... allocation of resources shall be based on the goal of ________. 4. _______ is based on cash flows. 5. _________ consider time value of money. 6. What are the main goals of financial management? 7. ________ lead to investment in real assets. 8. _____ relate to the acquisition of funds at the least cost. 9. Formulation of inventory policy is an important element of _______. 10. Obtaining finance is an important function of _________. 11. What are the two critical issues to be considered under investment decisions? 12. Define rate of return. 13. The most important decision made by a finance manager is ________. Answers to Self Assessment Questions 1. Liberalisation and globalisation of Indian economy 2.procurement of funds 3. Profit maximisation. 4. Wealth maximisation 5. Wealth maximisation 6. Profit Maximisation and Wealth Maximisation 7. Investment decisions. 8. Financing decisions 9. Liquidity 10. Treasurers 11. The two critical issues are – evaluation of expected profitability of the new investment rate of return required on the project 12. Rate of return is normally defined as the hurdle rate or cut-off rate or opportunity cost of the capital 13. Dividend decision | Unit 2 Financial Planning | Self Assessment Questions Fill in the blanks 1. Corporate objectives could be group into ___ and ___. 2. Control mechanism is developed for _____ and their effective use. 3. Seasonal peak requirements to be met from __________________ from banks. 4. ______ has a major impact...
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... 3. This type of risk arise from changes in environmental regulations, zoning requirements, fees, licenses and most frequently taxes. A). Political risk 4. It is the cost of capital that is expected to raise funds to finance a capital budget or investment proposal A). Future cost 5. This concept is helpful in formulating a sound & economical capital structure for a firm A). Designing optimal corporate capital structure 6. It is the minimum required rate of return needed to justify the use of capital A). Firms point 7. It arises when there is a conflict of interest among owners, debenture holders and the management A). Agency costs 8. Some guidelines on shares & debentures issued by the government that are very important for the constitution of the capital structure are A). Legal requirement 9. It is that portion of an investments total risk that results from change in the financial integrity of the investment A). Default risk 10. _____________ measure the systematic risk of a security that cannot be avoided through Diversification A).Beta Part Two: 1. What is Annuity kind of cash flow? A).An annuity is stream of equal cash flows. Annuities involve calculations based upon the regular periodic contribution or receipt of a fixed sum of money. 2. What do understand by Portfolio risk? A).The portfolio risk not simply measure of its weighted average risk. The securities that a portfolio contains or associated with each other. The portfolio risk also considers the...
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...Corporate Finance Basics Topics 1) 2) 3) 4) 5) 6) Capital Budgeting Cost of Capital Measures of Leverage Dividends and Share Repurchases Working Capital Management Financial Statement Analysis Capital Budgeting Introduction The Capital Budgeting Process is the process of identifying and evaluating capital projects, i.e., projects where the cash flow to the firm will be received over a period longer than a year. Capital budgeting usually involves the calculation of each project’s future accounting profit by period, the cash flow by period, the present value of the cash flows after considering the time value of money, the number of years it takes for a project’s cash flow to pay back the initial cash investment, an assessment of risk, and other factors. 5 Key Principles of Capital Budgeting 1) Decisions are based on cash flows, not accounting income (Incremental cash flows are to be considered, not sunk costs) 2) Cash flows are based on opportunity costs 3) The timing of cash flows is important 4) Cash flows are analyzed on an after-tax basis 5) Financing costs are reflected in the project’s required rate of return Net Present Value (NPV) The NPV is the sum of present values of all expected incremental cash flows if a project is undertaken. The discount rate used is the firm’s cost of capital. For a normal project with an initial cash outflow, flowed by a series of cash inflows (after tax), the NPV is given by:- For independent projects, the NPV decision rule is to...
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...2013 Project on “Working Capital” Sumit Singh Registration No:-016-1121-0250-10 Roll No: - 301-0063 B-com (Honours), 3rd year Syma Prasad College 1 [Type the author name] 1/1/2013 DECLARATION I am Sumit Singh Student of SYMA PRASAD COLLEGE Of B-com( Honours) 3rd Year hereby declare that the project report entitled Working Capital the outcome of my own work and the same has not been submitted to any University / Institute for the award of any degree. Sumit Singh Registration No:-016-1121-0250-10 Roll No: - 301-0063 B-com (Honours), 3rd year Syma Prasad College 2 ACKNOWLEDGEMENT Success is the outcome of diligence & perseverance, I, Sumit Singh, student of SYMA PRASAD COLLEGE Of B-com( Honours) of 3rd Year would, like to ascribe to my success in completing my project’ “Working Capital” and to my project supervisors My College Faculties who have extended their sincere help in accomplishing my project. I really want to thank the above mentioned to all my faculties and my mentors for their continuous support & guidance during the project, without their help my project would have been a distant dream. Sumit Singh Registration No:-016-1121-0250-10 Roll No: - 301-0063 B-com (Honours), 3rd year Syma Prasad College 3 Table of Contents 1. 2. 3. 4. 5. 6. 7. 8. 9. Executive Summary………………………………………………………………………………………5 Company Overview………………………………………………………………………………….……6 Research Methodology……………………….……….………………………………………….....….….8 Objective ………………………………………………………………………...
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...record your answer at the answer sheet; 2. The question must be returned and attached to your answer sheet; 3. ------------------------------------------------- Cheating during exam strictly prohibited and caused fail from this course; 4. ------------------------------------------------- Cheating student will not be allowed to take this course in the next semester. 1) The ________ is a weighted average of the cost of funds which reflects the interrelationship of financing decisions. A) risk premium B) nominal cost C) cost of capital D) risk-free rate Answer: C 2) The cost to a corporation of each type of capital is dependent upon A) the risk-free rate of bonds plus the business risk of the firm. B) the risk-free rate of each type of capital plus the business risk of the firm. C) the risk-free rate of each type of capital plus the financial risk of the firm. D) the risk-free rate of each type of capital plus the business risk and the financial risk of the firm. Answer: D 3) A tax adjustment must be made in determining the cost of A) long-term debt. B) common stock. C) preferred stock. D) retained earnings. Answer: A 4) The approximate before-tax cost of debt for a 15-year, 10 percent, $1,000 par value bond selling at $950 is A) 10 percent. B) 10.6 percent. C) 12 percent. D) 15.4 percent. Answer: B 5) If a corporation has an average tax rate of 40...
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...budgeting is an integral component for effective capital working policy (Emery, Finnerty, & Stowe, 2007). Establishing a cash budget is a means to observe a company’s inflow and outflow of cash, which in turn, will assist in adequate forecasting and planning, especially concerning when it comes to short-term credit (Emery et al, 2007). A high-quality working capital policy would also free up cash, which may be allocated to strategic areas for the company’s growth. LS must cease from financing shortages through credit lines with heavy reliance on selling inventory and receiving prompt payments. To understand the changes needed, a review of LS current policy will be analyzed and alternative working capital policies will be compared. Recommendations will be represented regarding which policy LS should implement. Alternative working capital policies The first alternative working capital policy is for LS to negotiate better collection on sales terms with Mayo Stores. The initial arrangement is to receive 20% collection on sales in the first week and 80% in the following week (University of Phoenix, 2012). The collection arrangement needs to be negotiated to 40% collection on sales in the first week and 60% in the following week. As an additional incentive, customers will receive 1% off their entire purchase if paid in full by the end of business on the seventh day. The second alternative working...
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...loans and short-term liabilities as reflected on the right hand side of the Oil company balance sheet. Financial Structure is different from capital structure in the sense that it also includes current liabilities. Therefore, financial structure is the combination of two main components 1) Capital structure and 2) Current liabilities. To provide an understanding of the concept of financial structure in Oil sector specifically capital structure of Padma Oil Company Limited, the balance sheet, debt and equity, working capital, cost of capital and opportunity cost are need to be explained. The capital structure is how an Oil company finances its overall operations and growth by using different sources of funds. It is a mix of a company’s long-term debt, specific short-term debt, common equity and preferred equity. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered part of the capital structure. Working capital is defined as the difference between current assets and current liabilities. Current assets are the most liquid of Oil company assets, meaning they are cash or can be quickly converted to cash. Current liabilities are any obligations due within one year. Working capital measures what is leftover once the company subtracts its current liabilities from its current assets, and...
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... Last year’s Balance The horizontal analysis will provide an analysis of the financial performance of Competition Bikes, Inc. and provides an overview of potential trends of the company (Ashfaq, n.d.). The horizontal analysis between Years 7 and 8 further shows that total revenues decreased by 15.0% and total expenses decreased by 69.1%. As result of this, Earnings Before Income Taxes (EBIT) also decreased 313.4% and net earnings reduced by 81.6%. INCOME STATEMENT The horizontal analysis is based on the income statement for Years 8, 7 and 6 as summarized below: Income Statement||Horizontal Analysis Years 7 and Year 8|Horizontal Analysis Years 6 and Year 7| |Year 8|Year 7|Year 6|Change|% Inc (Dec)|Change|% Inc (Dec)| Operating Income|97,533|315,925|124,105|(218,392)|-69.1%|191820|313.4%| EBIT|48,133|261,725|63,305|(213,592)|-81.6%|198420|313.4%| Net Earnings|36,100|196294|47,479|(160,194)|-81.6%|148815|313.4%|...
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...Laurentian Bakeries Capital Allocation Policy Recommendation Capital Allocation Policy purpose Strategic plan Reinforce the management philosophies by achieving certain objective that all projects be consistent with business strategies, support continuous improvement, consider the human resource and environmental impact, and provide a sufficient return on investment. company background and case summary identify and quantify inefficient or lost opportunities and establish targets for their elimination Capital Allocation Policy Operating Plan identify major continuous improvement initiatives and budget for the associated benefits Capital Allocation Policy Authorization for Expenditure (AFE) present the project's linkage to the business strategies. include specific details of economic and engineering, involvement and empowerment, human resource, environment. Cost of Capital (WACC) Net Present Value Questions? Thank you! Laurentian Bakeries Inc established in 1984 manufactured a variety of frozen baked food products at plants in Winnipeg (Pizzas), Toronto (Cakes) and Montreal (Pies) In late May, 1995, Danielle Knowles, vice president of operations for Laurentian Bakeries Inc prepared a capital expenditure proposal to increase capacity in the company's frozen pizza plant in Winnipeg, Manitoba, in order to expand in the US market three year plan of capital requirements The first year of this Strategic Plan becomes the annual Operating Plan. identify major continuous improvement ...
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...CHAPTER 16 WORKING CAPITAL POLICY AND SHORT-TERM FINANCING ANSWERS TO QUESTIONS: 1. The need for working capital arises because the normal operating cycle of the firm requires that expenditures for raw materials, labor, etc. be made prior to receipt of the funds from the sale of the output. Funds must be invested during the operating cycle in the various short-term assets that make up working capital--namely, cash, inventories, and accounts receivable. 2. The operating cycle represents the length of time involved in purchasing raw materials, manufacturing the product, and distributing (selling) the product. The cash conversion cycle represents the net time interval between the collection of cash receipts from sales and the cash payments for the various resources used by the firm. The operating cycle is equal to the sum of the inventory conversion period and the receivables conversion period. The cash conversion cycle is equal to the operating cycle less the payables deferral period. 3. A relatively large investment in working capital results in lower expected profitability and lower risk for the firm. The rate of return on current assets is normally less than the rate of return on fixed assets and hence a relatively large investment in current assets lowers the overall rate of return on the total assets of the firm. However, a relatively large investment in current assets also increases the working capital position of the firm...
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...of Managerial Finance Solution Lawrence J. Gitman PART 5 Short-Term Financial Decisions CHAPTERS IN THIS PART 14 Working Capital and Current Assets Management 15 Current Liabilities Management INTEGRATIVE CASE 5: CASA DE DISEÑO Find out more at www.kawsarbd1.weebly.com 372 Last saved and edited by Md.Kawsar Siddiqui Principles of Managerial Finance Solution Lawrence J. Gitman CHAPTER 14 Working Capital and Current Assets Management INSTRUCTOR’S RESOURCES Overview This chapter introduces the fundamentals and describes the interrelationship of net working capital, profitability, and risk in managing the firm's current asset accounts. The chapter then focuses on the management of three major current asset accounts⎯cash, accounts receivable and inventory. A brief discussion of general inventory management policies, international inventory management, and several specific inventory management techniques: ABC, economic order quantity (EOQ), reorder point, materials requirement planning (MRP), and just-in-time (JIT). The key aspects of accounts receivable management are discussed: credit policy, credit terms, and collection policy. The chapter also discusses the additional risk factors involved in managing international accounts receivable. Examples demonstrate the effect of changes in credit policy. Also discussed is the impact of changes in cash discounts PMF DISK This chapter's topics are not covered on the PMF Tutor or...
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...I. EXECUTIVE SUMMARY The project brings out various aspects of working capital management and the means to get it financed from banks. It starts with explanation of the concept of working capital, description of working capital cycle, management and financing of working capital. This is supplemented by a brief explanation of the working capital financing of M/s Paras Organics Private Limited. It should be noted that business transactions are generally carried on credit with a number of days elapsing subsequent to the sale being affected for realization of sale proceeds. While part of the raw materials may be purchased on credit, the business would still need to pay its employees, meet manufacturing and selling expenses such as wages, power, suppliers, transportation and communication and the balance of its raw material purchases. Working capital refers to the source of financing required by business on a continual basis for meeting these needs. The faster a business expands, the more cash it will need for working capital investment. The cheapest and best sources of cash exist as working capital right within the business. Sound management of working capital will generate cash which will improve profits and reduce risks. The cost of providing credit to customers and holding inventories can represent substantial proportion of the total profits of a firm. The investment in raw materials, work-in-progress, finished goods and receivables often varies a great deal during the...
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...seemingly inconsequential numbers accessible and comprehensible. This massive data overload could seem staggering. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Comparative ratio analysis helps you identify and quantify your company's strengths and weaknesses, evaluate its financial position, and understand the risks you may be taking. As with any other form of analysis, comparative ratio techniques aren't definitive and their results shouldn't be viewed as gospel. Many off-the-balance-sheet factors can play a role in the success or failure of a company. But, when used in concert with various other business evaluation processes, comparative ratios are invaluable. This discussion contains descriptions and examples of the eight major types of ratios used in financial analysis: Income, Profitability, Liquidity, Working Capital, Bankruptcy, Long-Term Analysis, Coverage, and Leverage. Outline: I. Purposes and Considerations of Ratios and Ratio Analysis II. Types of Ratios III. Income Ratios IV. Profitability Ratios V. Net Operating Profit Ratios VI. Liquidity Ratios VII. Working Capital Ratios VIII. Bankruptcy Ratios IX....
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...Answer Sheet for Financial Management Subject code – B-103 Section A: Objective Type & Short Questions (30 marks) Part one: Multiple choices: 1. D - Ignored Routine Problems. 2. C - Redeemable Preference Shares. 3. A - Political Risk. 4. A - Future Cost 5. C - Designing optimal corporate capital structure. 6. B - Firms point. 7. D - Agency costs 8. A - Legal Requirement. 9. B - Default Risk. 10. A - Beta. Part two: 1. Wealth maximization is a modern approach to financial management. Wealth maximization simply means maximization of shareholder's wealth. It is combination of two words viz. Wealth and maximization. Wealth of a shareholder maximize when the networth of a company maximizes. To be even more meticulous, a shareholder holds share in the company/business and his wealth will improve if the share price in the market increases which in turn is a function of a networth. 2. Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable to a third party(called a factor) at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs. Depending on the arrangement between factor and the client, factoring can be classified as - - without recourse factoring, - recourse factoring, - maturity factoring, - credit factoring, - bulk factoring and - agency factoring. 3. A financial product sold by financial institutions that...
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... |Author / Publication | |Credit Management |ICFAI | |Practical Banking Advances |H.L.Bedi and V.K. Hardikar/ UBS Publishers | |The Bank Credit Analysis |Jonathan Golin/John Wiley & Sons | |Frontiers in Credit Risk |Gordian Gaeta/ John Wiley & Sons | |Money, Credit and Capital |James Tobin/McGraw | |Credit Risk |Michael Hanke/Springer | |Credit and Banking |K.C.Nanda/Response | |Credit Appraisal, Risk Analysis & Decision making |Mukherjee/Snow White | Detailed Curriculum Overview: Lending Activity – Basic Requirements for Lending....
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