Financial planning is therefore the act of deciding in advance the activities related to financial decisions necessary to achieve financial management goals. Traditionally, the main goal of financial management was profit maximization, but later this was overridden by the maximization of shareholders' (owners') assets. Thus, the quality aspect is at odds with the concept of profit maximization. l Increasing shareholder wealth is the real goal of financial management, as it helps management make financial decisions, i.e.
In other words, to maximize shareholder wealth, a financial manager must find the risk-return trade-off (i.e., the level of business at which risk and return are optimized) while making financial decisions. In other words, he must make financial decisions in such a way that liquidity must be just sufficient, ie. Thus, the financial manager's goal is to manage risk, return (profitability), and liquidity while making financial decisions to maximize shareholder wealth. /value of the company.
Again, since financial decisions, especially financing and investment decisions, are very necessary and key activities of every aspect of life, it can therefore be concluded that the scope (field) of financial management is very broad and extended to all social entities, i.e. . The aim of such institutions is to help actors on the financial market in making decisions. The goal of the financial regulator is to protect the interests of every actor in the financial market.
The ultimate objective of the financial system is to stimulate productive investment that leads to overall economic growth, since productive investment is directly proportional to economic growth.
Time Value of Money Concept Along with Some Practical Applications
Calculate in how many years it will double, in case the interest rate offered by Syndicate Bank is 8%. Calculate interest rate offered by Syndicate Bank in case the deposit is doubled in just five years. Let the single amount 'A' be received after the nth year and the required rate of return/interest rate/.
How much money can he withdraw every year up to 30 years so that the amount at the end of 30 years becomes zero. Let the single amount 'A' be received today, and the required rate of return/interest/discount rate is r% thereafter,. Will you accept the offer if the return required of you is a minimum of 12%.
Thus, since the amount offered by the insurance company after 8 years is less than the expected value in the future, it cannot be accepted. Let the single sum 'A' be taken today and the required rate of return/interest rate/discount rate is r% and 'm' is the number of times per year that compounding is done thereafter. Determine the future value at the end of four years if the required rate of return is 12% and compounding is done quarterly (m = 4).
5000 per year up to 10 years in the PPF account, then what would be the value after 15 years if the current interest rate in the PPF account is 8% and it is expected to continue for the next 15 years. The regular deposited money will grow with the future value-interest factor for the first ten years and then with the future value-interest factor until the next five years.
Introduction
Capital budgeting decisions are a very complex decision among all the financial decisions taken by an organization because of the following characteristics and problems associated with it.
Characteristics of Capital Budgeting Decision Following are important characteristics of Capital Budgeting Decision
Difficulties associated with Capital Budgeting Decision Following are difficulties associated with capital budgeting decision
In other words, for capital budgeting decisions to be financially viable, cost of capital (Co) must be less than Internal Rate of Return (IRR).
Sources of financing Capital Budgeting Decision/Project Finance
Right to vote means right to vote, which in turn means right to elect board of directors, which constitutes the top body of concerned organization. In other words, sometimes they act like ownership securities and sometimes they act like creditor securities. The rate of preference dividend remains fixed and therefore Preference Share behaves like debt (creditors) securities.
Under section 84 of the Companies Act, however, in the event that the organization fails to pay preferred dividend for up to three years, preferred shareholders will automatically gain voting rights and will therefore interfere in the control of the organization concerned and therefore preferred shareholders will begin to act like equity (ownership) shareholders. 1 Control Has control over Has no control over Has no control over organization because organization except u/s organization.
Point of Equity shares Preference shares Debentures/Bonds no. difference
- Advantages of Equity Shares Company’s Point of View
- Disadvantages of Equity Shares Company’s Point of View
- Advantages or Merits of Preference Shares Company’s Point of View
- Disadvantages of Preference Shares Company’s Point of View
- Advantages of Debentures Company’s Point of View
- Disadvantage of Debentures Company’s Point of View
- Advantages of Benefit–Cost Ratio (BCR) Method The Benefit–Cost ratio method has the following advantages
The preferential dividend is paid only from the balance sheet profit at the discretion of the management. They have no claim on the surplus assets and profits of the company, except for the fixed interest and their principal. The average rate of return, also known as the accounting rate of return, is defined as the average cash flow (benefits) relative to the investment per unit.
This can be taken from Present Value Interest Factor (PVIF) table and 'Ct' is the cash inflows (benefits) at the end of the year. Like the net present value method, it takes into account the time value of money concept and is suitable to be applied for comparing projects with unequal investment of funds as it measures the present value of benefits against unit investment. It takes into account the profitability of the project for its entire economic life and therefore evaluates true profitability.
It helps rank the various proposals under consideration for presentation in terms of present value benefits per unit of investment. Uncertainty about future earnings and long-term effects makes it difficult to determine the appropriate discount rate used to calculate the present value of earnings and thus the BCR.
