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Chapter 1

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1.

Describe the critical factors to be observed while marking 7) Do you think wealth maximization is better than profit
replacement investment decision? maximization concept? Ans: Wealth maximization means
Ans: An investment is a planned decision, and some of the factors maximizing the net present value or wealth of a course of action
that are responsible for these decisions are as follows: 1. of shareholders. It has some rationale which are given below: 1.
Investment objective: The purpose behind an investment Economic welfare: Maximizing the shareholders economic welfare
determines the short-term or long-term fund allocation. It is the is equivalent to maximizing the utility of their consumption over
starting point of the decision-making process. 2. Return on time. 2. Increase market value: The wealth maximization principle
investment: Managers prioritize positive returns they try to implies that the fundamental objective of a firm is to maximize
employ limited funds in a profitable asset or security. 3. Return the market value of its shares 3. Risk and return: 4. Time value of
frequency: 4. Risk involved: 5. Maturity period or investment money: 5. Cash flows: 6. Selected discount rate: By selecting an
tenure: 6. Volatility: 7. Inflation rate: appropriate rate for discounting the expected cash flows of future
returns.
3) Importance of financial management?
Ans: Financial management is very important for every company 8) Discuss the principles of corporate governance.?
in modern business situation. The main importance of financial
management are as follows: 1. Financial planning:, 2. Acquisition Ans: Corporate governance is the system in which a corporation is
of fund: To acquisition of fund of a business financial governed and deals with the various interest of its consumers,
management is necessary. 3. Sound financial decision: Financial shareholders, employees and society at large. Naresh Chandrab
management can help to take sound financial decision for a said, "The codes and standards which are applicable for
business. 5. Increase value of the firm, 6. Economic growth and companies have been defined as corporate governance in detail .
development: 7. Creating Jobs: It can help to create job *Principles of Corporate Governance: There are different
opportunities in the business organization. 8. Promote efficiency: principles of corporate governance are given by Cadbury report
It can also promote efficiency in the business worker officer and and Sarbanes Oxley act of 2002 most important principles are
management. 9. Protecting business: It can protect business from given bellow- 1. Rights and equitable treatment of shareholders :
bad business environment. Organizations should respect the rights of shareholders and help
shareholders to exercise those rights. 2. Interests of others
4) Write the difference between accrual on basis and cash basis stockholders: Organization should recognize that they have legal
accounting. Ans: 1. Definition: The method in which profit and contractual social and market driven obligations to non-
loss is determined only on transactions involving cash receipts and shareholder including employees investors creditors suppliers
cash payments is called cash basis accounting. Accounting that local communities customers and policy markets. 3. Role and
reconciles outstanding transactions with cash receipts and responsibilities of the Board: The board needs sufficient relevant
disbursements is called accrual accounting. 2. Profit and loss: Cash skills and understanding to review and challenge management
based accounting does not allow exact profit and loss. Accurate performance.
profit and the loss of business can be determined through accrual
accounting. 3. User: Cash based accounts are generally used by 9) What is meant by corporate finance? Ans: Corporate finance is
professionals in government offices and institutions. Accounting is concerned with budgeting financial forecasting. Cash
done in business and non- business organizations 4. Nature of management, credit administration, investment analysis and fund
Transaction: Only cash receipt and payment transactions are procurement of the business concern and the business concern
recorded. All transactions of cash and dues are recorded. needs to adopt modern technology and application suitable to the
global environment. According to Aswath Damodharan said,
5) Give arguments for and against social responsibility. "Corporate finance as define it every decision a firms makes that
may affect its finance.
Ans: The obligation of business to act in a manner which will serve
in the best interest of society is termed as social responsibility. 10) Describe the attributes of good corporate governance.
*Arguments for social responsibility: The arguments for social
responsibility are as follows: 1. Justification for existence and Ans: Good governance has 8 major characteristics. 1.Participation:
growth: ■ 2. Long-term interest of firms 3. Avoidance of Participation by both men and women is a key cornerstone of
government regulations: If a business does not want intervention good governance. 2. Rule of law: Good governance requires fair
from the government, then it must fulfill social responsibility 4. legal frameworks that are enforced impartially. 3. Transparency:
Maintenance of society: *The arguments against social Transparency means that decisions taken and their enforcement
responsibility are as follows: 1. Violation of profit maximization are done in a manner that follows rules and regulations 4.
objective: It is considered that social responsibility is against the Responsiveness: Good governance requires that institutions and
objective of profit maximization. But business is an economic processes try to serve all stakeholders within a reasonable
activity and its main goal is to earn and maximize profit. 2. Burden timeframe. 5. Consensus oriented: There are several actors tend
on consumers: 3. Lack of social skills: 4. Lack of broad public as many viewpoints in a given society. 6. Equity and
support: inclusiveness:. 8. Accountability:

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