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1 Overview of Financial Decisions

1 Overview of Financial Decisions

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Published by Chhavi Mehta

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Categories:Types, Business/Law
Published by: Chhavi Mehta on Nov 30, 2010
Copyright:Attribution Non-commercial


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Capital Investment andFinancing Decisions
Indira Gandhi National Open UniversitySchool of Management StudiesBlock 
UNIT 1Nature of Long Term Financial Decisions5UNIT 2Cost of Capital25UNIT 3Capital Structure Decisions47
Overview of FinancialDecisions
June, 2004
© Indira Gandhi National Open University, 2004
 All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any other means, without permission in writing from the Indira Gandhi National OpenUniversity.Further information about the Indira Gandhi National Open University courses may be obtained  from the University’s Office at Maidan Garhi, New Delhi-110 068.
Printed and published on behalf of the Indira Gandhi National Open University, New Delhi, by Director, School of Management Studies.Cover designed by King Craft, Karol Bagh, New DelhiLasertypeset by ICON Printographics, B-107 Fateh Nagar, New Delhi-110 018Paper Used: Agro-based Environment Friendly.Printed at: Prabhat Offset Press, Darya Ganj, New Delhi.
Print Production
Mr. A S. ChhatwalMr. Tilak RajMs. Sumathy NaiAsstt. Registrar (Publication), Sr. ScaleSection Officer (Publication)Proof ReadeSOMS, IGNOUSOMS, IGNOUSOMS, IGNOU
Course Design Committee and Preparation Team
Prof. R.S. Dhankar University of Delhi New DelhiProf. K.V. Rao Nagarjuna University, Nagarjuna Nagar,Guntur Prof. M.S. NarasimhanIndian Institute of Management,BangaloreProf. M. Chandra Sekhar Indian Institute of Advanced Management,VisakhapatnamProf. Nageshwar RaoVikram University,UjjainProf. R.M. Srivastava
Course Editor 
Banaras Hindu University,VaranasiProf. B.B. KhannaDirector School of Management StudiesIGNOU, New DelhiDr. K. Ravi Sankar School of Management StudiesIGNOU, New DelhiMs. Anjali RamtekeSchool of Management StudiesIGNOU, New DelhiDr. Kamal Vagrecha
Course Coordinator 
School of Management StudiesIGNOU, New Delhi
All business activities require capital two main avenues for raising of capital aredebt and equity instruments. In this block we discuss about nature of long termfinancial decisions, cost of capital and capital structure.
Unit 1
deals with Nature of Long term Financing Decisions. In this unit wediscuss about Investment Decisions, Financing Decisions & Dividend PolicyDecisions and inter relationship among these decisions. While taking investment& financing decisions one crucial factor which has to be taken intoconsideration is the time value of money. Time value of money concept hasapplication in determining present value & terminal value, implied interest ratesand annuities.
Unit 2
deals with Cost of Capital. Cost of capital links the long term financialdecisions with shareholders value. Each of the individual component of capitalhas different cost associated with it. The companies which are able to keep thecost of capital low gains a competitive advantage and internally also the gain interms of liquidity, flexibility of capital structure and access to low cost sourcesof funds.
Unit 3
deals with Capital Structure. Capital Structure is basically the amount of long term debt and equity in the capital. Inter-relationship among components of the capital structure determines the risk, return and value of the firm.

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