Part-B Chapter - 9

Question 1

Financial Management

Answer 1

Financial management is concerned with optimal procurement as well as usage nof finance. It can be defined as planning, organising, directing and controlling the financial activities of an organisation.
For optimal procurement, different sources of finance are compared in terms of thier costs and associated risks. The finance so procured needs to be invested in such a manner that returns from the investment exceed the cost at which funds have been procured.
Financial management aims at mobilisation of funds at a lower cost and deployment of these funds in the most profitable activities.

Question 2

Objectives of financial management

Answer 2

The objective of financial management is to maximise the current price of equity shares of the company or to maximise the wealth of owners of the company, that is, shareholders.

Question 3

The objective of maximisation of shareholders wealth is achieved by

Answer 3

1. Ensuring availability of adequate funds at a reasonable cost
2. Ensuring effective utilisation of funds
3. Ensuring safety of funds procured by creating reserves, reinvesting profits, etc

Question 4

Types of Financial Decision

Answer 4

Financial Decision are of three types:
1. Investment Decision
2. Financing Decision
3. Dividend Decision

Question 5

Investment Decision

Answer 5

Investment decision are all those decision related to investment activities of a company

Question 6

Investment decision are of two types

Answer 6

1. Long - term investment decision
2. Short - term investment decision

Question 7

Long term investment decision

Answer 7

These are decision that involves committing the finance for a long term basis. Also called capital budgeting or management of fixed capital

Question 8

Short term investment decision

Answer 8

These are concerned with the decisions regarding cash, inventory and receivables

Question 9

Financing Decision

Answer 9

Financing decision are decision regarding the quantity of funds to be raised and the sources from which it can be raised

Question 10

Factors affecting investment /capital budgeting decision

Answer 10

1. Cash Flow of the Project
2. Rate of return
3. Investment criteria involved

Question 11

Cash flow of the project

Answer 11

When a company is investing huge amount of funds in some project, it expects a regular cash flow from that project. Such cash flow should be analysed before investing in the investment proposal. Give example