JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD

22MBA11: FINANCIAL MANAGEMENT

MBA II Semester (R22)

Overview

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

Course Objectives:

To provide an understanding of basic decisions taken by a Finance Manager in a corporate and help the manager to understand the use of resources efficiently, effectively and economically.
To explain the various aspects in Investment Decision.
To learn about Capital structure and its theories.
To educate students on the significance of dividends and valuation of the firm.
To elucidate the importance of working capital management, management of current assets.

Course Outcomes

Students will be able to:

Understand the concept of time value of money.
Learn about the capital budgeting techniques and cost of capital.
Learn the significance of Capital structure vs. financial structure.
Assess dividend policies of Indian companies, determinants of working capital, analysis of investment in inventory.
Understand the Concepts and Applications of Working Capital Management and Management of Current Assets.

UNIT - I: The Finance Function

Nature and Scope, Evolution of Finance Function, Its New Role in the

Contemporary Scenario, Goals of Finance Function, Profit Maximization and Wealth Maximization, 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, 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.

UNIT - IV: 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, Dividend Policies of Indian companies.

UNIT - V: (a) 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. Financing of Working Capital through Bank Finance and Trade Credit.(b) Management of Current Assets: 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. (c) Management of Inventory, Inventory Management Process, Inventory Control Systems, Analysis of Investment in Inventory.