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MBA 205 Financial Management

Objectives: To provide an understanding of the function, the roles, the goals and the processes of corporate financial management, covering the sourcing of finances and their

issues in investment and operations. Problem-solving methodology will be used to illustrate the theories and tools in financial decision making.

Unit –I

Introduction to Financial Management: Objectives - Functions and Scope - Evolution -Interface of Financial Management with Other Functional Areas - Environment of Corporate Finance. Sources of Long-Term Finance: Equity Capital and Preference Capital - Debenture Capital - Term Loans and Deferred Credit, Leasing and Hire-Purchase - New Instruments. Raising Long-term Finance: Venture Capital, Initial Public Offering, Public Issue by listed companies, Rights Issue, Preferential allotment, Private placement, Term Loans Valuation of Securities: Concept Of Valuation - Bond Valuation - Equity Valuation: Dividend Capitalization Approach and Ratio Approach -Valuation of Warrants and Convertibles.

Unit –II

Introduction to Risk and Return: Risk and Return Concepts - Risk in a Portfolio Context -Relationship Between Risk and Return -CAPM and Dividend Capitalization Model. Time Value of Money: Introduction - Types of Cash flows - Future Value of a Single Cash Flow, Multiple Flows and Annuity - Present Value of A Single Cash Flow, Multiple Flows and Annuity, Growing Annuity, Perpetuity and Growing Perpetuity. Basics of Capital Expenditure Decisions: The Process of Capital Budgeting - Basic Principles in Estimating

Cost and Benefits of Investments -Appraisal Criteria: Discounted and Non-Discounted

Methods (Pay-Back Period -Average rate of return - Net Present Value -Benefit Cost Ratio -Internal Rate of Return) Analysis of Project Cash Flows: Cash Flow Estimation -Identifying the Relevant Cash Flows - Cash Flow Analysis - Replacement, Cash Flow

Estimation Bias - Evaluating Projects with Unequal Life - Adjusting Cash Flow for

Inflation.,Capital Rationing.

Unit –III

Leverage: Measuring and analyzing the implications of Leverage - Operating Leverage,

Financial Leverage and Total Leverage. Capital Structure Policy: Business & Financial

Risk - A Total Risk Perspective - Business & Financial Risk - A Market Risk Perspective -Determinants of Capital Structure Decision -Approach to Estimating the Target Capital Structure - Variations in Capital Structures, EBIT / EPS Analysis and ROI / ROE Analysis. Capital Structure Theories: Net Income Approach - Net Operating Income Approach -Traditional Approach - Modigliani-Miller Model (MM), Miller Model - Criticisms of MM and Miller Models - Financial Distress & Agency Cost - Asymmetric Information Theory. Dividend Policy: Traditional Position - Walter Model - Gordon Model - Miller-Modigliani Position - and Rational Expectations Model

Unit –IV

Estimation of Working Capital Needs: Objectives of Working Capital (Conservative vs

Aggressive Policies), Static vs Dynamic View of Working Capital - Factors Affecting the Composition of Working Capital Independence among Components of Working Capital -Operating Cycle Approach to Working Capital and Cash Management.   Inventory Management: Nature of Inventory and its Role in Working Capital - Purpose of Inventories -Types and Costs of Inventory -Inventory Management Techniques - Pricing of Investments Receivables Management: Purpose of Receivables - Cost of Maintaining Receivables -Credit Policy Variables (Credit Standard, Credit Period, Cash Discount, Collection Program), Credit Evaluation - and Monitoring Receivables.   Financing Current Assets: Behavior of Current Assets and Pattern of Financing -Accruals - Trade Credit - Provisions - Short-Term Bank Finance - Public Deposits, Commercial Paper – Factoring