Answer: Financial Management is all about planning, organizing, directing and controlling the financial pursuits such as acquisition and utilization of capital.
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IMPORTANT QUESTIONS. CHAPTER 9: Financial Management. Explain the term financial management? List any 5 factors determining the capital structure?
8 Dec 2019 — 8 Dec 2019The primary aim of financial management is to maximise shareholders' wealth. 3 Marks Questions. 3.Wealth maximisation is the primary objective.
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From Financial Management
Profit maximisation vs wealth maximisation:
Hence, wealth maximisation is preferred for long-term value creation.
Discount factor (DF) = 1/(1+r)^n.
Here r = 8% and n = 2. DF = 1/(1.08)^2 = 1/1.1664 ≈ 0.8573.
PV = FV × DF = 10,000 × 0.8573 ≈ ₹8,573.
Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.
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Assumes Kd is cheaper and constant; Ke is constant (basic). As debt increases, WACC decreases and firm value increases.
Assumes WACC (Ko) is constant. As leverage increases, Ke rises to offset benefit of cheap debt, so firm value remains constant.
NI supports more debt; NOI suggests capital structure is irrelevant under its assumptions.