- CFA Level 2: Corporate Finance Part 1 – Introduction
- Introduction to Capital Structure and Leverage
- Introductory Capital Budgeting Remarks
- Expansion Projects vs. Replacement Projects and Cash Flows
- Impacts of Depreciation Method Choice on Capital Budget Analysis
- Inflation and Capital Budgeting
- Mutually Exclusive Capital Projects with Unequal Lives
- Equivalent Annual Annuity (EAA) Approach
- Least Common Multiple of Lives Approach
- Stand Alone Risk and Capital Projects
- CAPM and a Capital Project’s Discount Rate
- Capital Projects and Real Options
- Common Pitfalls in Capital Budgeting
- Capital Budgeting Alternatives to NPV and IRR Analysis
- Modigliani-Miller and Capital Structure Theory
- Evaluating Capital Structure Policy
- International Differences in Financial Leverage
- Dividend and Share Repurchase Policies
- Factors Affecting Corporate Dividend Policy Decisions
- Signals from Dividend Policies
CFA Level 2: Corporate Finance Part 1 – Introduction
Corporate finance is spread over two study sessions. The subject of corporate finance will likely represent at least 5% (one item set, six questions), but no more than 10% (two item sets, 12 questions) of the Level II exam. It is also possible that corporate finance concepts will be combined with equity and/or financial reporting to comprise about 7-8% of the exam questions.
This week’s study session will attempt to highlight key corporate finance concepts within the parameters of CFAI curriculum. Going beyond simple memorization and base theoretical understanding, candidates must actively apply the concepts in question practicing sessions, as it may not be readily apparent as to how these ideas will manifest themselves in question format.
This material builds upon the corporate finance foundation established in the Level 1 exam. When necessary, students are encouraged to refer to Level 1 curriculum in order refresh necessary cornerstone competencies. These key cornerstones definitely include a firm understanding of net present value (NPV) and internal rate of return (IRR) analysis.
I. Capital Budgeting Decisions
II. Capital Structure for Corporations
III. Dividend and Share Repurchase Policies
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