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प्रश्न
Give the meaning of ‘Investment’ and ‘Dividend’ decisions of financial management.
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उत्तर
1) Investment decisions: A firm must decide where to invest the funds such that it can earn maximum returns. Such decisions are known as investment decisions. These decisions are taken for both long term and short term. (a) Long-term investment decisions affect a firm’s long-term earning capacity and profitability. They are also known as capital budgeting decisions. For example, the decision to purchase a new machine or land. (b) Short-term investment decisions, also known as working capital decisions, affect the day-to-day business operations. For example, decisions related to cash or bill receivables.
2) Dividend decisions: Dividend decisions involve decisions regarding how the company would distribute its profit or surplus. It can either distribute it to equity shareholders in the form of dividends or keep it in the form of retained earnings. Dividend decisions aim at maximising the wealth of shareholders while at the same time considering the requirements of retained earnings for the company.
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संबंधित प्रश्न
'Mission Coach Ltd.' is a large and creditworthy company manufacturing coaches for Indian Railways. It now wants to export these coaches to other countries and decides to invest in
new hi-tech machines. Since the investment is large, it requires long-term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the expenses of floatation cost, the company decides to tap the money market.
1) Name and explain the money-market instrument the company can use for the above
purpose
2) What is the duration for which the company can get funds through this instrument?
3) State any other purpose for which this instrument can be used.
Explain the following as factor affecting dividend decision:
Taxation policy
Explain the following as factor affecting dividend decision:
Legal constraints
Explain the following as factor affecting 'financing decision'.
State of capital markets
What is ‘Financial Risk?’ Why does it arise?
| Ananta Ltd. is a company dealing in ready-made garments for the last many years. Recently the profit of the company has started increasing. The finance manager decided to retain the profit instead of distributing it among shareholders. |
- Identify and state the financial decision taken by the finance manager in the above case.
- State any three factors affecting the decision identified in (i) above.
| Ravi has joined as a finance manager at MTA Ltd. He had to arrange funds of rupees one crore for the company. The Chief Executive Officer of the company wants to arrange the funds by a public issue whereas the finance manager wants to have a mix of debt and equity as this will determine the overall cost of capital and the financial risk of the enterprise. |
- Identify and give the meaning of the financial decision suggested by the finance manager in the above case.
- State any three factors affecting the decision identified in (i) above.
Besides the total amount of long-term finance required, what must a business identify?
What must a business decide about each available source of finance?
What are retained earnings?
What combination must a firm select when choosing between debt and equity?
What is the nature of equity in a debt-and-equity comparison?
Which payment is compulsory under the borrowing terms?
Which statement about payment of dividends on equity is correct?
How does equity compare with debt regarding repayment of capital?
Which comparison of financial risk for debt and equity is correct?
What is financial risk?
How does lower cost affect the attractiveness of a source of finance?
