FINANCIAL MANAGEMENT-II

FINANCIAL MANAGEMENT-II
AREA OF STUDY: CORE
BAP 481

Year: 2
Semester: 4

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* Continuous
** Duration: 3 hours

Unit 1: Recap of Financial Management L. H. 4
1. Cost of Capital
2. Bond Valuations
3. Common Stock Valuations
Unit 2: Capital Budgeting & Cash Flow Principles L. H. 8
1. Project Classifications
2. Capital Budgeting Decision Rules:
Payback Period, Net Present Value, Internal Rate of Return, Modified Internal Rates of Returns, PI: Independent and Mutually Exclusive Projects.
3. Relevant Cash Flows and Cash Flow Estimation, Investment, Operating Cash Flows, Terminal Cash Flows.
4. Using Cash Flows to Evaluate Investment
a. Capital Budgeting and Optimum Replacement Timings
b. Capital Budgeting and Optimum Rationing
c. Capital Budgeting under Inflation
d. Capital Budgeting with Unequal Lives of Proposals
5. Approaches Dealing with Risk: Risk Adjustment Techniques and Capital Budgeting Refinements.
Unit 3: Short Term Financial Planning & Management L. H. 6
1. Concept of Working Capital, Working Capital Terminology, Concept of Zero Working Capital, Working Capital Cash Flow Cycle: Operating Cycle & Cash Conversion Cycle.
2. Current Asset Investment Policies: Maturity Matching Approach: Aggressive Approach, Conservative Approach
3. Current Assets Financing Policies: Aggressive, Moderate, Conservative
4. Choosing the overall Working Capital Policy
5. Sources of Short Term Financing, Features of Short Term Financing, the Cost of Trade Credit, Short Term Bank Loans, Compensating Balances, Line of Credit, Revolving Credit Cost of Bank Loans.
Unit 4: Cash & Marketable Securities L. H. 5
1. Cash Management: Motives for Holding Cash; Importance of Forecasting Cash Flow Cash Budget
2. Cash Flow Synchronization: Float; Concentration Banking & Lock-Box System
3. Setting the Target Cash Balance: Baumol Model; Miller-Orr Model
4. Cash Management Techniques
5. Types of Marketable Securities and Management: Treasury Bills, Commercial Paper, CD etc.
Unit 5: Receivable Management L. H. 6
1. Purposes of Receivables, Average Collection Period, Average Daily Sales, Average Investment in Receivable.
2. Aging Schedule, Payment Pattern Approach
3. Credit Policy: Credit Period and Standard, Collection Policy, Cash Discounts, Evaluating Proposed Changes in Credit Policy
Unit 6: Inventory Management L. H. 4
1. Concept, Need
2. Types and Calculation of Inventory Costs
3. Optimal Ordering Quantity: Economic Ordering Quantity Model
4. Safety Stock, Quantity Discounts and Comparisons with EOQ
5. Inventory Control Systems: Redline Method, Computerized Systems, Just in Time Systems.
Unit 7: Dividend Policy L. H. 5
1. Dividends & Capital Gains
2. Modigliani & Miller, Gordon & Linter, and Litzenberger & Ramaswamy Theories
3. Establishing a Dividend Policy & Dividend Payment
4. Information Content of Dividends
5. Stock Repurchase, Stock Dividends & Stock Splits
Unit 8: Lease Financing L. H. 5
1. Types of Lease
2. Tax Treatment of Leases
3. Possible Advantages of Leasing
4. Evaluating Financial Leases
5. Cash Flow of a Lease
6. Lease or Buy: Breakeven Lease Payment
Unit 9: Financial Derivatives L. H. 5
1. Types of Derivatives: Commodity & Financial
2. Introduction to Futures
3. Options Types and Markets
4. American & European Options: Payoff on a Call & Put Option
Suggested Readings
• Gitman, I, Lawrence, Principal of Managerial Finance, Harper Collins Publishers
• Van Home and Wachowicz, Fundamentals of Financial Management
• Ross, Westerfield, Jaffe, Corporate Finance
• Copeland & Weston, Financial Theory & Corporate Policy, Addison Wesley
• Pradhan, Financial Management, Buddha Academic Enterprises, Kathmandu, Nepal.