ACCA p4 EW 2013

Publishing 2013 ACCA P4 Advanced Financial Management Study Text emilewoolfpublishing.com   ACCA Paper P4 Advanced Financial Management Welcome to Emile Woolf‘s study text for Paper P4 Advanced Financial Management which is: „ Written by tutors „ Comprehensive but concise „ In simple English „ Used around the world by Emile Woolf Colleges including China, Russia and the UK Publishing Sixth edition published by Emile Woolf Publishing Limited  Crowthorne Enterprise Centre, Crowthorne Business Estate, Old Wokingham Road,   Crowthorne, Berkshire   RG45 6AW  Email: info@ewiglobal.com  www.emilewoolfpublishing.com       © Emile Woolf Publishing Limited, January 2013    All rights reserved. No part of this publication may be reproduced, stored in a retrieval  system, or transmitted, in any form or by any means, electronic, mechanical, photocopying,  recording, scanning or otherwise, without the prior permission in writing of Emile Woolf  Publishing Limited, or as expressly permitted by law, or under the terms agreed with the  appropriate reprographics rights organisation.    You must not circulate this book in any other binding or cover and you must impose  the same condition on any acquirer.      Notice  Emile Woolf Publishing Limited has made every effort to ensure that at the time of  writing the contents of this study text are accurate, but neither Emile Woolf Publishing  Limited nor its directors or employees shall be under any liability whatsoever for any  inaccurate or misleading information this work could contain.      British Library Cataloguing in Publications Data  A catalogue record for this book is available from the British Library.      ISBN: 978-1-84843-312-0      Printed and bound in Great Britain        Acknowledgements  The syllabus and study guide are reproduced by kind permission of the Association of  Chartered Certified Accountants.  ii © Emile Woolf Publishing Limited Paper P4 Advanced Financial Management c Contents Page Syllabus and study guide Formulae and tables 13 Chapter 1: The role and responsibilities of senior financial executive/advisor 19 Chapter 2: Theoretical and practical rationale for risk management 43 Chapter 3: Impact of environmental issues 69 Chapter 4: Economic environment for multinationals 81 Chapter 5: Discounted cash flow techniques 103 Chapter 6: DCF and risk 139 Chapter 7: Option pricing theory and investment decisions 163 Chapter 8: Cost of capital 189 Chapter 9: Financing of projects 203 Chapter 10: International investment and financing decisions 255 Chapter 11: Mergers and acquisitions 275 Chapter 12: Corporate reconstruction and reorganisation 321 Chapter 13: The money markets The treasury function 331 Chapter 14: Foreign exchange risk and currency risk management 347 Chapter 15: Interest rate risk Hedging with FRAs and swaps 369 Chapter 16: Futures and hedging with futures 393 Chapter 17: Hedging with options 421 Chapter 18: Emerging issues 443 Practice questions 451 Answers 481 Index 529 © Emile Woolf Publishing Limited iii Paper P4: Advanced Financial Management iv © Emile Woolf Publishing Limited Paper P4 Advanced Financial Management S Syllabus and study guide Aim To apply relevant knowledge, skills and exercise professional judgement as expected of a senior financial executive or advisor, in taking or recommending decisions relating to the financial management of an organisation Main capabilities On successful completion of this paper, candidates should be able to: A Explain and evaluate the role and responsibility of the senior financial executive or advisor in meeting conflicting needs of stakeholders B Evaluate the impact of macro economics and recognise the role of international financial institutions in the financial management of multinationals C Evaluate potential investment decisions and assessing their financial and strategic consequences, both domestically and internationally D Assess and plan acquisitions and mergers as an alternative growth strategy E Evaluate and advise on alternative corporate re-organisation strategies F Apply and evaluate alternative advanced treasury and risk management techniques G Identify and assess the potential impact of emerging issues in finance and financial management © Emile Woolf Publishing Limited Paper P4: Advanced Financial Management Rationale This syllabus develops upon the core financial management knowledge and skills covered in the F9, Financial Management, syllabus at the Fundamentals level and prepares candidates to advise management and/or clients on complex strategic financial management issues facing an organisation The syllabus starts by exploring the role and responsibility of a senior executive or advisor in meeting competing needs of stakeholders within the business environment of multinationals The syllabus then re-examines investment and financing decisions, with the emphasis moving towards the strategic consequences of making such decisions in a domestic, as well as international, context Candidates are then expected to develop further advisory skills in planning strategic acquisitions and mergers and corporate re-organisations The next part of the syllabus re-examines, in the broadest sense, the existence of risks in business and the sophisticated strategies which are employed in order to manage such risks It builds on what candidates would have covered in the F9, Financial Management, syllabus and the P1,Governance, Risk and Ethics, syllabus The syllabus finishes by examining the impact of emerging issues in finance © Emile Woolf Publishing Limited Syllabus and study guide Syllabus A Role and responsibility towards stakeholders B Economic environment for multinational organisations C Financial reconstruction Business re-organisation Treasury and advanced risk management techniques G Acquisitions and mergers versus other growth strategies Valuation for acquisitions and mergers Regulatory framework and processes Financing acquisitions and mergers Corporate reconstruction and re-organisation F Discounted cash flow techniques Application of option pricing theory in investment decisions Impact of financing on investment decisions and adjusted present values Valuation and the use of free cash flows International investment and financing decisions Acquisitions and mergers E Management of international trade and finance Strategic business and financial planning for multinational organisations Advanced investment appraisal D The role and responsibility of senior financial executive/advisor Financial strategy formulation Conflicting stakeholder interests Ethical issues in financial management Impact of environmental issues on organisational objectives and on governance The role of the treasury function in multinationals The use of financial derivatives to hedge against forex risk The use of financial derivatives to hedge against interest rate risk Dividend policy in multinationals and transfer pricing Emerging issues in finance and financial management Developments in world financial markets Developments in international trade and finance Developments in Islamic financing © Emile Woolf Publishing Limited Paper P4: Advanced Financial Management Approach to examining the syllabus The P4, Advanced Financial Management, paper builds upon the skills and knowledge examined in the F9, Financial Management, paper At this stage candidates will be expected to demonstrate an integrated knowledge of the subject and an ability to relate their technical understanding of the subject to issues of strategic importance to the organisation The study guide specifies the wide range of contextual understanding that is required to achieve a satisfactory standard at this level Examination Structure The examination will be a three-hour paper in two sections: Section A: Section A will contain a compulsory question, comprising of 50 marks Section A will normally cover significant issues relevant to the senior financial manager or advisor and will be set in the form of a case study or scenario The requirements of the section A question are such that candidates will be expected to show a comprehensive understanding of issues from across the syllabus The question will contain a mix of computational and discursive elements Within this question candidates will be expected to provide answers in a specified form such as a short report or board memorandum commensurate with the professional level of the paper in part or whole of the question Section B: In section B candidates will be asked to answer two from three questions, comprising of 25 marks each Section B questions are designed to provide a more focused test of the syllabus Questions will normally contain a mix of computational and discursive elements, but may also be wholly discursive or evaluative where computations are already provided Total 100 marks © Emile Woolf Publishing Limited Answers (Note: This calculation of the profit ignores the time value of money The options are paid for when they are bought, but the profit is made only when the options are exercised) Traded equity options can be bought and sold on the exchange, and the investor is likely to sell the put options before they expire, making a profit on the sale As the options become increasingly in-the-money, their market value will increase 46 Currency options In September, the UK company will want to sell dollars and buy sterling (to convert its dollar receipts into sterling) Since it wants to buy sterling in six months’ time, it should buy call options with a September expiry If the strike price is $1.8500, the sterling equivalent of $2 million = £1,081,081 (2,000,000/1.85) The contract size is £31,250; therefore for a perfect hedge, the company would want to buy 34.6 contracts (1,081,081/31,250) Since this is not possible, it should buy either 34 or 35 contracts In the answer that follows, it is assumed that the company will buy 35 options Premium cost = 35 × 31,250 × $0.019 = $20,781.25 To pay the premium, the company would have to buy $20,781.25 spot, at a sterling cost of £11,340.38 At the expiry date, the options are in-the-money if the spot exchange rate is 1.9200 They will therefore be exercised, at a profit of $0.07 per £1 (1.9200 – 1.8500) Gain on exercise of 35 option contracts = 35 × 31,250 × $0.07 = $76,562.50 The total dollar income of the company will therefore be $2,076,562.50 This can be exchanged into sterling at the spot rate, to obtain £1,081,543 ($2,076,562.50/1.9200) The option premium cost was £11,340, therefore ignoring the time value of money, the net revenue for the company is £1,081,543 – £11,340 = £1,070,203 This gives an effective exchange rate for the $2 million dollar receipts of 1.8688 (2,000,000/1,070,203) © Emile Woolf Publishing Limited 521 Paper P4: Advanced Financial Management 47 Interest rate hedge (a) Futures The company wants a hedge against the risk of a rise in two-month interest rates It should therefore sell futures Since the interest period will be months and futures are for a three-month deposit, the quantity of futures sold should be: (£21 million/£500,000) × 2/3 = 28 contracts The loan period will begin in mid-June; therefore sell 28 June contracts, at a price of 94.610 Options on futures The company will want options to sell futures; therefore it should buy put options on 28 June futures The premium cost will depend on the strike price chosen (Since the options are needed for two months, apply a factor of × 2/12) Strike price 94750 95000 Premium (£21,000,000 × 0.500% × 2/12) (£21,000,000 × 0.850% × 2/12) £17,500 £29,750 FRA The company should buy a 3v5 FRA, for a notional principal amount of £21 million The FRA rate will be 5.38% (Note: The FRA rate is more favourable than the futures rate of 5.39% (100 – 94.610) The company would therefore prefer to buy an FRA than sell futures However, it might prefer to buy put options on futures rather than buy an FRA) In mid-June, the company will borrow £21 million for two months If the LIBOR rate is 6%, it will borrow at 6.75% (LIBOR + 0.75%) for two months Futures The futures price in mid-June can be estimated as follows: June futures price in mid-March LIBOR rate in mid-March Basis in mid-March 94.610 95.000 0.390 In mid-March, there were 3.5 months to settlement of the June futures In midJune, there are 0.5 months remaining to settlement Basis is assumed to have reduced in size by mid-June to: (0.5/3.5) × 39 points = 5.6 points, say points LIBOR rate in mid-June Basis in mid-June Estimated futures price in mid-June 94.000 00.005 93.995 The company will close its position by buying 28 June futures at 93.995 Original selling price Buying price to close Gain (ticks) 522 94.610 93.995 00.615 © Emile Woolf Publishing Limited Answers The total gain on the futures position: = 28 contracts × 61.5 ticks per contract × £12.50 per tick = £21,525 (The gain on the futures position offsets the cost of the increase in the interest rate above the rate fixed by the futures contract (6% - 5.39% = 0.61%) The extra borrowing cost is £21 million × 0.61% × 2/12 = £21,350 The difference of £175 is due to the basis risk) Options on futures The company will exercise its options to sell futures at the strike price for the option, and will then close the futures position, giving a gain on closing the futures position Strike price 94750 Strike price 95000 Option strike price to sell Buying price to close Gain (ticks) 94.750 93.995 0.755 95.000 93.995 1.005 Total gain: 28 × 75.5 ticks × £12.50 28 × 100.5 ticks × £12.50 £26,425 £35,175 However, after taking into account the cost of the option premiums, the net gain is reduced FRA The company’s FRA bank will make a payment equivalent to (6% - 5.38%) = 0.62% per year on £21 million for two months, to settle the FRA The gain on the FRA will offset the higher interest cost of borrowing 48 Black-Scholes Step 1: Calculate d1 ⎛ 870 ⎞ ln ⎜ ⎟ + (0.05 × 0.5 ) 900 ⎠ d1 = ⎝ + 0.5c 0.09 × 0.5 0.09 × 0.5 ln (870/900) = ln 0.96667 Using a calculator, the natural logarithm of 0.96667 can be obtained This is – 0.0339 −0.0339 + 0.025 + 0.5 × 0.30 × 0.7071 0.30 × 0.7071 = (-0.0089/0.21213) + 0.106 d1 = =-0.042, say-0.04 © Emile Woolf Publishing Limited 523 Paper P4: Advanced Financial Management Step 2: Calculate d2 d =d1 −σ t = −0.042 − ( 0.09 × 0.5 ) =-0.042-0.212 =-0.254, say –0.25 Step 3: Obtain values for N(d1) and N(d2) (a) N(d1) When d1 = 0.042, the corresponding value in the normal distribution table is 0.0160 The value of d1 is negative, so subtract from 0.50 N(d1) = 0.5000 – 0.0160 = 0.4840 (b) N(d2) When d2 = 0.25, the corresponding value in the normal distribution table is 0.0987 The value of d2 is negative, so subtract from 0.50 N(d2) = 0.5000 – 0.0987 = 0.4013 Step 4: Calculate the option price The value of e-rt The value of rt is (0.05)(0.5) = 0.025 The value of e-0.025 is the same as 1/e0.025 Using a calculator, the value of e0.025 can be obtained: this is 1.0253 Therefore e-0.025 = 1/1.0253 = 0.9753 Option price = PS N(d1) – X e-rt N(d2) = = = 870 (0.4840) 421 – 352 69 – 900 (0.9753) (0.4013) The option price is 69 49 Put-call parity Value of put option + Current share price = Value of call option + PV of exercise price The PV of the exercise price = 600 × 1/(1.04)0.5 = 600 × 0.9806 = 588 Value of put + 582 = 33 + 588 Value of put = 39 50 Delta hedge (a) 524 The bank should hold one share in TER for every call options (1/0.125) that it writes © Emile Woolf Publishing Limited Answers (Alternatively, if it buys call options, it should sell one share forward for settlement on the option expiry date for every options that it buys) (b) Calculate d1 ⎛ 258 ⎞ ln⎜ ⎟ + (0.04 x 0.5) ⎝ 260 ⎠ d1 = + 0.5 x 0.16 x 0.5 0.16 x 0.5 ln (258/260) = ln 0.9923 Using a calculator, the natural logarithm of 0.9923 can be obtained This is – 0.0077 d1 = −0.0077 + 0.02 + 0.5 x 0.40 x 0.7071 0.40 x 0.7071 =(0.0123/0.2828)+0.1414 =0.185 The bank should hold one share in BVZ for every 5.4 call options (1/0.185) that it writes (Alternatively, if it buys call options, it should sell one share forward for settlement on the option expiry date for every 5.4 options that it buys) 51 Bonus scheme Bonus linked to EVA It is assumed that research and development costs should be capitalised The EVA in the year just ended is therefore as follows Sales Cost of sales Depreciation Tax: 44 + [(14 + 35) × 30%] NOPAT $ million 683.0 (421.0) (65.0) (58.7) 138.3 Interest should be calculated on the capital employed at the beginning of the year, adjusted to include the research and development costs in the previous three years that should be capitalised for the purpose of EVA calculations Capital employed (in $ million) = 525 + (14 × 3) = 567 Notional interest at 9% = $51.03 million, say $51.0 million NOPAT Notional interest EVA $ million 138.3 (51.0) 87.3 If the bonus payment is 0.5% of EVA, on the basis of the previous year’s EVA the executive could expect to receive $436,500 as a cash bonus © Emile Woolf Publishing Limited 525 Paper P4: Advanced Financial Management Share options The share options would be call options Their value can be estimated from the value of a similar put option, using the put-call parity theorem Value of put = Value of call – Current market value + Strike price × e-rT 30 = Value of call – 140 + 140 × e-(0.05 × 1) 30 = Value of call – 140 + (140 × 0.951229) Value of call = 36.83cents The value of at-the-money call options on million shares, with an exercise date in one year, is therefore about $736,600 52 Delta neutral (a) Barn plc could either buy put options on Door plc shares, or could write call options With put options, the company would pay a premium to secure a worstpossible share price With call options, the company would receive income from selling the options but would be exposed to a risk of a rise in the share price above the exercise price The company should choose November options, and might consider a strike price of either 600 or 650 If Barn plc buys November put options, it will buy 4,000 contracts (1) If it buys put options at 600, the option premium payable will be 22.0 If the share price at the end of November is 580, the put options will be exercised for a gain of 20 (600 – 580) However, allowing for the premium, the net loss will be 2.0 pence per share or £80,000 in total compared with a strategy of not hedging the risk with options and selling the shares at the current market price of 580 (2) If it buys put options at 650, the option premium payable will be 47.5 If the share price at the end of November is 580, the put options will be exercised for a gain of 70 (650 – 580) Allowing for the premium, the net gain will be 22.5 pence per share or £900,000 in total compared with a strategy of not hedging the risk with options and selling the shares at the current market price of 580 (b) To establish a delta neutral position, the company should sell call options If the share price goes up, the value of the investment in million shares will rise, but this will be offset by the loss on the call options, leaving the net value of the investment unchanged If the share price falls, the loss in the value of the shares will be offset by a gain on the options position The option delta for the relevant option is 0.46, which means that for every share held, the company would sell 1/0.46 = 2.1739 call options on the shares, or 8,695,600 call options in total A problem with establishing a delta neutral hedge is that ideally at-the-money options should be sold, but these are not normally available as traded options Another problem is that the option delta is only applicable over a fairly narrow range of prices for a share If the share price moves by more than a small amount, 526 © Emile Woolf Publishing Limited Answers the option delta changes and options must be cancelled or written in order to reestablish a delta neutral hedge The position therefore needs continual monitoring and adjusting if the share price is volatile © Emile Woolf Publishing Limited 527 Paper P4: Advanced Financial Management 528 © Emile Woolf Publishing Limited Paper P4 Advanced Financial Management i Index DC A   Acquisitions and mergers: financing 317 Acquisitions: compared to internal growth 277 Acquisitions: compared to joint ventures 277 Acquisitions: criteria 278 Acquisitions: failure rate 280 Acquisitions: regulatory framework 280 Acquisitions: synergy 279 Adjusted present value 246 Agency effects on capital structure 212 Agency theory 30 Alpha factor 61 Annuities 107 Asset beta 239 Asset securitisation 208 Audit committee 37   B   Bank for International Settlements (BIS) Bankers’ acceptances Base rates Basis risk Beta factor of a portfolio © Emile Woolf Publishing Limited 99 337 334 401 60 Beta value: asset and equity equity geared and ungeared project Beta values Bills of exchange Black-Scholes option pricing model Board of directors: Board committees Composition responsibilities Bond futures Bounded rationality Business angels Business ethics Business reorganisation demergers divestment going private Management buy ins Management buyouts share buy back Business valuation asset basis cash flow models dividend valaution model earnings based EVA and MVA 239 243 239 243 59 337 172 36 36 35 419 32 207 40 325 325 326 329 327 327 328 284 285 294 288 287 308 529 Paper P4: Advanced Financial Management free cash flows high growth start-ups NPV method other aspects shareholder value added 299 315 294 311 298   C   Capital asset pricing model (CAPM) 56 Capital or currency: Restrictions on movements 93 Capital rationing 121 Capital reconstructions 322 CAPM: Advantages and disadvantages 61 International 63 Investment appraisal 62 Caps, floors and collars 430 Carbon neutrality 71 Carbon trading 78 CDOs (Collateralised Debt Obligations) 444 Certificates of deposit (CDs) 338 Code of ethics: Content 41 Commercial paper (CP) 338 Commodity futures 394 Common markets 92 Competition law 281 Conflicting stakeholder interests 29 Corporate codes of ethics 40 Corporate governance: combined Code in the UK 33 corporate social responsibility 38 different models 33 improving 35 other countries 38 Sarbanes-Oxley 33 Corporate social responsibility 21 Cost of capital 190 minimisation 25 Cost of capital and gearing 225 Cost of debt 191, 196 irredeemable 196 redeemable 197 variable rate debt 196 530 Cost of equity Cost of equity: CAPM Countertrade Credit arbitrage Credit ratings Cross rates Currency futures Currency options Currency swaps Currency transaction exposures 192 195 346 383 220 360 406 423 389 348   D   Dark pool trading DCF and taxation Delta ( Δ ) Delta hedging Demergers Directors’ remuneration Discount tables (background) Discounted cash flow Distribution and retention policy Diversification Divestments Dividend growth model Dividend policy Dividend valuation model Double taxation agreement Duration of bonds 446 115 440 436 325 37 106 104 26 51 326 193 26 192 85 221   E   Economic value added Environmental audits Environmental footprint Environmental risk Equity EU Emissions Trading Scheme Exchange controls Exchange rate risk Exchange rates: estimation forward rates government 302 73, 76 70 70 204 78 258 257 263 265 350 © Emile Woolf Publishing Limited Index Interest rate parity purchasing power parity spot rates volatility Exercise price Expected value Export factoring 265 263 263 349 166 141 345   F   Finance of international trade 344 Financial Action Task Force 447 Financial crisis 444 Financial futures 394 basis risk 401 closing positions 398 hedging 403 long and short positions 398 margin 396 prices 395 settlement dates 395 tick values 400 Financial goals and financial policy development 21 Financial ratios 24 Financial strategy formulation 21 Fiscal risk 144, 261 Foreign exchange risk 348 hedging methods 361 hedging 361 Foreign investment decisions 256 features 268 methods 268 taxation 260 Forfaiting 345 Forward contracts 356 Forward contracts: hedging 357 Forward rate agreements (FRAs) 373 Forward rates 356 premiums and discounts 358 Free cash flow 135, 299 business valuation 135 definition 135 dividend capacity 137 © Emile Woolf Publishing Limited for equity for the firm Free trade and protectionism Futures: currency hedging interest rate FX markets FX swaps 137 136 91 406 403 411 353 390   G   440 Gamma ( Γ ) General Agreement on Trade and Tariffs (GATT) 93 Global competition 82 Going private 329 Gordon’s growth model 26 Gordon’s growth model 193 Government measures to stabilise exchange rates 350 Greeks 440   H   Hedging risks Hedging with options Hostile takeover: defences 51 422 281   I   Import quotas Inter-bank market Interest rate options Interest rate parity Interest rate risk hedging methods Interest rate swaps Interest rate volatility Internal control and risk management Internal rate of return (IRR) International financial markets International Fisher effect 91 333 427 265 370 373 378 370 38 129 95 265 531 Paper P4: Advanced Financial Management International Monetary Fund (IMF) International trade 98 344 Multi-period capital rationing     N J   Net present value Normal distribution   Jensen and Meckling (1976) 30     L O   Leases 206 Letters of credit (documentary credits) 344 LIBOR 333, 371   Objectives of an organisation Opportunism Option premium Option value Options American, European and Bermudan calls and puts exercise or strike price hedging intrinsic and time value OTC and exchange traded   M   Management buy-ins 327 Management buy-outs 327 Market timing theory 211 Market value added 302, 307 McCauley’s duration 222 Mergers and acquisitions 276 Mergers and acquisitions: distinction 276 Modified internal rate of return (MIRR) 132 Modigliani and Miller 226 with tax 229 Money cost of capital 111 Money laundering 447 Money market hedge 365 Money market instruments 336 bills of exchange 337 certificates of deposit 338 commercial paper 338 coupon bearing and discount instruments 336 treasury bills 336 Money market interest rates 371 Money markets 332 Monte Carlo simulation 146 Multinational companies: Governments 82 Management coordination 83 Problems 82 Tax planning 87 532 124 104 155 20 32 167 169 164 165 165 166 422 169 165   P   P/E ratio Pecking order theory Perpetuity Political risk Portfolio theory calculations possible outcomes Primary corporate objective Private equity funds Project volatility Purchasing power parity Pure risk (downside risk) Put-call parity 287 210 110 258 52 53 54 20 207 151 263 44 177   R   Raising capital: bond issue share issue world's financial markets 101 101 100 © Emile Woolf Publishing Limited Index Real cost of capital 111 Real options 179 definition 179 theory 180 types 182 valuation 183 Repo market 334 Reputation risk 47 Rho (〉) 441 Risk 44, 140 assessing 49 Examiner's article 64 hedging 51 identification 48 measuring 50 modelling 144 prioritising 50 profiling 49 pure 44 sharing 51 speculative 44 transfer 50 Risk and uncertainty: capital investment appraisal 140 methods of assessment 141 Risk identification 48 Risk management 44 COSO 28 framework 28 internal control 38 process 47 Risk management system: Elements 45 Role and responsibility of the senior financial executive 20   S   Securitisations Security market line Sensitivity analysis Share buy-back Shareholder value added Short-term interest rate futures (STIRs) Simplex method © Emile Woolf Publishing Limited 444 57 143 328 298 411 124 Single period capital rationing 122 Social footprint 71 Sources of finance 204 asset securitisation 208 business angels 207 debt 205 equity 204 hybrids 206 international 274 leases 206 private equity funds 207 selection 209 venture capital 206 Speculative risk (two-way risk) 44 Spot rates 353, 354 Spot rates: bid and offer prices 353 Spreads and credit ratings 220 Stakeholder theory 33 Static trade-off theory 209 Stock index futures 419 Strategic choices 22 Strategic position 22 Strike price 166 Subsidies 91 Sustainability and environmental risk 72 Sustainability reporting 73 Synergy 279 Synthetic agreements for forward exchange 363 Systematic risk (market risk) 56 Systematic risk: measurement 58   T   Takeover rules Tax exhaustion Tax rules on transfer prices Tax-allowable depreciation (capital allowances) The financial crisis Theta (⎝) Three fundamental decisions Transaction cost theory Transaction risk 281 119 85 116 444 441 21, 24 31 257 533 Paper P4: Advanced Financial Management Transfer pricing and taxation Translation risk Treasury bills Treasury function Triple bottom line reporting 84 258 336 340 74   U   Uncertainty Unsystematic risk 140 56   V   Value at risk Value drivers Vega (v) Venture capital   534 W   Weighted average cost of capital (WACC) 190 Weighted average cost of capital: calculation 199 Weighted average cost of capital: investment appraisal 191 Weighted average cost of capital: market value 201 Withholding tax 85 World Bank 97 World Trade Organisation (WTO) 93   153 298 440 206 Y   Yield curve: spreads Yield curves 219 213 © Emile Woolf Publishing Limited 2013 ACCA P4 Advanced Financial Management A well-written and focused text, which will prepare you for the examination and which does not contain unnecessary information • Comprehensive but concise coverage of the examination syllabus • • • • Simple English with clear and attractive layout A large bank of practice questions which test knowledge and application for each chapter A full index The text is written by Emile Woolf International’s Publishing division (EWIP) The only publishing company focused purely on the ACCA examinations • EWIP’s highly experienced tutors / writers produce study materials for the professional examinations of the ACCA • EWIP’s books are reliable and up-to-date with a user-friendly style and focused on what students need to know to pass the ACCA examinations • EWIP’s association with the world renowned Emile Woolf Colleges means it has incorporated student feedback from around the world including China, Russia and the UK emilewoolfpublishing.com ...  ACCA Paper P4 Advanced Financial Management Welcome to Emile Woolf‘s study text for Paper P4 Advanced Financial Management which is: „ Written... Crowthorne Enterprise Centre, Crowthorne Business Estate, Old Wokingham Road,   Crowthorne, Berkshire   RG45 6AW  Email: info@ewiglobal.com  www.emilewoolfpublishing.com       © Emile Woolf Publishing Limited, January 2013   All rights reserved. No part of this publication may be reproduced, stored in a retrieval ... 481 Index 529 © Emile Woolf Publishing Limited iii Paper P4: Advanced Financial Management iv © Emile Woolf Publishing Limited Paper P4 Advanced Financial Management S Syllabus and study guide