Business Finance
Course Title: Business Finance
Code: MGT 132
Area of Study: Core
Credit Hour: 3
Course Objective: The objective of this course is to create an understanding of the basic concepts, principles
and techniques of business finance. It also aims to enable them to apply this knowledge in real-life situations
and take appropriate financial decisions.
Course Content
Unit I: Introduction to Financial Management L.H. 2
Finance as an area of study; Functions of Financial Management; Goals of the Financial Manager; Agency
problem and Agency cost;
Unit II: The Operating Environment of the Firm L.H. 3
Basic forms of Business Organizations and taxation; Financial Markets – Overview; Capital Markets, Money
market and its instruments: Treasury Bills, Gilt-edged securities, Certificate of Deposits, Commercial Papers,
Re purchase Agreements, Banker Acceptance
Unit III: The Analysis of Financial Statements L.H. 7
Uses and Importance of financial ratio analysis; Types of ratios – Solvency, Profitability, Activity (Efficiency),
Leverage and Market Value; Du-Pont Analysis; Limitations of Ratio Analysis;
PURBANCHAL UNIVERSITY, Faculty of Management
Bachelor of Business Administration
2012
36
Unit IV: Financial Planning L.H. 4
Financial Planning Process; Cash Budgets; Pro forma Statements – Preparing pro forma balance sheet and
income statement
Unit V: Theoretical Framework of Risk and Return L.H. 6
Defining and Measurement of Risk and Return; Probability distribution and Expected rates of return; Single
Asset Risk; Risk in Portfolio perspective; Efficient Portfolio; Optimal Portfolio; CML, SML and CAPM
Unit VI: Time Value of Money L.H. 7
Present Value: Discounting Single Sum, Uneven Series, Even Series (Annuity)
Applications of Present Value: Calculation of Interest rates, Loan Amortization
Future Value: Compounding Single Sum, Uneven Series, Even Series (Annuity)
Application of Future Value: Doubling period, Growth rate, Interest rate
Perpetuities; Semi-annual and other compounding periods; Nominal and Effective interest rates – Calculation
and Comparison
Unit VII: Bond Valuation L.H. 3
Defining bonds and their features; Bond valuation; Bond Yields – Yield to Maturity (YTM), Yield to Call
(YTC) and Current Yield; Semi-annual bond and its valuation;
Unit VIII: Stock Valuation L.H. 4
Features of Common Stock; Basic Stock Valuation – Zero Growth, Constant Growth, Super-normal Growth;
Features and Valuation of Preferred Stocks;
Unit IX: Cost of Capital L.H. 5
Overview of cost of capital components; Cost of debt – before-tax and after-tax; Cost of Preferred Stock; Cost
of Retained Earnings, Cost of newly issued common stock; Weighted Average Cost of Capital;
PURBANCHAL UNIVERSITY, Faculty of Management
Bachelor of Business Administration
2012
37
Unit X: Leverage and Capital Structure L.H. 7
Business and Financial Risk; Breakeven Analysis; Degree of Operating Leverage; Degree of Financial
Leverage and its impact; Degree of Total Leverage and its uses; Features of Ideal Capital Structure; The EBIT –
EPS Approach to Capital Structure; Choosing the Optimal Capital Structure
References:
Gitman, Lawrence J., Principles of Managerial Finance, Harper Collins Publishers,
Brigham, E.F. and J. F. Houston, Fundamentals of Financial Management, Harcourt Asia Pte. Ltd., Singapore
Van Horne, James C., and John M. Wachowicz, Fundamentals of Financial Management, Pearson Education,
New Delhi
Ross, Stephan A., R. W. Westerfield, and J. D. Bradford, Fundamentals of Corporate Finance, McGraw-
Hill/Irwin, Boston
Pradhan, R. S., Financial Management, Buddha Academic Enterprises, Kathmandu