Reacted in this manner risk profile of the new

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reacted in this manner . risk profile of the new business (power) compared to the risk profile of the existing FMCG business as X LTD. time value factor. required rate of return .
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Profit Maximization and Wealth Maximization Profit Maximization Goal Objective : Large amount of profits Advantages : 1. Easy to calculate profits 2. Easy to determine the link between financial decisions and profits Disadvantages : 1. Emphasizes the short term 2. Ignores risk or uncertainty 3. Ignores the timing of returns 4. Requires immediate resources Wealth Maximization Goal Objective : Highest market value of common stock Advantages : 1. Emphasizes the long term 2. Recognizes risk or uncertainty 3. Recognizes the timing of returns 4. Considers stockholder’s return Disadvantages : 1. Offers no clear relationship between financial decisions and stock price 2. Can lead to management anxiety and frustration 3. Can promote aggressive and creative accounting practices
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FINANCIAL DECISIONS
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FINANCIAL DECISIONS Investment decisions Financing decisions Dividend decisions
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Investment decisions “where to invest the funds”. Relates to the determination of total amount of assets to be held in the firm and compositions of these assets. Types of investment decisions 1.Long term investment decisions ( capital budgeting) 2.Short term investment decisions(working capital)
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Financing decisions “where to raise the funds”. It decides the best means of financing Not only concerned with how best to finance assets but also concerned with the best overall mix of financing for the firm. Finance manager has to select the sources of funds which will make optimum capital structure .
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Dividend decisions “How much to distribute” Relates to the disbursement of profits back to the shareholders. How much dividend is to be distributed to the shareholders. How much is to be retained earnings . In which form the dividend is to be paid? Dividend Policies adopted by the firm. Procedure in payment of dividend .
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Role of financial manager
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Role of financial manager Financial forecasting and planning Acquisition of funds Investment of funds Helping in valuation decisions Maintain proper liquidity
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Key Activities of Financial Management
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Finance function organization
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Functions of Treasurer and Controller
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Time value of money
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The Concept states that- A rupee today is more valuable than a rupee a year hence .”
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Reasons for TVM In general investors prefer current consumption to future consumption. As investment of one rupee today would grow to (1+r) a year hence . Inflation – a continuous rise in Prices
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Obviously, $10,000 today . You already recognize that there is TIME VALUE TO MONEY !!
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Compounding : It is a process of finding the Future value of present investment. PV= FV * Compounding (FVF)(r,n) Rate is called as Compound rate Discounting : It is a process of finding the Present value of investment FV= PV * Discounting(PVF)( r ,n) The interest rate used to discount cash flows is generally called the discount rate
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58 Types of TVM Calculations Present value of a lump sum Future value of a lump sum Present and future value of annuities Present and future value of cash flow streams
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