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MindMap Gallery CFA Level 1-Study Session Corporate Issuers
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CFA Level 1-Study Session Corporate Issuers
CFA Level 1 - Corporate Finance, solves the following problems, where does the money come from? How is the money spent? How to divide the money earned? Does the company organize price discounts? Friends who are interested can take a look~
Edited at 2023-03-12 11:48:18
CFA Level 1-Study Session Corporate Issuers
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- Outline
Study Session 10-11 Corporate Finance
• R27: Introduction to Corporate Governance and ESG
Corporate Governance
corporate governance systems
Shareholder theory
Stakeholder theory
Conflicts of interests
Shareholders and Managers
Controlling and minority shareholders
Straight voting VS Cumulative voting
Multiple-class structure
Shareholder and creditor
Stakeholder Management
Mechanisms of stakeholder management
Board of Directors
Composition of the board of directors
Functions and responsibilities of the board
Committees
Audit committee
Remuneration/compensation committee
Nominations committee
Governance committee
Risk committee
investment committee
Factors Affecting Stakeholder Relationships
Market factors
ESG Considerations
ESG definition
Environment
Social duty
Governance
ESG implementation methods
• R28 Uses of capital
1. Capital allocation process
Capital budgeting process
2. Types of capital projects
Categories of capital budgeting projects
3. Five basic principles for capital allocation
Five basic principles
Incremental cash flows
Timing of cash flows
After tax basis
Cash flows should be ignored
Sunk costs
Financing costs/interest costs
Cash flows should be included
Externalities
Opportunity costs
4.Project Evaluation Methods
Net present value (NPV)
Advantage/Disadvantage
Impact of NPV Rule and Stock Price
Internal rate of return (IRR)
Advantage/Disadvantage
Return on invested capital (ROIC)
NPV&IRR Profiles
Conventional CF
Unconventional CF
Crossover Rate
Calculation
IRR VS NPV
5. Real options
1
2
3
• R29 Sources of Capital
1. Corporate funding sources
Internal funding sources
After-tax operating cash flows (ATCFO)
Accounts payable
Accounts receivable
Inventory & marketable securities
External funding sources
Financial intermediaries
Bank
Lines of credit
Uncommitted line of credit
Committed line of credit
A revolving line of credit
Pledge assets as collatera
Banker's acceptances
Factoring
Non-bank
Capital markets
Other financing: leasing obligations.
Financing considerations
2.Liquidity Measures and Management
Liquidity Measures
Primary sources of liquidity
Secondary sources of liquidity
Liquidity difficulty
Liquidity management
Liquidity ratio
Activity ratio
A/R turnover
Receivables aging
A/P turnover
Operating cycle
A/P management
Cost of trade credit
• R30 Cost of Capital-Foundational Topics
1.Weighted average cost of capital (WACC)
Weightiness
MVE&FV
Cost of the Different Sources of Capital
Cost of debt
YTM
Debt-rating approach
Cost of preferred stock
Cost of equity
CAPM approach
Beta estimation
Listed company (β)
Historical data
Adjusted beta
Analysis vendor data
Private company (β)
Pure-Play method
Business Risk&Financial Risk
Effects of financial leverages
Country risk premium (CRP)
Sovereign yield spread (SYS)
Bond yield plus risk premium approach
Dividend Discount Model Approach (DDM)
Gordon growth model (GGM)
Sustainable growth rate (g)
Dividend yield
3. Floatation cost
Method 1 (Quantitative)
Method 2 (Qualitative)
• R31 Capital Structure
1. Capital Structure
Factors that may affect capital structure
Company life cycle
Cost of capital
Financing considerations
Competing stakeholder interests
Unique situations
2. MM Propositions
With tax
Basic assumptions for MM theory
MM Proposition 1
MM Proposition 2
Without tax
MM Proposition 1
MM Proposition 2
3. Optimal and Target Capital Structure
Static trade-off theory
financial distress
Capital structure
Optimal capital structure
Target capital structure
Actual capital structure
4. Factors Affecting Capital Structure
Capital structure policies and targets
Capital investment financing
Market conditions
Asymmetric information
Pecking order theory
Management attempts to maximize equity value.
Agency costs
Monitoring costs
Bonding costs
Residual losses
• R32: Measures of Leverage
1. Basic concept of leverage
2.Leverage
Degree of operating leverage (DOL)
Definition
Calculation
Characteristics
Degree of financial leverage (DFL)
Definition
Calculation
Characteristics
Degree of total leverage (DTL)
Definition
Calculation
Characteristics
3. Breakeven quantity
• Breakeven quantity of sales
• Operating breakeven quantity of sales
Breakeven Analysis
QBE
Marginal contribution
QOBE
Old version
R32: Capital Budgeting
Capital budgeting process
Categories of capital budgeting projects
Five basic principles
Incremental cash flows
Timing of cash flows
After tax basis
Cash flows should be ignored
Sunk costs
Financing costs/interest costs
Cash flows should be included
Externalities
Opportunity costs
Mutually Exclusive vs. Independent Project
Project Evaluation Methods
Net present value (NPV)
Advantage/Disadvantage
Impact of NPV Rule and Stock Price
Internal rate of return (IRR)
Advantage/Disadvantage
NPV&IRR Profiles
Conventional CF
Unconventional CF
Crossover Rate
Calculation
IRR VS NPV
Payback period (PBP)
Advantage/Disadvantage
Discount payback period (DPBP)
Profitability index (PI)
Advantage/Disadvantage
R33: Cost of Capital
Weighted average cost of capital (WACC)
Weightiness
MVE&FV
Cost of the Different Sources of Capital
Cost of debt
YTM
Debt-rating approach
Cost of preferred stock
Cost of equity
CAPM approach
Listed companies
Private company (β)
Pure-Play method
Business Risk&Financial Risk
Effects of financial leverages
Country risk premium (CRP) (Rm)
Sovereign yield spread (SYS)
Dividend Discount Model Approach (DDM)
Gordon growth model (GGM)
Sustainable growth rate (g)
Dividend yield
Bond yield plus risk premium approach
Optimal capital budget
Appropriate discount rate
Break point
Marginal Cost of Capital (MCC)
Floatation cost
Method 1 (Quantitative)
Method 2 (Qualitative)
R35: Working Capital Management
Liquidity Measures
Primary sources of liquidity
Secondary sources of liquidity
Liquidity difficulty
Liquidity management
Liquidity ratio
Activity ratio
A/R turnover
Receivables aging
A/P turnover
A/P management
Cost of trade credit
Cash Management
Rmm
BEY
RBD
Short Term Funding
Bank
Lines of credit
Uncommitted line of credit
Committed line of credit
A revolving line of credit
Pledge assets as collatera
Banker's acceptances
Factoring
Non-bank
Dear money
Commercial paper
Cost of borrowing
Application