Fin management materials / P4AFM-Session00_j08
.pdf
ATC |
INTERNATIONAL |
ACCA
PAPER P4
ADVANCED FINANCIAL MANAGEMENT
STUDY SYSTEM
(i)
No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author, editor or publisher.
This training material has been published and prepared by Accountancy Tuition Centre (International Holdings) Limited
16 Elmtree Road
Teddington
TW11 8ST
United Kingdom.
Editorial material Copyright Accountancy Tuition Centre (International Holdings) Limited, 2008.
All rights reserved. No part of this training material may be translated, reprinted or reproduced or utilised in any form either in whole or in part or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage and retrieval system, without permission in writing from the Accountancy Tuition Centre (International Holdings) Limited.
(ii)
SESSION 00 – CONTENTS
CONTENTS
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Page |
1 |
The Role of Financial Strategy |
0101 |
2 |
Security Valuation and the Cost of Capital |
0201 |
3 |
Weighted Average Cost of Capital and Gearing |
0301 |
4 |
Portfolio Theory and CAPM |
0401 |
5 |
Basic Investment Appraisal |
0501 |
6 |
Advanced Investment Appraisal |
0601 |
7 |
Business Valuation |
0701 |
8 |
Mergers & Acquisitions |
0801 |
9 |
Corporate Reconstruction & Re-organisation |
0901 |
10 |
Equity & Debt Issues |
1001 |
11 |
Business Planning and Evaluation |
1101 |
12 |
Options |
1201 |
13 |
Foreign Exchange Risk Management |
1301 |
14 |
Interest Rate Risk Management |
1401 |
15 |
The Economic Environment for Multinationals |
1501 |
16 |
International Operations |
1601 |
17 |
Glossary |
1701 |
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Index |
1801 |
(iii)
SESSION 00 – CONTENTS
(iv)
SESSION 00 – SYLLABUS
INTRODUCTION
This Study System has been specifically written for the Association of Chartered Certified Accountants professional level examination, Paper P4 Advanced Financial Management
It provides comprehensive coverage of the core syllabus areas and is designed to be used both as a reference text and interactively with the ATC Learning System to provide you with the knowledge, skill and confidence to succeed in your ACCA studies
SYLLABUS
Aim
To apply relevant knowledge, skills and exercise professional judgement as expected of a senior financial executive or advisor, in taking or recommending decisions relating to the financial management of an organisation.
Relationship to other papers
PA (P1) |
AFM (P4) Advanced Financial Management |
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FM (F9) |
Financial Management |
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MA (F2)
Management Accounting
PA = Professional Accountant
(v)
SESSION 00 – SYLLABUS
Main capabilities
On successful completion of this paper, candidates should be able to:
AExplain the role and responsibility of the senior financial executive or advisor in meeting conflicting needs of stakeholders
BEvaluate potential investment decisions and assess their financial and strategic consequences, both domestically and internationally
CAssess and plan acquisitions and mergers as an alternative growth strategy
DEvaluate and advise on alternative corporate re-organisation strategies
EApply and evaluate alternative advanced treasury and risk management techniques
FEvaluate the impact of macro economics and recognise the role of international financial institutions in the financial management of multinationals
GIdentify and assess the potential impact of emerging issues in finance and financial management.
Relational diagram of main capabilities
Role and responsibility towards stakeholders (A)
Economic |
Advanced investment appraisal (B) |
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environment for |
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multinationals |
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Acquisition and mergers (C) |
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(F) |
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Corporate reconstruction and reorganisation (D)
Treasury and advanced risk management
techniques (E)
Emerging issues in finance and financial management (G)
5
(vi)
SESSION 00 – SYLLABUS
Rationale
This syllabus develops upon the core financial management knowledge and skills covered in the F9, Financial Management, syllabus at the Fundamentals level and prepares candidates to advise management and/or clients on complex strategic financial management issues facing an organisation.
The syllabus starts by exploring the role and responsibility of a senior executive or advisor in meeting competing needs of stakeholders. The syllabus then re-examines investment and financing decisions, with the emphasis moving towards the strategic consequences of making such decisions in a domestic, as well as international, context. Candidates are then expected to develop further advisory skills in planning strategic acquisitions and mergers and corporate re-organisations.
The next part of the syllabus covers the role of a treasury function in large complex corporate structures. It re-examines, in the broadest sense, the existence of risk in business and the sophisticated strategies which are employed in order to manage such risks. This is a build-up on what candidates would have covered in the F9, Financial Management, syllabus and the P1, Professional Accountant, syllabus.
The syllabus finishes by examining the impact of the economic environment on multinationals and the impact of emerging issues in finance.
Detailed syllabus
ARole and responsibility towards stakeholders
1.Conflicting stakeholder interests
2.The role and responsibility of senior financial executive/advisor
3.Impact of environmental issues on corporate objectives and on governance
4.Financial strategy formulation
5.Ethical issues in financial management
BAdvanced investment appraisal
1.Discounted cash flow techniques and the use of Free Cash Flows
2.Impact of financing on investment decisions and Adjusted Present Values
3.Application of Real Options Pricing Theory in investment decisions
4.International investment and financing decisions
5.Impact of capital investment on financial reporting
(vii)
SESSION 00 – SYLLABUS
CAcquisitions and mergers
1.Acquisitions and mergers versus other growth strategies
2.Valuation for acquisitions and mergers
3.Regulatory framework and processes
4.Financing acquisitions and mergers
DCorporate reconstruction and re-organisation
1.Predicting corporate failure
2.Financial reconstruction
3.Business re-organisation
ETreasury and advanced risk management techniques
1.The role of the treasury function in multinationals
2.The use of financial derivatives to hedge against foreign exchange risk
3.The use of financial derivatives to hedge against interest rate risk
4.Other forms of risk
5.Dividend policy in multinationals and transfer pricing
FEconomic environment for multinationals
1.Management of international trade and finance
2.Strategic business and financial planning for multinationals
GEmerging issues in finance and financial management
1.Developments in world financial markets
2.Financial engineering and emerging derivative products
3.Developments in international trade and finance
(viii)
SESSION 00 – SYLLABUS
Approach to examining the syllabus
The P4, Advanced Financial Management, paper builds upon the skills and knowledge examined in the F9, Financial Management, paper. At this stage candidates will be expected to demonstrate an integrated knowledge of the subject and an ability to relate their technical understanding of the subject to issues of strategic importance to the firm. The study guide specifies the wide range of contextual understanding that is required to achieve a satisfactory standard at this level. In particular the ethical and managerial aspects of the role of the senior financial manager or advisor will regularly feature in examination papers.
Examination Structure
The examination will be a three hour paper in two sections:
Section A has two compulsory questions worth 60 marks in total. This section will normally cover significant issues relevant to the senior financial manager or advisor and will be set in the form of a short case study or scenario. The requirements of the section A questions are such that candidates will be expected to show a comprehensive understanding of issues from across the syllabus. Each question will contain a mix of computational and discursive elements. Normally, approximately 50 per cent of the marks will be apportioned to each of the two elements. A maximum of 40 marks will be available for either question in Section A.
Section B questions are designed to provide a more focused test of the syllabus with, normally, at least one question being wholly discursive. Candidates will be expected to provide answers in a specified form such as a short report or board memorandum commensurate with the professional level of the paper.
Section A:
Answer both questions, total 60 marks
Section B:
Answer two from three questions, 20 marks each
Total 100 marks
15 minutes for reading and planning is given at the start if the examination. During this time candidates may make notes on the question paper but may not write in the answer booklet.
Candidates will be provided with a formulae sheet as well as present value, annuity and standard normal distribution tables.
(ix)
SESSION 00 – TABLES AND FORMULAE
Formula Sheet
Modigliani and Miller Proposition 2 (with tax)
ke = kei + (1 – T) (kei – kd) Vd Ve
Two asset portfolio
sp = wa2sa2 + w2bs2b + 2wawbrabsasb
The Capital Asset Pricing Model
E(ri) = Rf + βi[E(rm) – Rf]
The asset beta formula
βa = (Ve + VVde(1− T))βe + (VeV+dV(1d−(1T−)T))βd
The Growth Model
Po = D(O (1+ g))
re − g
Gordon’s growth approximation
g = bre
The weighted average cost of capital
WACC = VeV+eVd ke + VeV+dVd kd (1− T)
The Fisher formula
(1+i) = (1+r) (1+h)
Purchasing power parity and interest rate parity
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(1+ h ) |
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(1+ i ) |
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S1 = S0 x |
c |
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F0 = S0 x |
c |
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(1 + hb ) |
(1 + ib ) |
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(x)