Wiley CPAexcel Exam Review 2015 Study Guide (January): Business Environment and Concepts

Module 43: Financial Risk Management and Capital Budgeting

A. Risk and Return

B. Return on a Single Asset

C. Portfolio Returns and Risk

D. Interest Rates

Derivatives and Hedging

A. The Nature of Derivatives

B. Risks in Using Derivatives

C. Uses of Derivatives

D. Financial Statement Effects of Derivative Transactions

E. Hedging Examples

Present Value

A. The Time Value of Money

B. Valuation of Bonds

Capital Budgeting

A. Stages

B. Payback and Discounted Payback

C. Accounting Rate of Return

D. Net Present Value

E. Internal Rate of Return

F. Mutually Exclusive Projects

G. Determining Future Cash Flows

H. Considering Risk in Capital Budgeting

Key Terms

Multiple-Choice Questions

Multiple-Choice Answers and Explanations

Written Communication Task

Written Communication Task Solution

Overview

This module describes the relationship between risk and return and the use of various techniques to manage financial risk. There is an inverse relationship between risk and return. Companies attempt to maximize return within the risk tolerance level of its owners. There are a number of ways in which management attempts to mitigate risk including diversification and hedging.

This module also covers the concepts of the time value of money. Understanding the topic of the time value of money is essential for successful completion of the BEC exam. You must understand the mechanics as well as the concepts. Specifically, you should understand how present value techniques are used to value financial assets ...