AFMP4

Syllabus B3. Impact Of Financing On Investment Decisions 6 / 17

a) Identify and assess the appropriateness of the range of sources of finance available to an organisation including equity, debt, hybrids, lease finance, venture capital, business angel finance, private equity, asset securitisation and sale and initial coin offerings. Including assessment on the financial position, financial risk and the value of an organisation

b) Discuss the role of, and developments in, Islamic financing as a growing source of finance for organisations; explaining the rationale for its use, and identifying its benefits and deficiencies.

e) Assess an organisation’s debt exposure to interest rate changes using the simple Macaulay duration and modified duration methods. 

f) Discuss the benefits and limitations of duration including the impact of convexity. 

g) Assess the organisation’s exposure to credit risk, including: 
i) Explain the role of, and the risk assessment models used by the principal rating agencies
ii) Estimate the likely credit spread over risk free
iii) Estimate the organisation’s current cost of debt capital using the appropriate term structure of interest rates and the credit spread.

h) Assess the impact of financing and capital structure upon the organisation with respect to:
i) Modigliani and Miller propositions, before and after tax
ii) Static trade-off theory
iii) Pecking order propositions iv) Agency effects.
Impact Of Financing On Investment Decisions