PONDICHERRY UNIVERSITY

PONDICHERRY UNIVERSITY (A Central University)

DIRECTORATE OF DISTANCE EDUCATION

MASTER OF BUSINESS ADMINISTRATION

First Year ? II Semester

Paper Code: MBAC2001

FINANCIAL MANAGEMENT (Common to all MBA Programs)

Authors Dr. Balachandran Professor Alagappa University Karaikudi. Dr. G. Raghavan Professor SDM Institute of Management Development Mysore. Dr. G. Shanmuga Sundaram Associate Professor Dept. of Commerce Pondicherry University Puducherry.

? All Rights are Reserved

TABLE OF CONTENTS

Unit - I

UNIT Finance - An Introduction

PAGE NO. 3

Unit - II Capital Budgeting - A Conceptual Framework

55

Unit - III Capital Structure Theories

116

Unit - IV Dividend Policies

156

Unit - V Working Capital Management

193

MBA - II Semester

Paper code: MBAC2001

Financial Management

Objectives

To know the various sources of finance To understand the various uses for finance and To familiarize oneself with the techniques used in financial

management. Unit-I

Financial Management ? Financial goals - Profit vs. Wealth Maximization; Finance Functions ? Investment, Financing and Dividend Decisions ? Cost of Capital ? Significance of Cost of Capital ? Calculation of Cost of Debt ? Cost of Preference Capital ? Cost of Equity Capital (CAPM Model and Gordon's Model) and Cost of Retained Earnings ? Combined Cost of Capital (weighted/Overall).

Unit-II

Capital Budgeting ? Nature of Investment Decisions ? Investment Evaluation criteria ? Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI), Payback Period, Accounting Rate of Return (ARR) ? NPV and IRR comparison.

Unit-III Operating and Financial Leverage ? Measurement of Leverages

? Effects of Operating and Financial Leverage on Profit ? Analyzing Alternate Financial Plans - Combined Financial and Operating Leverage ? Capital Structure Theories - Traditional approach - M.M. Hypotheses ? without Taxes and with Taxes ? Net Income Approach (NI) ? Net Operating Income Approach (NOI) - Determining capital structure in practice.

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