financial management

Topics: Finance, Net present value, Debt Pages: 15 (4233 words) Published: December 6, 2013
Financial Management
Subject Code: B-103
Part One:
1. Question :The approach focused mainly on the financial problem of corporate enterprises Ans: (a)Ignored non-corporate enterprise.
2. Question :These are those shares, which can be redeemed or repaid to the holders after a lapse of the stipulated period Ans: (c) Redeemable preference shares
3. Question: This type of risk arises from changes in environment regulations, zoning requirements, fees, licenses and most frequently taxes. Ans: (b)Domestic risk
4. It is the cost of capital that is expected to raise funds to finance a capital budget or investment proposal Ans: (a)Future Cost
5. This concept is helpful in formulating a sound & economical capital structure for a firm. Ans: (c)Designing optimal corporate capital structure.
6. It is the minimum required rate of return needed o justify the use of capital Ans: (b)Firms Point
7. It arises when there is a conflict of interest among owners , debentures holders and the management. Ans: (d)Agency Costs
8. Some guidelines on shares & debentures issued by government that are very important for the constitution of the capital structure are : Ans: (a)Legal requirement
9. It is that portion of an investment total risk that results from change in the financial integrity of the investment Ans: (b)Default Risk
10. -----------Measure the systematic risk of a security that cannot be avoided through diversification. Ans: (a)Beta
Part Two:
Question 1: What do you understand by wealth maximization?
Wealth maximisation is one of the 3 objectives of any financial management It is also called a value maximisation.
It is the difference between the present value of expected cash benefits and the amount of capital investment required to achieve the benefits. i.e. NPV=GPC of benefits -Investment
Positive NPV adds to the existing wealth of the organisation. Negative NPV reduces the existing wealth.
Significance of Wealth Maximization
Wealth maximization takes care of the following
Lenders or creditors
Workers or employees
Public or society
Management or Employer
Question 2: Discuss the concept of factoring
It is a financial service covering financing and collection of book debts and receivables arising from credit sale of goods and services in domestic & international market. Functions of Factoring
Maintenance of sales ledgers and collection of receivables
Takes up the responsibility of sales ledger and administration. Includes the following Bookkeeping
Invoice raising
Follow-up and monitoring
Collection of receivables
Liaisoning with clients
Maintaining a MIS
Credit Control:
A Factor has a wherewithal for credit intelligence on customers. Staffs are trained in the assessment of credit worthiness and have access to extensive information on financial standing and credit rating of customers. Credit protection:

Based on the credit information of customers, the factor approves credit limit on debtors. Thus he provides the credit insurance facility against bankruptcy or any financial loses. However, client bears the credit risks under :resource factoring” Financing of receivables:

Factor advances the funds to the client to the extent of 80% of the outstanding debts. Advisory services:
Factor also offers services of production, finance and marketing. Factoring Mechanics
3 players in factoring
The Factor- Who provides services
The Client-Seller of goods/services for whom the Factor provides facilities. The Customer-who purchases goods/services.
The system of domestic factoring is as below:
On receiving an order from Customer, the Client approaches the Factor for establishing relationship.The Client provides information about Business
His banker and credit facilities availed
Turn over size
Names of regular customers
Their bankers
Average outstanding invoices
Financial statements
Range of factoring
Based on the information collected, the Factor decides the coverage of...
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