Long-Term Finance, Markets and Cost of Capital
Equity and debt sources, capital-market issues, dividend valuation, debt cost and WACC.
How to study CIMA Management Level
Secure E2, P2 and F2 knowledge before practising integrated medium-term judgement. These single-best-answer study questions do not reproduce or claim to simulate the pre-seen, unseen information, timed written sections, professional formats and human marking of the Management Case Study.
Core concepts
Concept 1
Compare long-term funding sources and issue methods.
Exam cue: Match funding characteristics to cash-flow risk, control and maturity.
Concept 2
Calculate cost of equity, debt and weighted average cost of capital.
Exam cue: Use market-value weights and after-tax debt cost where appropriate.
Concept 3
Explain how financing and market conditions affect project support.
Exam cue: Check whether the existing WACC is relevant to the project's risk.
Risk pitfalls and guardrails
Weighting WACC by book values without justification.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, timing, evidence provenance, stakeholders and whether the conclusion follows.
Applying tax relief to equity cost.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, timing, evidence provenance, stakeholders and whether the conclusion follows.
Assuming the cheapest stated rate is the best financing source.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, timing, evidence provenance, stakeholders and whether the conclusion follows.
Memory anchors
WACC
The market-value-weighted average required return of long-term financing sources.
Dividend valuation model
Equity value is based on the present value of expected dividends.
Convertible debt
Debt that may be converted into equity under specified terms.
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
Which is an advantage of a rights issue?
What is a placing?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
What is Pass Harbor?
Completely free exam prep for 247 UK exams.
- Practice questions
- Flashcards
- Study guides
- Mock exams
- No registration
- No paywall
- Start instantly
“No more expensive exam prep. Quality study tools should be accessible to everyone.”