BUSINESS FINANCE COURSE DESRIPTION

STRATHMORE UNIVERSITY ● STUDY PACK Instruction for Student iii INSTRUCTION FOR STUDENTS This study guide is intended to assist distance-learning students in their independent studies. In addition, it is on ...

STRATHMORE UNIVERSITY ● STUDY PACK Instruction for Student iii INSTRUCTION FOR STUDENTS This study guide is intended to assist distance-learning students in their independent studies. In addition, it is only for the personal use of the purchaser, see copyright clause. The course has been broken down into eight lessons each of which should be considered as approximately one week of study for a full time student. Solve the reinforcement problems verifying your answer with the suggested solution contained at the back of the distance learning pack. When the lesson is completed, repeat the same procedure for each of the following lessons. At the end of lessons 2, 4, 6 and 8 there is a comprehensive assignment that you should complete and submit for marking to the distance learning administrator. SUBMISSION PROCEDURE 1. After you have completed a comprehensive assignment clearly identify each question and number your pages. 2. If you do not understand a portion of the course content or an assignment question indicate this in your answer so that your marker can respond to your problem areas. Be as specific as possible. 3. Arrange the order of your pages by question number and fix them securely to the data sheet provided. Adequate postage must be affixed to the envelope. 4. While waiting for your assignment to be marked and returned to you, continue to work through the next two lessons and the corresponding reinforcement problems and comprehensive assignment. On the completion of the last comprehensive assignment a two-week period of revision should be carried out of the whole course using the material in the revision section of the study pack. At the completion of this period the final Mock Examination paper should be completed under examination conditions. This should be sent to the distance-learning administrator to arrive in Nairobi at least five weeks before the date of your sitting the KASNEB Examinations. This paper will be marked and posted back to you within two weeks of receipt by the Distance Learning Administrator iv CONTENTS ACKNOWLEDGEMENT ii INSTRUCTION FOR STUDENTS iii CONTENTS iv BUSINESS FINANCE COURSE DESRIPTION v BUSINESS FINANCE INDEX vi LESSON ONE 1 Nature Of Business Finance 1 LESSON TWO 20 Sources Of Funds 20 LESSON THREE 40 Measuring Business Performance 40 Financial Statements Analysis 40 LESSON FOUR 59 Capital Structure and Cost of Funds 59 LESSON FIVE 82 Capital Investment Decisions 82 LESSON SIX 104 Valuation Concepts In Finance 104 LESSON SEVEN 115 Dividend Policies And Decisions 115 LESSON EIGHT 131 Working Capital Management 131 LESSON NINE 153 Market For Funds 153 LESSON TEN 181 Revision Aid 181 Business Finance Course Description v BUSINESS FINANCE COURSE DESRIPTION Business Finance is an introductory course in finance a pre-requisite for financial Management of section six finance managers makes four crucial decisions of the firm • Financing decision concened with the sources of funds, cost of capital, mix of various capital components and evaluation of capital markets for long and short term financing • Investment in long-term investment decisions involving derivation of future cashflows and appraising projects and how securities of the firm may be valued • Working capital management which involves management of current assets to meet short termliquidity needs of the firm • Divisions of earnings between payment of dividends and retention for the purpose of financing future projects. Business Finance course explore these four main decisions under conditions of certainty this is in addition to evaluating the performance of the firm using ratio analysis .Basic tools of finance are also introduced at this level. The overall place of the course in C.P.A Syllabus is a bridge between accounting and Finance functions within the organization before critical evaluation of finance under condition of uncertainty in financial management. It also gives an overview of how various stakeholders of the firm have divergent objectives which impact on the goal of shareholders wealth maxmisation this is covered Under agency theory. vi Business Finance Index BUSINESS FINANCE INDEX LESSON 1: Nature of Business Finance Reinforcing Questions LESSON 2: Sources of Funds Reinforcing Questions Comprehensive Assignment 1 LESSON 3: Measuring Business Performance: Financial Statements Analysis Reinforcing Questions LESSON 4: Capital Structure and Cost of Funds Reinforcing Questions Comprehensive Assignment 2 LESSON 5: Capital Investment Decisions Reinforcing Questions LESSON 6: Valuation Concepts in Finance Reinforcing Questions LESSON 7: Dividend Policies and Decisions Reinforcing Questions Comprehensive Assignment 3 LESSON 8: Working Capital Management Reinforcing Questions LESSON 9: Market for Funds Reinforcing Questions Comprehensive Assignment 4 LESSON 10: Revision Aid: KASNEB Syllabus. Model answers to reinforcing questions. Selected past papers with model answers. Work through model answers ensuring they are understood. On completion submit final assignment to the University. FINAL ASSIGNMENT Mock Examination Paper LESSON ONE INSTRUCTIONS • Read Chapter 1 of Financial Management textbook by I.M. Pandey. • Complete answers to reinforcement questions at the end of the lesson. • Check model answers given in lesson 10 of the study pack. • Reinforcing Comments CONTENTS • Relationship between business finance and financial management. • Scope of Finance functions. • Goals/Objectives of the firm. • Agency theory. • Risk-return Trade off. • Types of business organization ................................................................continued........................................................................