Corporate Finance and Treasury Management
What the exam tests
Corporate Finance and Treasury Management tests capital budgeting, cost of capital, financing choice, working capital and FX/interest-rate risk. Case questions often ask whether to accept a project or how to fund a shortfall.
Core rules
- WACC = E/V × Ke + D/V × Kd × (1 − t). Use market values and after-tax cost of debt.
- NPV discounts incremental free cash flows at WACC; accept positive NPV. IRR is a screening tool, not a decision rule when scale or timing differs.
- Working capital: optimise inventory, receivables and payables; a growing business absorbs cash.
- Treasury: match currency and tenor; use forwards, futures, swaps or natural hedges; a forward locks a rate but removes upside.
Worked example
Equity is 60% at 18%; debt is 40% at 12% pre-tax; tax is 30%. WACC = 0.6 × 18% + 0.4 × 12% × 0.7 = 10.8% + 3.36% = 14.16%. A project costs ₦50m and yields ₦15m annually for five years. Five-year annuity factor at 14.16% ≈ 3.419. PV = ₦15m × 3.419 = ₦51.29m. NPV = ₦51.29m − ₦50m = +₦1.29m. Accept, subject to sensitivity: a small fall in cash flow or rise in WACC erases the margin.
Traps
Discounting accounting profit rather than cash flow; using pre-tax Kd; ignoring working capital and tax timing; comparing IRR across different scales; and hedging an exposure without considering cost or basis risk.