JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD

Overview

*The students need Discounting Table and Annuity tables for the examination.

Course Objective

To understand the basic decisions taken by a finance manager in a Corporate.

FM helps in understanding the use of resources efficiently, effectively and economically.

Learning Outcome

Students will be able to understand a) Goals of financial function b) Investment

criteria and decision process c) Capital structure and Dividend Decisions d) Asset Liability management *****

UNIT - I: The Finance Function

Nature and Scope; Evolution of finance function – Its new role in the

contemporary scenario –Goals of finance function – maximizing vs. satisfying; Profit vs. Wealth vs. Welfare; the Agency relationship and costs; Risk-Return trade off; Concept of Time Value of Money – Future Value and Present value and the basic valuation model.

UNIT - II: The Investment Decision

Investment decision process- Project generation, project

evaluation, project selection and project Implementation. Developing Cash Flow; Data for New Projects; Capital Budgeting Techniques–Traditional and DCF methods. The NPV vs. IRR Debate; Approaches for reconciliation. Capital budgeting decision under conditions of risk and uncertainty. Cost Of Capital: Concept and measurement of cost of capital, Debt vs. Equity, cost of equity, preference shares, equity capital and retained earnings, weighted average cost of capital and marginal cost of capital. Importance of cost of capital in capital budgeting decisions.

UNIT - III: Capital Structure and Dividend Decisions

Capital structure vs. financial structure

Capitalization, financial leverage, operating leverage and composite leverage. EBIT-EPS Analysis, Indifference Point/Break even analysis of financial leverage, Capital structure Theories –The Modigliani Miller Theory, NI, NOI Theory and Traditional Theory –A critical appraisal. Dividend Decisions: Dividends and value of the firm - Relevance of dividends, the MM hypothesis, Factors determining Dividend Policy - dividends and valuation of the firm - the basic models – forms of dividend. Declaration and payment of dividends. Bonus shares, Rights issue, share-splits, Major forms of dividends – Cash and Bonus shares. Dividends and valuation; Major theories centered on the works of Gordon, Walter and Lintner. A brief discussion on dividend policies of Indian companies.

UNIT - IV: Working Capital Management and Finance

Working Capital Management: Components

of working capital, gross vs. net working capital, determinants of working capital needs, the operating cycle approach. Planning of working capital, Financing of working capital through Bank finance and Trade Credit, regulation of bank finance.

UNIT - V: Management of Current Assets

Management of cash – Basic strategies for cash

management, cash planning, cash budget, cash management techniques/processes. Marketable securities: characteristics, selection criterion, Management of receivables- Credit policy, credit evaluation of individual accounts, monitoring receivables, factoring. Management of inventory- Inventory management process, Inventory control systems, analysis of investment in inventory. Corporate Restructuring: Corporate Mergers, Acquisitions and Takeovers: Types of Mergers, Economic rationale of Mergers, motives for Mergers, Financial evaluation of Mergers.

Suggested Readings:

• I M Pandey, Financial Management, 11 e, Vikas Publications, 2015.
• M.Y Khan, P K Jain, Financial Management-Text and Problems, 8e, Mc Graw Hill, 2019. R19 MBA
• Prasanna Chandra, Financial Management, 10e, Mc Graw Hill, 2019.
• James C Van Horne, Sanjay Dhamija, Financial Management and Policy, Pearson Education, New Delhi.
• Eugene F.Brigham Michael C. Ehrhardt, Financial Management, Cengage Learning, 12e, 2012.
• Arindam Banerjee, Financial Management, Oxford Publications, 2016.