SEMESTER-V B.

COM LLB & BBA LLB 2011-16 BATCH

 Traditional

View:

Arrangement of short term and long term funds from Financial Institutions Mobilization of funds through traditional financial instruments like shares, bonds, debentures etc. Compliance of legal procedures relating to procurement, use and distribution of funds

Modern

View:

The finance manager is expected to assess-

Total fund requirements The assets to be acquired The pattern of financing of the assets

Additionally, he generally needs to make the following decisions

 Investing

Decisions Financing Decisions Dividend Decisions Liquidity Decisions

 Assessment

commit Appraisal and selection of investment proposals Measurement of risk and uncertainty in the investment proposals Prioritization of the investment decisions Fund allocation and its rationing Determination of fixed assets to be acquired Buy or lease decisions Asset replacement decisions Restructuring, reorganization, merger and acquisitions

of total volume of funds a firm can

 Expected

return Cut off rate/Required rate of return Risk Opportunity cost of capital Replacement Cost

Episodic Financing Determination of degree or level of gearing Determination of financing pattern of long term funds Raising of funds through issue of financial instruments Assessment of interest burden of the firm Determining the cost of capital of the firm Assessment of the debt level changes and its impact on firms financial stability Taking advantage of interest and depreciation and in reducing the tax liability of the firm Consideration of various modes of improving the EPS and Market value of shares Optimizing the financing mix Consideration of impact of overcapitalization and under capitalization of the firms profitability

 Maintenance

of balance between owners capital and outside capital Study of the economic and financial environment prevailing in the globe to be able to access the best source of funds from any destination.

 Determination

of dividend and retention policies of the firm Consideration of the impact of levels of dividend and retention on the price of shares of the company and future earnings of the company Considering the legal and cash flow constraints on dividend decisions Issue of Bonus shares

 Profitability-Liquidity

trade off Determination of levels of investments in current assets Security analysis and portfolio management etc. Financing long term assets with long term loans and short term assets with short term loans

 Wealth

Maximization objective of the firm Existence of efficient capital markets

The

owners will have primary interest in the firms working and success The shareholders wealth is the determinant of current share price The firm will invest on proposals so long as it generates positive net present values

 The

underlying logic is efficiency A company has 10,000 shares outstanding, the profit after taxes of Rs.50,000. If the company issues 10,000 more shares and invests the proceeds of Rs.500,000 in at 5% bonds, the total net profit will rise to 75,000 but, what about the EPS.