Business Finance
Sources of finance, cost of capital, capital structure, dividend policy and SME finance.
How to study ACCA Applied Skills
Build on Applied Knowledge, use the correct UK law and tax versions, practise workplace-style digital responses and keep each independent 50% pass decision visible.
Core concepts
Concept 1
Finance sources differ in maturity, security, control, flexibility, cash commitment, tax effect and issue cost.
Exam cue: Define amount, maturity, purpose, security and risk before recommending a source.
Concept 2
Cost of capital estimates investor-required return and supports valuation and investment decisions when risk assumptions align.
Exam cue: Use market values and current required returns when estimating weighted average cost of capital.
Concept 3
Capital-structure and dividend decisions interact with market imperfections, signalling, agency and financing capacity.
Exam cue: Check whether project risk and financing mix justify using the existing WACC.
Risk pitfalls and guardrails
Using book-value weights automatically in WACC.
Guardrail: Do not reuse a legal rule, tax amount, reporting format, audit phrase or finance formula without checking scope, date, units and evidence.
Treating debt as always cheaper without considering financial distress and capacity.
Guardrail: Do not reuse a legal rule, tax amount, reporting format, audit phrase or finance formula without checking scope, date, units and evidence.
Recommending equity without addressing control, timing and issue cost.
Guardrail: Do not reuse a legal rule, tax amount, reporting format, audit phrase or finance formula without checking scope, date, units and evidence.
Memory anchors
Cost of Equity
Cost of equity is the return shareholders require for the risk of their investment.
After-tax Debt Cost
Debt cost reflects required yield and the relevant corporation-tax effect of interest.
WACC
Weighted average cost of capital combines component costs using appropriate market-value weights.
Gearing
Gearing describes the extent of debt finance and its effect on financial risk.
Pecking Order
Pecking-order theory predicts preference for internal finance, then debt, then new equity under information asymmetry.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
What is the main financial difference between ordinary shares and debt?
Why is retained earnings not a free source of finance?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
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