Financial Management

Dr. N S Bohra
Professor
Faculty of Management
GEU

FM I MBA 203 I Course Mentor I Dr. N S Bohra

Course Information

FM I MBA 203 I Course Mentor I Dr. N S Bohra

Course Contents

Available in DOMS Library

Recommended Books
Available in DOMS Library

FM I MBA 203 I Course Mentor I Dr. N S Bohra

Financial Management [Conceptual Model] 2a Working Capital Management

1 2 Current Asset
Arrangement of Funds Investment
B. Investment
Decision
1a
Retained Earning Fixed Asset
1b Debt
Capital Structure 2b Capital Budgeting
1c Equity

A. Financing Decision
3a 3b 3c

Reserve v/s Re-Invest v/s Distribution of Dividend

C. Profit 3 Dividend Policy

Planning/Dividend
Decision

FM I MBA 203 I Course Mentor I Dr. N S Bohra

 Routine Functions

Function and Scope of Financial Management

Executive Functions

FM I MBA 203 I Course Mentor I Dr. N S Bohra

FM I MBA 203 I Course Mentor I Dr. N S Bohra
FM I MBA 203 I Course Mentor I Dr. N S Bohra
FM I MBA 203 I Course Mentor I Dr. N S Bohra
FM I MBA 203 I Course Mentor I Dr. N S Bohra
 Investment 100
Financial Management [Objectives]
Profit = SP -CP Return XYZ Ltt ABC Ltd
CIF1 200 300
CIF2 300 20
CIF3 400 580
A. Financing Decision Calculation of Net Profit Total CF 900 900
Sales Profit 800 800
B. Investment Decision Financial Goals (Minus Direct Cost)
EBDIT
C. Profit Planning / Dividend Decision (Minus Dep) EBIT
(Minus Interest) EBT/PBT Limitation of
(Minus Tax) PAT/NP Profit
Maximization

Agency Cost

Wealth Maximization Leads to

Wealth maximization = Maximization of

Shareholders wealth
A shareholders holds shares in a company
his wealth will improve if the share price
in market will improve

FM I MBA 203 I Course Mentor I Dr. N S Bohra

Organisation of Finance Functions

FM I MBA 203 I Course Mentor I Dr. N S Bohra

Financial Management: Course Prerequisites

Time Vale of Money [Introduction]

FM I MBA 203 I Course Mentor I Dr. N S Bohra

Time Vale of Money [Introduction]

Valuation
Valuation of FV in to PV (Ex. calculation of Insurance Premium)
Single Amount
Series (Annuity)
Discounting
Even
uneven

Compounding

Valuation of PV in FV
(Ex. Value of FD in future)

FM I MBA 203 I Course Mentor I Dr. N S Bohra

Time value of Money

FM I MBA 203 I Course Mentor I Dr. N S Bohra

 Time value of Money [Future Value of Single Amount]

A single amount of $10,000 will be deposited into an

account on January 1, 2020 and will remain on deposit
for one year. It will earn interest of 8% . What will be the
value after one year?

Annual Valuation

Semi Annual Valuation

Quarterly Annual valuation

Source: https://www.accountingcoach.com/ FM I MBA 203 I Course Mentor I Dr. N S Bohra

 Time value of Money [Future
Value of Annuity: Excel
Application ]

Source: Financial Management

- I M Pandey [Eleventh Edi
FM I MBA 203 I Course Mentor I Dr. N S Bohra
Page: 22
 Application of Concept:
[Future Value of Annuity:
Sinking Fund]

Source: Financial Management

- I M Pandey [Eleventh Edi
Page: 23 FM I MBA 203 I Course Mentor I Dr. N S Bohra
FM I MBA 203 I Course Mentor I Dr. N S Bohra
How to Solve FV Problems Solution:
through Value Table
FV = PV (1+ r)^n
Problem: If you deposit Rs
PV = Rs 50,000
50,000 in a bank which is R = 10%
paying 10 % interest on ten N = 10 Years
year time deposit, how FV = 50,000 (1+.10)^10
much would the deposit 50, 000 (CVF 10% 10Y)
growth at the end of ten 50,000 X 2.594
years?
You will get same answer by
using calculator as
FV = 50,000 x 1.10^10

FM I MBA 203 I Course Mentor I Dr. N S Bohra

How to Solve FV Problems Solution:
through Value Table
FV = PV [ (1+ i)^n – i/i]
Problem: If you deposit Rs PV = Rs 5,000
5,000 at the end of the R = 6%
each year for four year at 6 N = 4 Years
% rate of interest. How FV = 5,000 (CVFA 6% 4Y)
much this annuity
= 5,000 X 4.375
accumulate at the end of
You will get same answer by
the fourth year?
using calculator as
FV = 5,000 x [(1+.06)^4 – .06/.06)]

FM I MBA 203 I Course Mentor I Dr. N S Bohra

 Future Value of Annuity: [Ordinary Annuity and Annuity Due]

FV = PV (CVFA 5% 4Year)

FV = PV (CVFA 5% 5 Year)

Source: https://www.investopedia.com/
 Time value of Money [Present Value of Single Amount]

Let's assume we are to receive $100 at the end of two years.

How do we calculate the present value of the amount,
assuming the interest rate is 8% per year compounded
annually?
Solving with the help of PV table

Solving with the help of calculator

FM I MBA 203 I Course Mentor I Dr. N S Bohra

Source: https://www.accountingcoach.com/
 Time value of Money
[Present Value of Single Cash
Flow: Excel Application ]

Source: Financial Management

- I M Pandey [Eleventh Edi
FM I MBA 203 I Course Mentor I Dr. N S Bohra
Page: 25
How to Solve PV Problems Solution:
through Value Table
PV = FV [ PVF r% n years]
Problem: What will be the PV = 50000 (PVF 9% 10 Years]
present value of Rs 50000 = 50000 x .422
to be received after 10 You will get same answer by
years, if the interest rate is using calculator as
9%? PV = FV [1/(1+i)^n]
= 50000 [ 1/(1.09)^10]
PV = FV x [1/(1+i)^n}

FM I MBA 203 I Course Mentor I Dr. N S Bohra

 Time value of Money
[Present Value of Annuity
Excel Application ]

Source: Financial Management

- I M Pandey [Eleventh Edi
FM I MBA 203 I Course Mentor I Dr. N S Bohra
Page: 27
FM I MBA 203 I Course Mentor I Dr. N S Bohra
 Application of [Present Value
of Annuity: Loan
Amortization

PV =A (PVFA 3, .09)
10,000 = A X 2.531
A = 10,000/2.531
= Rs 3951

Source: Financial Management

- I M Pandey [Eleventh Edi
Page: 27
 [Present Value of Ordinary Annuity and Annuity Due]

PV = FV (PVFA 5 % 4 Year)

PV = FV ( PVFA 5% 5Year)
Source: https://www.investopedia.com/
 Constant Growing Annuity By Using Excel
Present Value Discount Rate 21%
Growth Rate 10%
[Growing Annuity] Dividend 60
Year Dividend
1 66
2 72.60
Problem: A company paid
3 79.86
a dividend of Rs 60 last 4 87.85
5 96.63
year. The divided stream 6 106.29
7 116.92
commencing from year 8 128.62
9 141.48
one is expected to grow 10 155.62
11 171.19
at 10% per annum for 15
12 188.31
years. If the discount rate 13 207.14
14 227.85
is 21 %. What is the 15 250.63
Present Value $456.36
present value of the
By Calculator:
expected dividend series?
PV = [ A/i-g(1- 1+g/1+i)^n]
FM I MBA 203 I Course Mentor I Dr. N S Bohra
Present Value [Perpetuities]
Present Value of Annuity: Perpetuity / Interest Rate [P = A/i ]

Ex: An investor expected a perpetual some of Rs 500 on his investment . If

the rate of interest is 10%. What is the present value of perpetuity?

Solution: P = 500/.10 = Rs 5000

Present Value Growing Perpetuity: P = A/I – g

If a company has paid a dividend of Rs 60 last year. If this will increase by

10% every year their after, calculate the present vale if the discount rate is 21
%.

Solution: P = A/I – g = 66/.21-.10 = Rs 600

FM I MBA 203 I Course Mentor I Dr. N S Bohra

Tutorials on TVM
Tutorials on TVM
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