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Explain the following as factors affecting the requirements of working capital:
Scale of operations
Concept: Concept of Fixed and Working Capital
Explain the following as factor affecting the choice of capital structure:
Floatation costs
Concept: Concept of Capital Structure
Give the meaning of ‘Investment’ and ‘Dividend’ decisions of financial management.
Concept: Financial Decisions - Financing and Dividend
| 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.
Concept: Financial Decisions - Financing and Dividend
| 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.
Concept: Financial Decisions - Financing and Dividend
|
NB Ltd. is India's largest manufacturer of cement. Its operations are spread throughout the country with 17 modern cement factories. It has a workforce of 9,000 people. Since its inception, the company has been a trendsetter in the cement industry. The company is planning to grow in the long run and wants to double its capacity in the next 3 years. For this, the Finance Manager has to decide about the quantum of finance to be raised from various long-term sources. For this, he needs to identify various available sources of funds and the proportion of funds from each source. |
- Identify the financial decision to be taken by the Finance Manager.
- State any four factors which would affect the decision identified in (i) above.
Concept: Financial Decisions - Financing and Dividend
| Myra Ltd. manufacturing televisions is planning to expand its business and requires ₹250 crores for the same. A number of projects are available for the company to invest in and each project has to be evaluated carefully. The Finance Manager of the company has assessed the projects in terms of the rate of return from each project and wanted to select the one with the higher rate of return. But before selecting the project he has to take into consideration other factors also. |
- Identify and state the financial decision discussed in the above paragraph.
- Explain the other factors that the Finance Manager should consider before selecting the project.
Concept: Financial decisions - investment
When the proportion of debt and equity is such that it results in an increase in the value of equity share the ______ is/are said to be optimal.
Concept: Concept of Capital Structure
‘Zenith Mall’ is a famous shopping mall in Mumbai, owned by ‘Pinnacle Group'. It is very popular for its international and national brands of fashionable clothes, restaurants, cinema halls and food courts.
The management of Pinnacle Group has decided to open a new branch of the mall in Pune. This decision was very crucial for the management as it involves huge amounts.
- Identify and state the financial decision involved in the above case.
- State any two factors affecting the decision identified in (i) above.
Concept: Financial decisions - investment
Match the factors affecting fixed capital requirements given in Column - I with their explanations given in Column - II:
| Column - I | Column - II | ||
| (A) | Nature of Business | (i) | A trading organisation needs lower investments in fixed assets as compared to a manufacturing organisation. |
| (B) | Technology upgradation | (iii) | A textile manufacturing company is installing a cement manufacturing plant and thus its investments in fixed assets is increasing. |
| (C) | Diversification | (iii) | A capital-intensive organisation requires higher investments in fixed assets as compared to labour- intensive organisation. |
| (D) | Choice of Technique | (iv) | Mobile phones became obsolete faster and are replaced much sooner than furniture or many other assets. Hence, these type of businesses require more fixed capital. |
Concept: Factors Affecting Fixed and Working Capital Requirements
______ refers to the increase in profit earned by the equity shareholders due to the presence of fixed financial charges like interest.
Concept: Concept of Capital Structure
Which of the following is not a factor affecting capital structure of a company?
Concept: Concept of Capital Structure
| Harish is working as a finance manager in 'Kozee Softwares Ltd.' He has been awarded “Best employee of the year Award’ because of his foresightedness. He always aims at smooth operations of all the financial activities by focusing on fund requirements and their availability in the light of financial decisions. He takes into consideration the growth, performance, investments and requirement of funds for a given period so that financial resources are not left idle and don't unnecessarily add to the cost. |
By doing all this Harish strives to achieve the two main objectives of an important concept of financial management. Identify the concept and explain its two objectives.
Concept: Concept of Financial Planning
Mr. Sanjay Nehra was the Chairman of 'Taran Bank.' The bank was earning good profits. Shareholders were happy as the bank was paying regular dividends. The market price of their shares was also steadily rising. The bank was about to announce taking over of 'Vena Bank.' Mr. Sanjay Nehra knew that the share price of 'Taran Bank' would rise on this announcement. Being a part of the bank, he was not allowed to buy shares of the bank. He called one of his rich friends Sudhir and asked him to invest Rs 5 crores in shares of his bank promising him the capital gains. As expected the share prices went up by 40% and the market price of Suhir's shares was now Rs 7 crores. He earned a profit of Rs 2 crores. He gave Rs 1 crore to Mr. Sanjay Nehra and kept Rs 1 crore with himself. On regular inspection and by conducting enquiries of the brokers involved, Securities and Exchange Board of India (SEBI) was able to detect this irregularity. The SEBI imposed a heavy penalty on Mr. Sanjay Nehra.
By quoting the lines from the above para identify and state any two functions that were performed by SEBI in the above case.
Concept: Securities and Exchange Board of India (SEBI)
Mr. Vikas Mehra was the Chairman of 'IBM Bank'. The Bank was earning good profits. Shareholders were happy as the bank was paying regular dividends. The market price of their shares was also steadily rising. The bank was about to announce the taking over of 'UK Bank'. Mr. Vikas Mehra knew that the share price of 'IBM Bank' would rise on this announcement. Being a part of the Bank, he was not allowed to buy shares of the bank. He called one of his rich friends Mukand and asked him to invest Rs 4 crores in shares of his bank promising him the capital gains. As expected after the announcement, the share prices went up by 50% and the market price of Mukand's shares was now Rs 6 crores. Mukand earned a profit of Rs 2 crores. He gave Rs 1 crore to Vikas Mehra and kept Rs 1 crore with him. On regular inspection and by conducting enquiries of the brokers involved, Securities and Exchange Board of India (SEBI) was able to detect this irregularity. SEBI imposed a heavy penalty on Vikas Mehra.
Quoting the lines from the above para identify and state any two functions performed by SEBI in the above case.
Concept: Securities and Exchange Board of India (SEBI)
Mr. Aditya Gupta was the chairman of ‘Vandan Bank’. The Bank was earning good profits. Shareholders were happy as the bank was paying regular dividends. The market price of their shares was also steadily rising. The bank announced taking over of ‘Karur Bank’. Aditya Gupta knew that the share price of Vandan Bank would rise on this announcement. Being a part of the bank, he was not allowed to buy shares of the bank. He called one of his rich friends Nimesh and asked him to invest Rs 6 crores in the shares of his bank promising him the capital gain.
As expected, the share prices went up by 40% and the market price of Nimesh’s shares was now Rs 8.4 crores. He had earned a profit of Rs 2.4 crores. He gave Rs 1.2 crore to Mr. Aditya Gupta and kept Rs 1.2 crore with him. On regular inspection and by conducting enquiries of the brokers involved, Securities and Exchange Board of India (SEBI) was able to detect this irregularity. SEBI imposed a heavy penalty on Aditya Gupta. By quoting the lines from the above para identify and state any two functions that were performed by SEBI in the above case.
Concept: Securities and Exchange Board of India (SEBI)
State any four methods of floatation of new issues in the primary market.
Concept: Methods of Floatation in the Primary Market
‘Zaira Ltd.’ is a large and creditworthy company manufacturing air-conditioned buses for the Indian market. It now wants to export these buses 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.
a. Name and explain the money market instrument the company can use for the
above purpose.
b. What is the duration for which the company can get funds through this instrument?
c. State any other purpose for which this instrument can be used.
Concept: Types of Financial Markets
Differentiate between `capital-market' and 'money-market' on the following basis:
Liquidity
Concept: Types of Financial Markets
Differentiate between ‘primary market’ and ‘secondary market’ on any five basis.
Concept: Concept of Financial Market >> Capital Market in India
