Fnaneial Mana

financinl managoment Ishe

and

Contetling qanana suces

objechive 4 tmancial is to reate
Qud mprve fnaninl healk the imm Preriondy.
with
FM eon cer only
has oibness
1950 the kinancinmauagersote comcern with
udit is just
but hm to use

And tay dividenk

gulag and adequet

to the on ce m

2. To nsue
Sagy in ves ments that
thould be in vested
sa7e ventues that
N be achiewed.
adeqeh,Rmsure
reums

ophimun fond
Ca

wii'tation tat s Snee

frotured should
the best leas cost.
4 To a bound Captal dtnchue thene should be
tus co posi fi on So thala balanee
mintned hetween
Capital,
metu m to stBue shae holdes
S. To -et adeqwet toa the
sich sil pon
Maret
Shany hotders
share k ergpec ahion the

Tmpotant funeions Managsi

Deiston
2.
3.
Dividend Decision
 deeisiovn involves vohem ihere and ho
1. Francing
Acgee tds to investment
to
atmost imptane delermino
the povhion debt
debt
in
capial
capita) And capital struchuoe.
deesion nvofves i

-A tiance monager has to make estimates ith

to capit u'vemint kuping' mind
tat
eqaydsp
to einemen epeeted cost
as tuhine eties nper ted
Cencerm
he esim te meeds to ensu e that
tre Concen Can in crease
) Detevnation Capital:
Snee the estimahon isdone the capital shauche needs
to be decided is invofve shot term
dekt eguiy naysis
soYR unds
shaes , bank
BouTes S) fund i k e dshares, 24uihy
loons frkences shaves ) debentuTe
bonds dependa
the selaive And de- memts

Dnvestrnen Deci sion

inysfves all ocaion
agitd
égeing decisi on
tem assets that, uld, yeld,
in tutateThe finan cia managers has to Aecde
etum

Tnvesbment Deisionlnvotves ho im pofant aspects

Evalaahion, the espeeve paGilihy 4
(nvetment4a9pthe metum
Compaision
ut

3. ce the a ssets the fmsbant

dea'sionhas to aker
that hos
 its shone hotders
Anon 4
distyi bu teaS
much chould etain
ike Sustain
xpanti'on
dactrs as shane cte
alternave means ko.

ivedends Decision tnvotves,

a iridende and otter Benetit
tte
bnus.
Retained the volme
hald back Businuss
retained
expanson and shnovat
si
the
divrsi'ahon
V/sit wealth maimazaon

Taaditi'ona) Agproack snancial

ma
aim S at
the
inerease
moder
emmen Ls
Lonteimed but eath
uitt ma

nat Present
Yolue fhe invo lves erentig
wealh the shan dtdes ereasing
the Yalua their invesmen

Gusiness.
 nvestment pecistent Capital Bdgehing Deeiton
concemnc uitt to
are

invest i
most
tieient
long tesmn
hich PPve over

deeisons
Capital Budqeing are

i diversiica tia
mergers
iyReplaces.menta modemnisaion.
feamre i'nvestm en deeisions i
cmen
exchang invested in
tunds quhe benagt
(nds lorg term assebs
wil Serles
geans.
Evouon inyertment involves
) Esteemahon cashllaus.
bsteemahon ethe rate roehun
the dis count nate )
ii Applca tian
Come ho i e
d's cu th
tatune d's eonnt ate
ashllosAo cus vano
be
and ules emplaged
teeh nea dleeisions
b

pandrhres
to be me asumed fn
aceoun
ipartha and not

dleeisions im's va he
vesti ng
vestment decisr'os lnpo a o
the
 Invotves commitment
Stnee this
mots mevesble
deeitns
the

tem plex decis ions fo talke

be
2ehignea.
ohen tnto categoriea:.
i Non discunted e t citem'a.
) fayknct peato d (P)
9 Areeounng Rate ) Rehn (ARR)
iy Diseounte d mter'a

Peseut vaue (NeV)

Rate
Ratam (RR)
Antemal
ndas (e)
oemennbex.
fo ^Pelying
shonld
a capital
Yremem ben
anfecha al tashlles
tho
the
teSmalles
ane lale Snes.
are
-er ada{lrno
feriod fo ecore the
hoinvestment
yea
constant aneiual
case
Pnvestment
fnihal

50oD0 Qud tho

+he nee

peatod = 1years
is
tash inlrthe
feant Hhen
 unevn

i's 2000D and tho cash

the
are 800D
He
yeans 7600 at the end 3060

Caleulate feotod.
4th year

t9k7oUD Foy the. last yeat

veed to'

E3600 -12 monte

3600 uil loe
me coveed 4 monte
12
BovD X
r i y e s 4 monts,

nules
Acceptane
+he Pf caleulaked the
stand a/d get the
than wruld be aecebed Y
anagement then
tt ele wjeeled
the

Maits Pf.
the
me toc
most
Ppular
eNaluahan
And idely
wes
aLeecptawea
as well as to

T Ra Lig urdihy nghass: s eehgue enphasis

inyeshment Hence,
4unde rekeas.
4 popose
 Dutt DemeitsPP
eonsidont d.
vae w'ch are
the Smes

t h e P p a are not considend)

Hceounthixg
as the
Rate JethRRotuon
ohwen (ARR) s
investinent slicle
atuo
atso
uses
knon

ARR Avg. Lncome

Avg Tnvestrent
income
fr. inv. 136660
is
ARR the
dverage 's07. -
then the
ule fo RR
Aeceptane thau the ate
Aceept the
nanagemat.
wit tha
gesttRR gets tha

Ynnk.
he maj drabael :
the aceruntin k not cask (los jo
ec ston.
doesn'E Conidl fime Vaue

has
Monsy moYe Valuable -fhan
Becawue i ihtes
hene be i'nvat to stat aanig
iy Money, Losnngtom to
meaA
utre Lovumpon Lssentially
more how iskty
ilatoog
presenhs Jrealor
henee
pee 1
 but ke doow'
t mae the instead he
1 year later. Yo
datine tely not aeeapt
txtya and accept Eio
nddithonal i0 maunts 10
interes MaX. Ti addiionad int. is
int.chcome that ane e
&ecause the

Reduetio te 2,beau
bingla tion.
sil
a)Risk not
the uncertainiy that Le

-that we
is
10 . into account te
nate that tahes
cast inveshng
risk.

So the
Lani be etoned
Je Cashllow is
-the in
160
end
R iscont ate

1 is knonr 4s the discounhing et.

Fyocess Dis couahin

Dnder drscouing
Les a bine &0. tence ) we lbe
autpu at time O wnite he fregent val
tue4yhure eask inllends 'at afahiculay
interest. Present Yahua
is eaol to +
cash lns
ohene
4uhave casw in las at
nth
-ivety he
7ear, rfeak
di's coun ate.
 S y ane
Tu espected Cash
y
2kd

Discont
above
and nd aut
total

90D + +
+60D

+
S6D 10
124 X)2I 121% 21K

mir
818 18+ 66|. 18 + 525-92 + 40984 + 301044
14641
1610S1

i's tha
(NPY) Net prseat valas
prsi Hve
each the
ver the ile te
tha
vaue s
sut let,
The nitial Capital
and
A investo inyests
cash
the end
the y 600
y 31
at the end
4th the p disc, ate
NPY e

300 +
14088

SOOX 03086
SeU x0.92g9 t $0DX08 72 +6oD × 0. t93
O8S72

2977? + 428 6 t 76 22 h+SN. 1S

=173376S2
1753:T6S-|670
 Tnteha! Rate Rehan.

YDs Decisiow nle fceepkance mle ol Nev. NPY>0

accept the rect, i[ NPy Or may
re ject the
NPVo moy
not ccept the

with
bagher MPv gets th hig hest
TRR Mathemahcaly , îRR is that
twhic NPY ditcaunt ate
Caleula ian TRR is an iterative metod, RR
percentmge

inihil eash cubleb

8) A machine TEqunes enerate
+he
machfne
enpected
eash A the end the
the
E1486D 47 tBo0D )
Calculate IRR

Yate b/u l0 to 2 0 ,
5 to 20/
|4600 t 16600
Present Vala
t0.18
250U0
(18)
14 600 166UD 2
|18 I392 4 T443032 |:938 7 2.297S7

5S354. 2283

NPY 5T0.57)
 146U0 l66U0 (8000
t +

L-3689
|1238 64
1965-812 + 1688-2168t 4tos.t0194 t. 601613
1-878887
2. 1924 480
t 1063. 0022 t 1402 79
AL 18 se hane
2 S5935. 5t49 5696R . 48 n poss thive N

NPV= 843:43 (An) (Hne NPV

Înter poloahom
amve a that makes
nderstand to
have
NPV etaety metho d called interpolati on
erac ate tha
tindtha the NPV 0
and mahe
and
ill ebfu

farmuta
Lonendi's count rake) value cahgl
inihal
ntial eashotlay
Frea t valee toee cauhlla
Pret Vahee
bigher dise. ae

56968- 48 55S5422r
4348

2 4042.248 7 t 43-48 248577

19-596
414-LSn (Bn)
Aecaptan TRR:
eapital the
qveater than tae tost ,
Pject Juc, fe R is less ttan
tal the rjech, ne ejech
SRR 2 eost apita
tee ue.
not
with
aceept
the qets the highest nnk
bwghet
ank :

shnld
tive stimilay
Tdeally NPy and TRR
povteulay proje ck. Hosever,
results
ceta deotainchoosig the deeison
shore tere

ven
NPV
i's
and RR, in Sueh ases
alwng
fr;tabil thy Anitaeastfo cah

Acezptne we
ject, P not the

wih the
And the yject
ank

tte ne
cash
the
The
Discsunt Rie
A the
(46UD
Cal, the
14600
Losth the
200 UD
(4600
shich shdd

(400D acceghel.
2oSUD (460D
fng A.
26000 2600U
1: 232| l-36763] S180o

SoL8018 t 16252. 44 87 + 14623 82 76+29 10492.199

13 124. 629 4 ns69 .02g7
199tt9t5 846107649
P.T = P-9855426 1·1281ya
-l082,0 SS

:23200 367631 |6850Sg 1-8toYI9

12 612-6126 +
4362. 141 1623 6.6493 ‘922 2 2 3( 3
t 8308.31996t 49739 |
5442fGt 59227s351

|.1845507

2
e
Dis eounted PP dise ouuted pP, fst dis Count
tte uhere cas h to these Present values, and the
add the to cateulale them hos
the in itial non- dis counted f?
here
hos
Siny'y add tha cash
the cas
yeans Yecoves

iubal to0vD and

for The cost
the 5 cast
the di's coun te d PP. as well
He non-discounted PP.
a the
te nent 5 ys.
300D 4600’

5303D The

1S y ’ O- 909
’ O.8 26
0-751
’

4000 x 0909 +

+ 2478 t s004 t 366

3656
9118
PP 2347

Nn - Ds cauned PP

mats
. 2y. 9montHs.
882 1346.
to mecoeg 1366 =l135
2
necor 882 in morta
We
 Cuta
-4364 484882 +
882
Cumulaive

3636

-38sG
by
MathoJ
ny
+2478
inlerpefaion
em):
-882 t
3D4

484 t e
136G+ diee.

1863. Pp
alt
e
 The i i a l iavesbmen mace
the
years The
elonoic

deri uaho. (E8DI) r Ho 4

2400U
2nd 28 0D0
32000
44000
te tax rate s
Tue pital is

50J 3Cal. NPV and P.

X

XX
20

kess: Depricahon
£BIT
90
Tntesest

3
Tax
EAT
EAT + Depre ciahm

achine
anonn
Depeeiahon 4
wacne

EBT Ta 50/. eAT

eBDT
260 260
tbep
2400D
1 2e0DO

22V

2 28vvD 46UD +
20UD
Cash inlw 24 GTU
32640
3 32OVD te12000

20U 2070D

C=32t0UD
The inibal outay $ macine and the estmated
macine at

ellus
24d
34

Depreciahm
capital 207.
1600
the machine
amot = Cost
the machine

Dep)
EAT ask Drtlou (EAT +
2200O

400D
2460 3200O 90736
2488 32
3
16000

16000
320D
3000D
A2000 4
+

+5t60
23118. 1182
L0833. 3353
I8 333.9333 +

&4176.9548
416 9598 (A
NVP
 Prject delachiot Uader Capital Rahoiy
situation eer
-mên pposals ander Conshaints in tem3

The ebjective h select

wnld be tte maxi4ation t e tofal NVP.
The pejed selechon undor capitnl
capi tnl heng tn vot nes
2 shages
he
i) Selee h'on
acceptabe prjechk
the
combinahen jects

2 types faionngcapital a
heig i
’ Dih divisns uits
allocated a txed am n
budget, eatk yea. T is neas
contt the capial tendig
des no
ny mean
ohole
that as

Regrs to a sihaim clhen but ness

Can no vaise the 'nan ces to eseute
al potenha available prgtable in vesthment roichs.
wndey
Method
the
Caplld areRahoig
oheter
diviyi ble indt viible
Case
ind ivisi Lk - e A ruject shada
shad be
Accapled ngecled
Sn case divi'sibb Can be
Acapled
A conghny has lakh it has
ophioy ud has only 4 investment pr
in vestment
given leles bave poihvetipaU -eese
-s re dyible Adiise the ma ace
investand slhld it select
PT

Tnii Lnvestent

1 2S

2S 1.3
1:8 YWY>X
6

t n PV.
til 4S as this will man

70L The
Rhas a

are availa ble decis

in vestmen ohold

the
NPY

A
24 18
Ar’DEB
32 20
22
18 20
avd 6Y takk
pj DEB is 68 Lakhs 6L l'n inNes
NPV q
has been utilzed So
-tment me
DEB
to t e pvj
oHoy then NPY is menh'oned to ank the p , tthen tahes ae hon
to tte
 and SL
value
Tax its 5 yr 7e

yo 7G000
8d
yo 8D00D
6000D
5200D
y?
ss aud c0 i's l2 /.
tac ga te
(EBDT- Dep) (tar-Tax)
FAT
pep EBT
EAT De
L050D 19500 1950D + 40000 = 595
T6000 t2600 234CU 634U0
800D0 40002 26 D
530UD
4
60D0D 30DD
7g00
5

5 612st sosY2. 09183 + 46977. 4963+ 33682t6 59

t 2723 6l4 2

211 so. o 68
NPV 11 45D.0683
PT 2414S0 068
Q0000O
1 65725ar (Aan)
 change
in come
tost

eaptal stuchne

kvsrng remn
at
fo tha
its herDAses ncertain tha
the
i hits fscd ty nent
-tue tin has to (nee
intered n loans
Cosey is heated
d"vidend . n thit, preyeren ce
-ed eopital
Thee ane 2 tper tevege i
Obferating avernge te use
It we<ert to the
kecuyithe capitzl huetue.. ît
at
relates cite -the finaneing activihes
Costs. in diea tes te degree The sourees
tho anesg atvies
lmpn'se point cost
variabilit
wepre sent theinterest charges invotved witt
& ta (EBIT) be

the per into

-

due fo misk in kere nt i is also elasriged

-ahons the tim (ons, debentu De
called buines ise. -cnl charge ilke
-s ,bods
Le dokined ii) Thase stich don't involue uy k'd
zhares
to
to Prejesed shayes ane tveated s
cost
eeaing
lkct4 changes wned Capital
theiy na hoe
is f8TT. 1t business, The
cost slick Likee
kas f'sed trhe inerects
bank ckarges
fi'ed loan lebentunee

te vo luy costs the perceh to be Jad

s'ed
payment.
vofume sheu
iS greafey an tahs - ptaemate
votume paued tm? Eamn
'n the
per share (fPS).
abiby
ehange
to magn by te eect 4
 EBIT the
selina
EBT T E 200DO
Total fxed cost shane= L60D

Saes
EAT = 1060U

4U
LoUDD E81T3tevD 4677.
EBIT
Prduction Lncremse
ihuatn A 20000x 28
Total 2gUU

125a0
deduchg
4200Do

Eps y. +257.
|000U

50UUD
EBIT
 Zuanta hve -fers
e exfent

EBIT
Sales

Alternaively , shere No nits Sotd

DoL §x&-v) Salling tafait
V Vanale

DOL eontbution
EBT T

enistence bwken al
fhe
above greatr tha
Lovo 2nits

Sale pria huit

Vayiable cost

l63D x (10-)-o

Sale
tánatle cost Junit =EI6
Fad fern hng cart
SUDDX l6
JoDD x (32 l6)
8 o0UD - 40DD
 EBTT
EBTT

Tax So.
nea 25%. Debenture foD
E6T 19600

EPS 900oo 9.8.

Dereaye 2

EAT - 7350

Eps 1350 = 735

EPS y. 735, 6
Lhange
EBIT = 250U0
£BT = 24600
EAT = 1230D 12-3-9.8

EPS - 12500
10UD
- 12-3 9-8
= 25-5l (Au)

as the
Can be
the EPS elange
Can be
in EPS
DFL
EBTT
Alhesnakvehy DFL =
E8TT
EBTT
D ie preeren
dhyi ded
ud t is
he tan rate
SR, DFL = EBIT