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CIMA F3 · Strategic Level

B. Sources of long-term funds

This section examines the sources of long-term funding available to organisations, including debt finance, equity finance, and hybrid instruments, and evaluates the trade-offs between cost, control, risk, and capital structure decisions. It covers how organisations select appropriate financing methods to support expansion and growth strategies.

  • 39 lessons
  • 4 modules
  • 5.2h of video
  • ~25% of the exam
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What you'll learn

By the end of B. Sources of long-term funds.

  • Explain the characteristics and advantages of different sources of long-term debt finance
  • Describe the features of equity finance and the process of issuing shares on capital markets
  • Analyse the factors influencing dividend policy and the implications for shareholder value
  • Evaluate the weighted average cost of capital (WACC) and its role in investment appraisal decisions
  • Assess the relationship between capital structure, financial risk, and firm valuation using relevant theories
  • Apply financing concepts to determine optimal capital structure in organisational contexts

The lessons

39 lessons, module by module.

Long-term debt finance (*with 2026 updates)

14 lessons
  1. 1 Debt finance - introduction 5m
  2. 2 Short and medium term debt finance - part 1 6m
  3. 3 Short and medium term debt finance - part 2 9m
  4. 4 Short and medium term debt finance - part 3 6m
  5. 5 Long-term debt finance - part 1 3m
  6. 6 Long-term debt finance - part 2 10m
  7. 7 Convertible debt calculations - part 1 4m
  8. 8 Convertible debt calculations - part 2 14m
  9. 9 Leasing - part 1 5m
  10. 10 Leasing - part 2 11m
  11. 11 Green finance (2026 syllabus) - part 1 8m
  12. 12 Green finance (2026 syllabus) - part 2 10m
  13. 13 Green finance (2026 syllabus) - part 3 9m
  14. 14 Green finance (2026 syllabus) - part 4 9m

Equity finance

11 lessons
  1. 1 Equity finance - introduction 5m
  2. 2 Types of shares and capital markets - part 1 8m
  3. 3 Types of shares and capital markets - part 2 9m
  4. 4 Issuing shares - part 1 9m
  5. 5 Issuing shares - part 2 5m
  6. 6 Rights issues - part 1 7m
  7. 7 Rights issues - part 2 10m
  8. 8 Cost of equity (Ke): dividend growth model - part 1 7m
  9. 9 Cost of equity (Ke): dividend growth model - part 2 8m
  10. 10 Cost of equity (Ke): CAPM - part 1 10m
  11. 11 Cost of equity (Ke): CAPM - part 2 6m

Dividend policy

6 lessons
  1. 1 Dividend policy - introduction 4m
  2. 2 Influences on dividend policy - part 1 13m
  3. 3 Influences on dividend policy - part 2 4m
  4. 4 Dividend irrelevance theory 11m
  5. 5 Alternatives to cash dividends - part 1 7m
  6. 6 Alternatives to cash dividends - part 2 8m

Capital structure

8 lessons
  1. 1 Capital structure - introduction 5m
  2. 2 Weighted average cost of capital (WACC) - part 1 10m
  3. 3 Weighted average cost of capital (WACC) - part 2 12m
  4. 4 Capital structure theories - part 1 8m
  5. 5 Capital structure theories - part 2 9m
  6. 6 MM capital structure calculations - part 1 11m
  7. 7 MM capital structure calculations - part 2 6m
  8. 8 Real world capital structure 13m

Questions

About B. Sources of long-term funds.

What does the Sources of long-term funds section cover?

This section examines the principal sources of long-term funding available to organisations, specifically debt finance, equity finance, and hybrid instruments. It evaluates the trade-offs between cost, control, and financial risk, and explores how organisations structure their capital to support growth and expansion strategies. The section integrates financing decisions with capital structure theories and valuation principles relevant to strategic financial management.

Is this section important for the F3 exam?

Yes, this section is fundamental to the F3 exam. Sources of long-term funds is a core syllabus area representing a significant proportion of the Strategic Level assessment. Questions on debt finance, equity finance, dividend policy, and capital structure feature regularly in objective tests and case study scenarios. Strong understanding of WACC calculation and capital structure theory is essential for exam success.

What is the difference between debt and equity finance?

Debt finance involves borrowing money that must be repaid with interest, creating a fixed obligation and legal liability. Equity finance involves issuing shares, giving investors ownership stakes but no repayment obligation. Debt typically has lower cost of capital but increases financial risk and leverage, while equity dilutes ownership but provides flexibility and reduces insolvency risk.

Why is WACC important in financial decision-making?

The weighted average cost of capital (WACC) represents the average rate of return required by all investors (debt and equity holders) and serves as the discount rate for investment appraisal. It is critical because it reflects the true cost of financing and helps organisations evaluate whether capital projects will create shareholder value. A project must generate returns exceeding WACC to justify investment.

What factors influence a company's dividend policy?

Dividend policy is influenced by profitability, cash flow availability, growth opportunities, industry norms, tax considerations, and shareholder expectations. Organisations must balance the desire to reward shareholders with cash returns against the need to retain earnings for reinvestment and debt servicing. Legal constraints, contractual obligations, and signalling effects also play important roles in dividend decisions.

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