MASTERS IN FINANCIAL MANAGEMENT/MASTERS IN
FINANCIAL & RISK MANAGEMENT
FTX 5042W - Corporate
finance & valuations
FTX 5043F – Capital markets
& financial instruments
Convenor: Phillip de Jager
Convenor: Francois Toerien
Common 1st year
Financial &
risk
management
Financial
management
FTX5003W – Minor
dissertation (90 credits)
FTX5028W Topics in
financial management &
FTX5029W Minor
dissertation (60 credits)
COMMON CORE COMPONENT: FTX5042W CORPORATE FINANCE &
VALUATIONS
1. AIMS AND OBJECTIVES
The broad aim of FTX5042W is the preparation of participants for executive positions in
corporate finance. The approach is interdisciplinary with the emphasis on the development
of conceptual knowledge and problem solving ability in issues regarding corporate finance
within the context of strategic management planning.
The objectives of the course are to:

focus on the underlying concepts in corporate finance within the context of strategic
management, through the study of appropriate case studies, textbooks and research
articles;
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create the structure which affords the participants an opportunity to develop a decision
focused approach to financial management
provide opportunities for participants to explore and to discuss corporate finance and
capital markets;
develop the ability, given a particular financial situation within a business environment
to:
 identify key issues,
 focus on relevant information,
 rank issues in order of importance,
 process required computations and undertake financial modelling,
 suggest and debate alternative courses of action,
 select the most appropriate course of action,
 develop the ability to present a motivated solution to a complex financial issue,
given the possibility of alternative solutions, to small and large groups of
participants,
 develop the participant's oral and written communication skills.
2. COURSE DURATION
The course extends over the period from April 2014 to November 2014 and comprises weekly
class meetings, which are held on Monday to Thursday evenings (please consult your program
as venue availability is driving the choice of evening) from 18.00 to about 20.30 in room 4J,
Leslie Social Sciences. Saturday mornings are used for additional lectures and tests and
examinations.
The proposed programme for FTX5042W is set out in the ANNEXURE but may be subject to
change:
Class, or individual sessions may be held to consider proposals for and/or discussions on
Research Proposals. Staff is available to assist with Research Proposals already during this
course.
Attendance at all sessions is an essential requirement for continued permission to remain on
the course and for registration. We do understand that your work commitments are
important. However, attendance at lectures must be a priority. If you are going to miss a
class, please email us with an explanation and go the extra mile for your group. Nonattendance will not be accepted without a detailed reason for such absence.
3. COURSE CONTENT
The course has a decision making focus within a strategic context. Value creation and
the principles of valuations are stressed throughout the programme.
The content is organised in key areas:
3.1 Accounting Information, Financial Analysis and Financial Modelling
Accounting data reflects the firm’s relationship between capital markets and investment
opportunities, and the results of operations. The course focuses on interpreting this
information for decision making. Forecasting financial statements and funding requirements
are also covered as well as financial analysis and credit ratings.
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3.2 Risk & Return, Cost of Capital and EVA
These are key underlying concepts in the creation of value. It is not enough for firms to earn a
profit, in order to add value the profit must exceed the firm’s cost of capital. The use of
Economic Value Added as a measure of performance is evaluated Joel Stern – the founder of
EVA normally lectures on this topic.
3.3 Capital Budgeting & Risk Analysis
The analysis of long-term investments is crucial in maximising value, especially in situations
of capital rationing and inflation. The evaluation of capital projects emphasises the tax
implications, real options and the estimation of project cash flows. Risk analysis includes
sensitivity analysis, tornado graphs, scenario manager, goal seek, and financial modelling in
Excel. We also apply Monte Carlo Simulation using Crystal Ball.
3.4 Source of Finance and Capital Structure
Excessive use of debt can expose a firm to unacceptable levels of risk. Conversely,
conservative debt policies may limit the opportunity for the leverage effect to increase wealth.
How do firms select their debt/equity ratios? Which sources of finance should firms use?
The course evaluates MM and other capital structure theories
3.5 Valuation of Companies and Fixed Income securities
The valuation techniques required to value equity and fixed income securities are
fundamental to decision making in corporate finance and portfolio management. Topics
include Yield to Maturity, Free Cash Flow, EVA, Growth models, net asset values and price
earnings multipliers. Financial Modelling is a key component of this section and this topic
also refers to the IPEV and IVSC guidelines. Forecasting methods are analysed and you will
be referred to readings on the topic. The valuation of financial institutions will be included.
3.6 Specialised topics in Finance
Specialised topics covered in the course include real options, share buybacks, BEE financing
structures, securitisation and behavioural finance.
4. KEY ELEMENTS
The course provides an integrated package built around a number of key elements, each of
these supports and is supported by the other elements. No part of the programme stands
alone and students are expected to participate fully in each.
4.1 Participants
The course is designed to assist participants in achieving the course objectives, while allowing
sufficient scope for individuals to achieve personal objectives. Those invited to join the
programme will be selected because it is believed that they have something to offer to, as well
as gain from the course.
4.2 Working Groups
The class will be divided into groups of between 4 and 5 students. The objective of the
working group is to simulate organisational behaviour. Various people in an organisation will
observe clues to problems and will propose action: in the working group the participant
should develop reasoning and persuasive abilities and also the ability to draw on the
knowledge, experience and perceptions of others in the group. Groups prepare material for
each session of the full class and will also be allocated group assignments. Working groups
normally meet once a week at a time convenient to the group members. Many corporate
finance assignments in practice revolve around teams. The course reflects the new corporate
reality.
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4.3 Case Studies
The Programme follows the Harvard Business School approach of making extensive use of
case studies. The objective of a case study is to simulate real financial management
situations. Good case studies will therefore have a certain level of "noise", which is irrelevant,
distracting or misleading information, and also clues to various problems. These relevant
problems then compete for priority. The task of the group is:
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to eliminate the "noise",
identify the relevant problems,
rank them in order of priority,
research the finance theory and literature relevant to these problems,
identify alternative courses of action,
propose and motivate the preferred alternative.
Case study work forms the core of FTX5042W. The typical procedure for case study
preparation will be as follows: the individuals in the group will analyse the case and research
material where appropriate. They will then formulate a written solution. They will then meet
in the working groups to exchange, propose and debate their views. A group member will
document its conclusions and supporting arguments. This document is typed, including a
reference list and is submitted by 12.00 p.m. of the day of the class meeting where the case is
to be discussed. Each Group can email their submission but need to set out the worksheets
in such a way that it is easy to print. Always identify your Group in file names.
In addition, each group will appoint a chairperson on a rotating basis to co-ordinate and
manage each group’s submission on a weekly basis. It is mandatory that the functions of
chairperson be rotated through the working group. However, I will retain the right to call on
anyone to open a case. No other mandatory rules apply to working groups. It is essential that
all students prepare for and participate in each case study. Abdication in favour of the
chairperson will devalue the quality of solutions and defeat the function of the case. It is
critical that all members are fully prepared as I will call on any student within a group to
answer a question.
At the full class meeting a group will be selected and the spokesperson for that group will
present their views. Other groups will also be given an opportunity to present their case.
General discussion and questions will proceed. Circumstances may however require this
procedure to be altered on occasions.
4.4 Class Meetings
Besides the presentation of assignments and discussion papers, weekly class meetings serve
to create learning experiences for the class as a whole. They are conducted in various modes
of which the following are the most frequent.
 Case Study. The session is used for presentation of case study findings and discussion
of the issues which arise.
 Unstructured Seminar. This results from students being given a topic to research. On
arrival at the class meeting, a chairperson is appointed, a framework for discussion is
agreed and the topic is discussed, drawing on the reading and research of the whole
group.
 Structured Seminar. This combines the features of a lecture conducted by a staff
member with specific preparation based on prescribed readings.
 Guest Speakers. On occasions, visiting speakers with specialist expertise are invited to
address the class.
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4.5 Assignments:
The objective of assignments is to develop the participant's ability to:
 perform limited research on a specific issue;
 to present varied opinions thus obtained into a succinct summary; and,
 to select and justify conclusions.
The group assignments have the added objective (as with case studies) of developing the
participant's reasoning and human relations skills.
A major valuation research project is also required to be undertaken during the
programme. We make extensive use of Adobe and your submissions should be in PDF
format, if possible – otherwise use Word. All references should be properly acknowledged and
a reference list should be provided. In general, marks will be awarded for content (adequacy
of coverage, analysis and research) and structure (clarity, logic, strength of conclusions).
Marks may be lost for poor presentation (typographical errors, defective bibliography, poor
layout).
4.6 Tests and examinations
A series of examinations will be held during the year and usually after each section.
Participants will be permitted to bring reference material into examinations. However, in
some modules, students will not be able to bring in any materials. The examinations will
primarily take the form of short case studies or problems and may include questions on cases
covered in the programme. The scheduled dates for the tests and examinations are set out in
the programme.
4.8 Reference Material
The reference material is drawn mainly from three sources. Firstly, prescribed texts, which
provide a basic reference document on selected issues. Secondly, the libraries have the
resources of books and journals (access is available to the Jagger Linear Library and UCT’s
electronic database resources). Thirdly, it is expected of students to remain current with
reporting in the local financial press. It is included in the objective of the course that
participants should develop the ability to find relevant reference material from the library and
other sources.
The prescribed texts are:
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
Brigham, Eugene F, & Davies Phillip R, Intermediate Financial Management, Eighth
or later Edition. Otherwise, order any Intermediate Financial Management or
Corporate Finance Textbook. Damodaran’s Corporate Finance – Theory & Practice is
recommended.
Correia, Flynn, Uliana & Wormald, Financial Management, 7th ed., Juta & Co., 2011
Bruner, Robert F, Eades, Kenneth M. and Schill, Michael J. Case Studies in Finance Managing for Corporate Value Creation, Irwin McGraw-Hill, 6th Edition, 2010 (Note:
the 5th edition should also be fine for this course)
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5. CHANGING TO AN HONOUR’S DEGREE
All candidates will register for the M.Com degree. However, if a candidate cannot or does not
wish to continue with the second year of the programme due to changes in circumstances,
students will be permitted to transfer the first year’s coursework into an Honours programme
and graduate with a B.Com(Hons) degree once the student submits a technical report of
about 7500 words (FTX4009Z). The technical report does not require a student to undertake
empirical research.
6. COURSE CONVENOR
The programme director is Francois Toerien and the course convenor for FTX5042W is
Phillip de Jager; all enquiries should be directed to him, but you can contact Carlos Correia
on (021) 650 3144 or 0824984081 for information on the first section of FTX5042W. The
email address for Carlos is arete@mweb.co.za.
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Programme Outline
FTX5042W - Corporate Finance & Valuations
2014 - Provisional Lecture Schedule
This schedule is subject to change owing to the planning of guest lectures
Lecture Venue : LS4J unless otherwise advised
Weekday lectures - 6pm to 8.30pm
Saturday lectures - 9am to 11.30am
MODULE 2: Financial Analysis
DAY
DATE
TIME
TOPIC
LECTURER
1
2
3
4
Monday
Tuesday
Wednesday
Tuesday
07-Apr
08-Apr
09-Apr
15-Apr
6pm-8:30pm
6pm-8:30pm
6pm-8:30pm
6pm-8:30pm
Carlos Correia
Carlos Correia
Carlos Correia
Carlos Correia
9
6
7
Tuesday
Tuesday
Tuesday
Saturday
Monday
29-Apr
06-May
13-May
17-May
19-May
6pm-8:30pm
6pm-8:30pm
6pm-8:30pm
9am-11:30am
6pm-8:30pm
The case study method/business strategy analysis
Accounting and financial analysis/Harnischfeger case study
Introduction to investing/overview of markets
Case: Value Creation - Warren Buffett: 1995 & 2005
EASTER BREAK
Case: The Home Depot
Case: The Body Shop International plc [financial modelling]
Case: The Battle for Value - Federal Express vs United Parcel Service
Lecture: DCF valuations & financial modelling I
Lecture: Price Multiples in Valuation/Discounts & Premia
8
Tuesday
20-May
6pm-8:30pm
Lecture: DCF valuations & financial modelling II/ Case: Calaveras Wine
Carlos Correia
9
Tuesday
27-May
6pm-8:30pm
Case: Palamon Partners/Teamsystem SPA
Carlos Correia
10
Tuesday
03-Jun
6pm-8:30pm
Case: JetBlue Airways, IPO valuation
Carlos Correia
Saturday
07-Jun
9am-11:30am
Advanced capital budgeting & project evaluation
11
Tuesday
10-Jun
6pm-8:30pm
Lectures on capital budgeting and Monte Carlo simulation in Excel
Carlos Correia
12
Tuesday
17-Jun
6pm-8:30pm
Case: Genzyme/Geltex Pharmaceuticals/Monte Carlo simulation with ChrystalBall ©/ASX Biotech
Carlos Correia
Saturday
28-Jun
9am-12pm
14
15
Tuesday
08-Jul
6pm-8:30pm
Case: Deutsche Bank Securities - Financing the acquisition of Consolidated Supply SA
TBA
16
Tuesday
15-Jul
6pm-8:30pm
Introduction to Debt Policy and Value/Case: Structuring Corporate Financial Policy/ Overview of Capital Structure
Phillip de Jager
17
Monday
18
Tuesday
19 Wednesday
20 Thursday
21-Jul
22-Jul
23-Jul
24-Jul
6pm-8:30pm
6pm-8:30pm
6pm-8:30pm
6pm-8:30pm
21
Tuesday
29-Jul
6pm-8:30pm
22
23
24
25
Tuesday
Tuesday
Tuesday
Tuesday
05-Aug
12-Aug
19-Aug
26-Aug
6pm-8:30pm
6pm-8:30pm
6pm-8:30pm
6pm-8:30pm
26
Tuesday
02-Sep
6pm-8:30pm
Kokkie Kooyman guest lecture
27
28
29
30
Tuesday
Tuesday
Tuesday
Tuesday
09-Sep
16-Sep
23-Sep
30-Sep
6pm-8:30pm
6pm-8:30pm
6pm-8:30pm
6pm-8:30pm
Dividend Policy and Share Buybacks
Behavioural Finance I
Behavioural Finance II
Case: EMI
31
Tuesday
07-Oct
6pm-8:30pm
Black Economic Empowerment transactions
32
Tuesday
14-Oct
6pm-8:30pm
Peter Baird guest lecturer - Pvt Equity into Africa
33
Tuesday
Friday
21-Oct
24-Oct
6pm-8:30pm
Extra lecture/guest
VALUATION PROJECT HAND IN DEADLINE
34
Saturday
01-Nov
9am-12noon
Valuation project presentations
35
Tuesday
04-Nov
6pm-8:30pm
Valuation project presentations
36
Wednesday
05-Nov
6pm-8:30pm
Valuation project presentations
Saturday
15-Nov
9am-12noon
EXAM
Carlos Correia
Carlos Correia
Carlos Correia
Carlos Correia
Carlos Correia
EXAMINATION in Com Lab
FOUR DAY PROGRAMME WITH JOEL STERN
The accounting model vs the economic model of the firm
Three Basic valuation models
Three Basic valuation models
Corporate governance/capital structure decision
Best Practices in Estimating the Cost of Capital: Survey and Synthesis. Readings and Research on the Cost of Capital
in South Africa
Securitisation
Case: Teletech Corporation 2005
Case: California Pizza Kitchen
Case: Banking (TBA)
Joel Stern
Joel Stern
Joel Stern
Joel Stern
Phillip de Jager
Phillip de Jager
Phillip de Jager
Phillip de Jager
Phillip de Jager
Phillip de Jager to
introduce
Darron West
Darron West
Darron West
Darron West
Darron
West/Cadiz
Phillip de Jager to
introduce
Darron West/
Phillip de Jager
Darron West/
Phillip de Jager
Darron West/
Phillip de Jager
7