F3 overview - long-term funds

In this lesson

1. 0:01 Syllabus area B: Long-term funding overview
2. 0:24 Capital structure: Balancing debt and equity
3. 1:03 Debt and equity financing considerations
4. 2:03 Weighted average cost of capital explained
5. 3:00 How debt changes your funding cost
6. 4:49 Modigliani and Miller theory in practice
7. 5:40 Debt financing options and calculations
8. 6:39 Lease versus buy decision analysis
9. 8:11 Equity finance and share types
10. 8:55 Rights issues: Mechanics and pricing
11. 9:52 Cost of equity: Dividend and CAPM models

About this lesson

This topic accounts for 25% of the F3 exam, so expect around 15 questions testing your understanding of capital structure, the cost of capital, and how to evaluate different financing options. The session covers three core areas. First, capital structure: understanding the balance between debt and equity, calculating weighted average cost of capital, and exploring Modigliani and Miller theory to see how changes in your debt-to-equity mix affect your overall funding costs. Second, debt financing: comparing options like bank loans, tradable debt, and leases, calculating the cost of different debt types, and using NPV analysis to decide whether to buy or lease assets. Third, equity finance: understanding share types, the mechanics of listing and issuing shares, rights issues, and calculating the cost of equity using both the dividend growth model and the Capital Asset Pricing Model. You'll work through practical calculations and real-world scenarios throughout. The theory explains why companies rarely adopt the extreme capital structures that academic models suggest, and why factors like flexibility, risk appetite, and asset security matter in actual financing decisions. By the end, you'll be able to discuss and evaluate financing decisions with the depth and nuance F3 demands.

Duration: 11m