and free from material which could give the student an unfair advantage in the examination.
    2. calculator which cannot hold textual information. The student must indicate on the examination paper the make and model of any calculator(s) used during the examination. It is essential that students attempting this course have a quiet battery-operated non-programmable calculator, such as the Casio fx-82TL scientific calculator, or an equivalent.
    Students are not permitted to take mobile telephones, pagers or other electronic means of communication into the examination room.

  7. Examination period when Deferred/Supplementary examinations will be held:
    Any Deferred or Supplementary examinations for this course will be held during the next examination period.

  8. University Student Policies:
    Students should read the USQ policies: Definitions, Assessment and Student Academic Misconduct to avoid actions which might contravene University policies and practices. These policies can be found at

Assessment notes

  1. Referencing in assignments:
    Harvard (AGPS) is the referencing system required in this course. Students should use Harvard (AGPS) style in their assignments to format details of the information sources they have cited in their work. The Harvard (AGPS) style to be used is defined by the USQ Library's referencing guide at //