Financial Management and Corporate Finance
Time value of money
Be confident with present and future values of single amounts and annuities, and with the distinction between nominal and effective rates. Know that compounding frequency raises the effective rate, and that annuity due values exceed ordinary annuity values by one period of interest.
Valuation
Understand bond pricing (price moves inversely to yield), share valuation using dividend growth models, and the relationship between required return, growth and price. Know the capital asset pricing model: required return equals risk-free rate plus beta times the market risk premium.
Investment appraisal
Revise net present value, internal rate of return, payback and discounted payback, and the profitability index. Know that NPV is preferred because it measures absolute value added and uses the opportunity cost of capital, while IRR can mislead with non-conventional cash flows or differing scale.
Cost of capital and capital structure
Calculate the weighted average cost of capital using market values, after-tax cost of debt, and the CAPM cost of equity. Understand business versus financial risk, the tax shield on debt, and the trade-off between tax benefits and financial distress costs.
Working capital and risk
Know the cash conversion cycle (inventory days plus receivable days minus payable days), and the trade-off between profitability and liquidity. Understand hedging basics and why matching asset and liability maturities reduces risk.
Traps
Questions use book rather than market weights, forget the tax adjustment on debt, or treat sunk feasibility costs as incremental. Watch for projects compared on unequal lives.
Worked rule of thumb
If risk-free is 4%, beta 1.2 and market return 10%, cost of equity = 4% + 1.2 x (10% - 4%) = 11.2%.