The University of Lahore

Lahore Business School

Strategic Finance
Master of Sciences in Management Sciences

Semester: Spring 2020

Instructor: Imran ur Rehman Email:imranurrehman@cuilahore.edu.pk

Course Code: Course Cr. Hrs.:3

I. Course Description:

This course is designed to equip student with the skills that would be expected from a finance
manager for making significant investment and financing decisions of a business. It covers topics
which are important to decision-making in marketing, operations management, and corporate
strategy. Prudent financial management is vitally important to the economic health of business
firms, and hence to the nation and the world. Because of its importance, finance should be widely
and thoroughly understood, but this is easier said than done. The field is relatively complex, and
it is undergoing constant change in response to shifts in economic conditions. All of this makes
finance stimulating and exciting but also challenging and sometimes perplexing.

II. Course Objectives (COs):

The objective of the course is to develop sound theoretical foundations of finance through an in-
depth analysis of financial theories and analytical techniques. The course exposes students to
some of the most fundamental issues in corporate finance. It intends to offer students a setting to
understand how concepts and theories of corporate finance are applied, and generate lasting
impact on firm value. Further, recent research in finance and directions for future research will be
discussed.

III. Learning Outcomes:

This course will develop the following competencies among students.
 Explain key theories related to corporate governance and provide solution to resolve
conflicts between different stakeholders of the firm.
 Be able to evaluate, appraise capital budgeting projects and understand the
implications of options in capital budgeting on projects evaluation.
 Be able to understand the effects of capital structure on corporate finance decisions in
different institutional environments and comprehend the issues related to financing
choices in emerging economies.
 Be able to evaluate, summarise and discuss the research contributions and findings in
the top academic journals.

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 IV. Soft Skills and Personal Effectiveness:
This course will develop the following competencies among students.
 Team/People management skills
 Skills to drive and motivate others.
 Problem resolution skills.
 Skills to analyse situation critically.
 Effectiveness at managing client and stakeholder relationships.
 Skills to think strategically.
V. Course Material:
 Financial Management: Theory and Practice, by Brigham and Ehrhardt, 14th Edition
 Fundamentals of Corporate Finance by Ross, Westerfield, Jordon, 10 th Edition
 Corporate Finance: A Practical Approach, by M. R. Clayman, M. S. Fridson, G. H.
Troughton and M. Scanlan, Wiley Publishing.
VI. Reference Books:
 Principles of Managerial Finance, by Lawrence J. Gitman, Latest Edition
 Corporate Finance, by Brealey, Mayers and Marcus, Latest Edition
 Handouts for additional reading
 Journal of Corporate Finance
 Students are required to read research papers related to the topics discussed in
the class. Relevant research papers will also be provided by the instructor
which will be discussed in the class including presentations by the students.
VII. Training Methods:
 In addition to lecturers, the instructor will also use following training methods
during 16 weeks semester, 32 sessions (for details – please refer lesson plan)
 Case studies
 Exercises
 Research papers presentations/Discussions
VIII. Evaluation Criteria:
Quizzes 10%
Assignments 10%
Project 10%
Attendance &Participation 05%
Mid Term Examinations 25%
Final Term Examination 40%
Total: 100%
IX. Grading Criteria:
A student’s course score is associated with letter grades as per following grid:
Class Score                Grade
85% or above               A
<= 80% < 85%                   A-
<= 75% < 80%                   B+
<= 70% < 75%                   B
<= 65% < 70%                   C+
<= 60% < 65%                   C
<= 55% < 60%                   D+
<= 50% < 55%                   D
Less than 50%                F
X. Week-wise Content Break-up:
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All reading resources will be provided by the instructor to students.
Week Contents
Corporate Governance: Objectives and Guiding Principles, Forms of Business and Conflicts
1 of Interest, Agency Relationships, Corporate Governance Evaluations and Forms of business
organizations.
Strategic financial analysis: How Financial analysis help in decision making.
Measurements of business performance: profitability, liquidity, working capital
2
efficiency, gearing and return on investment,

Cost of Capital and Required Rate of Returns: (Concept of Real interest and Nominal
interest, calculation of cost of debt, cost of preferred stock, cost of equity and WACC,
3 calculation of growth, different methods to calculate growth, Marginal cost of capital,
Weighted marginal cost of capital WMCC, Revised WACC after change in existing
capital structure, Economic Value Added EVA, Market Value Added MVA )
Capital Budgeting: Basic Principles of Capital Budgeting, Investment Decision Criteria.
4 Taxation impact
Capital Budgeting: Cash flow Projections, Project Analysis and Evaluation, Options in
5 Capital Budgeting. calculation of initial cash out flow and terminal cash flow, replacement of
fixed assets, differential cash flow,
Corporate Social Responsibility, Determinants and Motivation, Impact of CSR
6
Activities
Capital Structure: the Modigliani-Miller Propositions, Capital Structure Decisions,
7
Practical Issues in Capital Structure Policy
Capital Structure: The Optimal Financial Mix Operating Income Approach, Cost of
8
Capital Approach, Adjusted present Value Approach, Comparative Analysis
9 Mid Term Exam
How Break even and Leverage Analysis help in strategic financial decisions.
10 Contribution Margin and Breakeven analysis, Concept of operating leverage,
financial leverage and total leverage, operating breakeven analysis,
Executive Compensation, Conflicts of Interest,
11 Competing Hypothesis, Rent Extraction and Optimal Contracting
Mergers and Acquisitions: Motives of Mergers, Transaction Characteristics
Motives behind M & A activity, Target company valuation, approaches for valuation,
12 &
effects of price and payment method on distribution of risks and benefits in a merger
13
transaction. Calculation of Free cash flows for target company, comparable company
analysis and comparable transaction analysis
Dividends: Forms of Dividends, Dividend Payment Chronology
14 Managerial Interests and Dividend Policy
15 Earnings Quality, Models to Detect Earnings Management, Research papers Discussion
Terminal Examination
16

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XI. Consultation Protocol:
All relevant inquiries will be encouraged and it is highly advisable to ask them during
lecture or consultation time. However, if any query is missed during those times, please
ask via email and/or SMS. Consultation hours are as follows:
Monday to Friday02:00 AM to 04:00 PM

XII. Plagiarism Policy:

LBS have a strict plagiarism policy to discourage all its forms. If found involved, strict
disciplinary actions and exemplary punishments are exercised in accordance with the
LBS plagiarism policy and HEC guidelines. For details, please refer to the exam policy."
Academic offenses like cheating, plagiarism, etc., in any form or type, weaken the
distinctive ethical character of the university. LBS takes them very seriously and holds
punishable under the university disciplinary system. For details, please refer to exam
policy.

XIII Representative Research Papers

 Binacci, M., Peruffo, E., Oriani, R., & Minichilli, A. (2016). Are All Non‐Family
Managers (NFMs) Equal? The Impact of NFM Characteristics and Diversity on Family
Firm Performance. Corporate Governance: An International Review, 24(6), 569-583.
 John, K., De Masi, S., & Paci, A. (2016). Corporate governance in banks. Corporate
Governance: An International Review, 24(3), 303-321.
 Ardalan, K. (2017). Capital structure theory: reconsidered. Research in International
Business and Finance, 39, 696-710.
 Frydman, C., & Jenter, D. (2010). CEO compensation. Annu. Rev. Financ. Econ., 2(1), 75-
102.
 Jeong, J. (2013). Determinants of dividend smoothing in emerging market: The case of
Korea. Emerging Markets Review, 17, 76-88.
 Dechow, P., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of
the proxies, their determinants and their consequences. Journal of Accounting and
Economics, 50(2-3), 344-401.
 Cho, E., & Chun, S. (2016). Corporate social responsibility, real activities earnings
management, and corporate governance: evidence from Korea. Asia-Pacific Journal of
Accounting & Economics, 23(4), 400-431.
 Ntim, C. G., Lindop, S., & Thomas, D. A. (2013). Corporate governance and risk reporting
in South Africa: A study of corporate risk disclosures in the pre-and post-2007/2008 global
financial crisis periods. International Review of Financial Analysis, 30, 363-383.
 Bennouri, M., Chtioui, T., Nagati, H., & Nekhili, M. (2018). Female Board Directorship
and Firm Performance: What Really Matters? Journal of Banking & Finance.
 Saunders, A., & Song, K. (2018). Bank monitoring and CEO risk-taking
incentives. Journal of Banking & Finance, 88, 225-240.
 Chi, C. W., Hung, K., Cheng, H. W., & Lieu, P. T. (2015). Family firms and earnings
management in Taiwan: Influence of corporate governance. International Review of
Economics & Finance, 36, 88-98.

Important Note: This course outline works under general policy guidelines and rules & regulations of the university.

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