PGP Handbook - Institute of Public Enterprise

8. “Economic Survey” (recent year), Ministry of Finance,
Government of India New Delhi
9. “Currency and Finance” (recent year), Reserve
Bank of India, Ministry of Finance, Government of
India, New Delhi
FINANCIAL MANAGEMENT
Code: 206 Credits: 4
Unit I (i) Nature of Financial Management: Scope of
Finance Functions, Financial Goal: Profit
Versus Wealth, Conflict of Goals: Management
versus owners, Organization of the
Finance Function.
(ii) Concepts of Value and Return: Time preference
for money, compound value, present
value, value of an Annuity Due, Multi
period Compounding, Present Value and
Rate of Return. Present Value of Bonds and
Shares: Present value of bonds, Present
value of preference shares, Present Value
of Equity Shares.
(iii) The Cost of Capital: Basic Notion and Significance
of the Cost of Capital, Determining
Component Cost of Capital, Weighted
Average Cost of Capital, WACC and
Investment Evaluation, Cost of Equity and
CAPM, Cost of Equity: CAPM Vs Dividend
– Growth Model.
Unit II (i) Investment Decisions: Nature of Investment
Decisions, Investment Evaluation
Criteria, Net present value method, Internal
Rate of Return method, Profitability index,
payback, Discounted payback period,
Accounting Rate of Return method, NPV
versus IRR, NPV versus PI, Risk analysis in
Capital Budgeting.
(ii) Financing Decisions: Capital structure
Definition, Meaning and Measures of
Financial and Operating Leverages, Financial
Leverage: Effect on the shareholders
Return and Risk, Combining Financial and
Operating Leverages, Capital structure
Theories: Capital Structure Matters: The
Net Income Approach, Capital Structure
does not matter: The Net Operating Income
Approach, Existence of Optimum Capital
Structure: The Traditional view, Irrelevance
of Capital Structure: The Modigliani and
Miller Hypothesis without Taxes, Relevance
of Capital Structure: The M – M Hypothesis
under corporate taxes.
Unit III : Dividend Decisions: Issues in dividend policy,
Dividend Relevance: Walter’s and Gordon’s
Models, Dividends and Uncertainty; The
Bird-in-the-Hand Argument, Dividend Irrelevance:
Modigliani and Miller Hypothesis,
Relevance of Dividend policy: Market Imperfections
Informational Content of Dividends
Determinants of Dividend Policy.
Unit IV : Liquidity Decisions or Working Capital Management:
Concepts of Working Capital, Need
for working capital, Determinants of Working
Capital, Estimating Working Capital Needs,
Financing Current Assets, Management of
Cash, Receivables and Inventory.
Text Book(s)
1. J Berk, P Demarzo & Ashok Thampy, “Financial
Management”, Pearson, 2010.
Suggested Readings
1. Richard A Brealey, Stewart C Myers, Franklin Allen,
Pitabas Mohanty (2007), “Principles of Corporate
Finance” Tata Mc Graw-Hill, Special Indian
Edition
2. Pandey IM (2010) “Financial Management”, Vikas
Publishers, Delhi
Institute of Public Enterprise – PGP Student Handbook • 39