This unit covers the understanding of business finance and treasury function including the fundamental concepts of capital, investment, funding and risk assessment and management. It also covers the analysis and management of an entity’s financial position, portfolio management, and short and long term financial management.

Topics  

1. Investment and project appraisal 
1.1 Calculate and interpret the future and present values of a series of single cash flows and of annuities
1.2 Explain the characteristics of major and long-term investments where a ‘capital budgeting’ approach might be required 1.3 Identify and apply the different quantitative methods used in project evaluation
1.4 Explain why investment decisions should be analysed using the NPV method
1.5 Apply the NPV method to investment project scenarios
1.6 Compare and contrast the NPV method with the IRR method of project evaluation
1.7 Calculate the weighted average cost of capital and apply it in capital budgeting
1.8 List the advantages and disadvantages of ROI, IRR, payback and NPV methods of investment appraisal
1.9 Identify investment appraisal techniques which are appropriate to the objectives and circumstances of a given organisation
1.10 Select appropriate values for investment appraisal purposes, taking account of working capital, inflation and tax
1.11 Undertake a sensitivity analysis of diverse projects using appropriate tools

2. Capital markets
2.1 Specify the function and structure of the financial markets and the role of the various market participants
2.2 Discuss the role of the government in regulating the capital markets and establishing an appropriate regulatory
2.3 Describe typical guidelines related to the operation of securities markets
2.4 Recognise the impact of the external financial markets and the regulatory framework on an entity’s financial strategy
2.5 Identify the characteristics, terms and conditions of the alternative sources of short, medium and long term finance available to a business, including both debt and equity
2.6 Evaluate the suitability of different methods of finance in a given
2.7 Describe the characteristics of derivatives and other hedging
2.8 Identify the advantages and disadvantages of different hedging strategies
2.9 Identify different methods of hedging which are appropriate to meeting an organisation’s objectives

3. The Capital Asset Pricing Model
3.1 Demonstrate the relationship between systematic risk and expected return of individual securities and portfolios using the CAPM and the security market line relationship

4. Cost of funds
4.1 Analyse capital rationing and draw appropriate conclusions
4.2 Analyse the various sources of short term finance
4.3 Explain the cost of short and medium term finance
4.4 Calculate and interpret the cost of various sources of finance
4.5 Describe sources of international finance and their merits or otherwise
4.6 Explain the different sources of long term finance
4.7 Calculate and interpret the weighted average cost of capital
4.8 Demonstrate the link between working capital management and corporate cash flow
4.9 Describe the operating cycle in working capital management to explain inventory management, debtor management and cash management

5. Efficient market hypothesis
5.1 Distinguish between the weak form test, the semi strong form test and the strong form test of the Efficient Market Hypothesis (EMH)
5.2 Explain the implications of market efficiency for both investors and companies
5.3 In the context of capital markets, distinguish between operating efficiency, allocative efficiency and pricing efficiency

6. Long term financing, investment appraisal and dividend policy
6.1 Calculate and interpret measures of expected return and risk using the probability distribution approach
6.2 Explain the factors which influence the dividend policy decision

7. Portfolio management
7.1 Calculate and interpret rates of return on financial investments
7.2 Calculate and interpret measures of expected return and risk for two-security portfolios
7.3 Explain the impact of portfolio leveraging and short selling on the risk and expected return of two-security portfolios
7.4 Analyse and assess portfolio risk

8. Short term financial management
8.1
Prepare short term finance plans and strategies

9. Valuation of corporate securities
9.1
Calculate and interpret effective interest rates; and apply the concepts of financial mathematics to loans, and debt and equity securities
9.2 Calculate and interpret share price in both perfect and imperfect markets

10. Risk management and risk assessment
10.1 Define the term risk
10.2 Describe the different types of risk in international trade
10.3 Explain the different methods of risk assessment in international trade
10.4 Identify the key financial risks facing a business in a given scenario
10.5 Apply different methods of managing currency risks to given situations
10.6 Select methods of managing interest rate exposure appropriate to a given situation

Exam topic weightings
Investment and project appraisal  20%
Capital markets  20%
The Capital Asset Pricing Model  10%
Cost of funds   10%
Efficient market hypothesis 5%
Long term financing, investment appraisal and dividend policy 5%
Portfolio management 10%
Short term financial management 3%
Valuation of corporate securities  7%
Risk management and risk assessment  10%
Total 100%