Four topics, weighted roughly by the share of marks they carry. How corporates are financed is the largest, at 35%.
Topic 1
Corporate governance and organisation, 18%
Topic 2
How corporates are financed, 35%
Topic 3
Evaluating projects, 15%
Topic 4
Constructing and interpreting company accounts, 32%
What the topics cover
Questions can draw on any part of the syllabus in any sitting, so prepare across all of it.
Area
Syllabus objectives
Governance, regulation and ethics
1.1, 1.2 and 1.4
Shareholder wealth, stakeholders and value
1.3
Business entities and sources of finance
2.1
Personal and company taxation
2.2
Securities and derivatives
2.3.4 and 2.3.5
Stock exchange listing and new issues
2.3.1 to 2.3.3 and 2.3.6 to 2.3.8
Capital structure, dividends and growth
2.4 and 2.5
Cost of capital and the discount rate
3.1.1, 3.1.2, 3.1.6 and 3.1.7
Project appraisal and risk
3.1.3 to 3.1.5 and 3.1.8 to 3.1.10
Building company accounts
4.1.1 to 4.1.6, 4.1.12 and 4.1.13
Cash flows, groups, insurers and banks
4.1.7 to 4.1.11
Ratios and interpretation
4.2
Try a question
Cost of equity from dividend growth
Cost of capital · Straightforward · 8 marks
Melrose Kitchens plc has paid the dividends per share shown in the table. The 20X5 dividend has just been paid, and the share price is now £3.20 ex dividend. The directors expect dividends to keep growing at the same average annual rate as over the last four years.
Year
Dividend per share (pence)
20X1
15
20X2
16
20X3
17.2
20X4
18.6
20X5
20
(i)
Calculate the average annual rate of growth in dividends from 20X1 to 20X5, as a percentage to two decimal places.
2 marks
(ii)
Calculate Melrose's cost of equity using the dividend growth model, as a percentage to two decimal places.
2 marks
(iii)
Explain the limitations of using the dividend growth model to estimate Melrose's cost of equity.