PAPER NO. 15 ADVANCED FINANCIAL MANAGEMENT

GENERAL OBJECTIVE

To develop the candidate’s knowledge of finance theory and practice

15.0 SPECIFIC OBJECTIVES

A candidate who passes this paper should be able to:
- Apply the risk-return analysis in investments
- Apply and undertake the main financial decisions related to the acquisition, use and appropriation of funds for value maximization
- Evaluate the role of finance in assets management
- Apply the knowledge of finance in the public sector

CONTENT

15.1 Role of financial management in decision making

- Role of finance manager
- Goals of a firm
- Nature of agency conflict and resolution
- Managerial compensation
- Managerial incentives
- Measuring managerial performance
15.2 The investment decision under uncertainty

- The investment decision under capital rationing
- Investment decision under inflation
Investment decision under uncertainty/risk
  • Nature of risk and uncertainty
  • Measurement of risk
- Techniques of handling risk
  • Sensitivity analysis
  • Scenario analysis
  • Simulation analysis
  • Decision theory models
  • Certainty equivalent
  • Risk adjustment discount rates
  • Theory of choice/utility curves
- Special cases in investment decisions
  • Projects with unequal live
  • Replacement analysis
  • Abandonment decisions
- Investment decisions in portfolio context
  • Portfolio theory and risk reduction
  • Risk return trade off, mean-variance analysis
  • Capital efficient portfolios
  • Capital asset pricing models and multifactor models
  • Portfolio performance measurement
15.3 Capital structure and financing

- Nature and significance of financing decision
- Cost of capital and significance
- Capital structure and risk
- Optimal capital structure
- Capital structure theories
- Special topics in financing: Leverage, EBIT/EPS analysis, MCC/IOS schedules
- Geared and ungeared betas
15.4 Dividend policy

- Forms of dividends
- Dividend theories/models
- Alternative dividend policies
- Factors affecting dividend policy
- Other matters in dividend policy; stock splits, stock dividends
15.5 Financial distress, restructuring and reorganization

- Company as a going concern
- Capital structure of a firm
- Signs of financial distress
- Predicting organizational failure
- Multiple discriminant analysis
- Company reorganization and reconstruction
- Liquidation
15.6 Mergers and acquisitions

- Nature of mergers and acquisitions
- Rationale for mergers and acquisitions
- Success and failure of mergers
- Legal framework of mergers and takeovers
- Takeover tactics
- Defences against takeover
- Mergers and acquisitions in the global context
15.7 Financial risk management

- Meaning and purpose of derivatives
- Application of derivatives
- Forward markets/contracts
- Futures markets/contracts
- Options market/contracts
- Hedging
- Interest rate forwards and futures
- Interest rate parity
- Stock index futures
- Stock index futures contract
- Foreign exchange risk and management
15.8 Funds management

- Nature of funds management
- Open and closed end investment companies
- Mutual funds
- Hedge funds
- Other types of funds
- Regulatory framework and mutual and hedge funds
- Challenges faced by mutual funds
- Major participants in the mutual and hedging funds
15.9 Financial management in the public sector

- Local government, central government and co-operate sector reforms
- The public sector enterprise (PSE)
- PSE dimensions-profit versus social responsibility
- Cost-benefit analysis
- Finance function of PSEs
- Budgeting and budgetary control in PSEs
- Role of Controller and Auditor-General
- Parliamentary Committees-PAC, PIC
- Department of government investments and public enterprises
- Privatization
- Performance evaluation in PSEs
- Performance contracts
15.9 International financial markets and institutions

- International capital markets
- International money markets
- Euro markets: Euro credit markets, Euro bond market, Euro equity markets, Euro currency markets
- Foreign bonds
- International CDs
- International bond markets
- Project finance
- Currency cocktails
- Foreign financial intermediaries
- International financial institutions
- Bilateral, multilateral and regional financial institutions
- Integration of financial markets
- Segmentation of financial markets
15.11 Ethical, legal and social issues in finance

- The law and regulations governing financial markets
- Prevention of money laundering
15.12 Emerging trends in financial management
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