ACFI 103: Introduction to Finance - Notes

Module Introduction: ACFI 103 - Introduction to Finance

  • Module Leader: Graham Fairclough FCA
  • Contact:
    • Email: Graham.Fairclough@Liverpool.ac.uk
    • Room 266, Chatham Building
  • Support Hours: Monday 1245 - 1445
  • Background: PwC London (financial services), Law school graduate, Currently studying MSc Epidemiology (LSHTM).

Course Context and Objectives

  • Introduce students to financial decisions and sources of business finance.
  • Provide a foundation for future studies in the second and third years.
  • Cover basic logical and rational analytical tools for financial decisions.

Module Resources

  • Module handbook on Canvas (version 101) - download a copy.
  • Updates may occur during the module.

Expectations

  • Lecturer:
    • Materials available on time.
    • Available for ASAF hours (in-person and Zoom).
    • Quick response to forum queries.
    • Clear assessment guidance.
    • Patience.
  • Students:
    • Keep up to date with materials.
    • Read Canvas home page and announcements.
    • Attend seminars.
    • Use forums for queries.
    • Patience.
  • Courtesy:
    • No noise during lectures.
    • No food or drink.
    • No chewing gum.

Professional Qualifications Exemptions

  • ACFI 103 may provide exemptions for certain professional qualifications.

Topic Overview

  • Week 2: Goals and governance, financial markets, and working capital.
  • Weeks 3 & 4: Time value of money.
  • Weeks 5 & 6: Net present value (NPV) and investment criteria.
  • Week 7: Valuing equities.
  • Week 8: Valuing bonds.
  • Week 9: Weighted average cost of capital (WACC) and working capital.
  • Week 10: Risk and return.
  • Week 11: Introduction to options and ethics.
  • Week 12: Revision lecture.
    It is essential to keep pace with the learning materials. Each week builds on the previous one.

Learning Resources

  • Asynchronous Sessions:
    • Recorded sessions available weekly.
    • Approximately 2 hours of recordings.
    • Exam-standard questions.
  • Weekly Live Lecture:
    • Walkthrough and discussion of exam-standard questions.
    • Real-world discussions.
  • Canvas Resources:
    • Recorded materials and examples (released each Monday).
    • Seminar questions (released each Monday) and solutions (released each Friday).
    • Discussion forum (use for course queries).
    • Sample papers and practice questions.
  • Recommended Text: Core finance textbook (likely Ross, Westerfield, and Jaffe).

Practical Skills

  • Use of Excel.
  • Common jargon.
    These skills are not directly assessed in the exam..

Mid-Term Assessment

  • Duration: 1 hour
  • Format: On-campus, paper-based
  • Weighting: 30%
  • Content: All material up to and including Week 6
  • Date: March 17, 2025, in place of the lecture
  • Questions: 25 MCQs

Final Exam

  • Duration: 2 hours
  • Format: On-campus, paper-based
  • Weighting: 70%
  • Sections:
    • Section A: 4 short answer questions (4 x 10 = 40 marks)
    • Section B: 30 MCQs (60 marks)
  • Timing: May exam period (exact date to be advised)

Asynchronous Sessions

  • Released weekly over weeks 1-10.
  • Exam-relevant topics.
  • Real-world focus.
  • Example exam questions embedded.
  • Additional reading from the core text.
  • Try very hard not to fall behind on these!.

Seminars

  • Small group sessions.
  • 8 weeks of seminars.
  • Debrief and discussion of exam-standard questions.
  • Attempt questions in advance.
  • Real-world focus/discussion.

Investment and Financing Decisions

  • Investment decisions (aka capital budgeting decisions or CAPEX):
    • Tangible assets (e.g., new equipment, property).
    • Intangible assets (e.g., R&D, brand investment).
  • INVESTMENT IN REAL ASSETS: Assets used to produce goods/services.
  • Financing decisions (raising finance to fund investment):
    • ISSUING FINANCIAL ASSETS: Financial claims to income generated by the firm.

Examples of Investment and Financing Decisions

  • Capital Budgeting:
    • Intel: Spending $7 billion to develop a new microprocessor.
    • Royal Dutch Shell: Constructing a pipeline to bring natural gas onshore.
    • Avon: Spending €200 million to launch a new range of cosmetics.
  • Financing:
    • BMW: Borrowing €350 million from Deutsche Bank.
    • Pfizer: Issuing new shares to buy a small biotech company.

Real vs. Financial Assets

  • Real Assets:
    • A patent.
    • A blast furnace.
    • Customer goodwill.
  • Financial Assets:
    • A share of stock issued by Meta.
    • A bank loan.

Trading Entity Types and Characteristics

  • Corporations:
    • Limited Liability: Owners are not personally liable.
    • Corporate tax on profits + personal tax on dividends.
  • Partnerships & Sole Proprietorships:
    • Unlimited Liability: Owners are personally liable.
    • Personal tax on profits.

Goals of the Corporation

  • Agency Problem:
    • Managers (agents) may act in their own interests, not maximizing value for stockholders.
  • Agency Cost:
    • Value lost due to agency problems or costs to mitigate them.
  • Separation of ownership and control in large companies contributes to these issues.

Time Value of Money