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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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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From Financial Management
With corporate taxes, interest is tax deductible, creating an interest tax shield.
Flow: More debt → more interest → tax saving → higher cash flows to investors → higher firm value.
Thus, MM (with tax) suggests debt can increase value due to tax shield benefit.
PI = PV of inflows / PV of outflows
= 1,20,000 / 1,00,000 = 1.20.
Decision: Accept (PI > 1).
EBIT–EPS analysis compares alternative financing plans (more debt vs more equity) by computing EPS at different EBIT levels.
EBIT → Less: Interest → EBT → Less: Tax → EAT → Divide by equity shares → EPS
It helps select a capital structure that balances risk–return and improves EPS for expected operating performance.