BA 506 FINANCIAL MGT - FINAL EXAM

Questionnaire:

1. The three forms of corporate planning are: strategic planning, project

planning and operational planning. Please discuss each.

 Strategic Planning - is an organizational management activity that is

used to set priorities, focus energy and resources, strengthen
operations, ensure that employees and other stakeholders are working
toward common goals, establish agreement around intended
outcomes/results, and assess and adjust the organization's direction in
response to a changing environment. It is a process for developing a
firm's strategic objectives, which generates strategies from the top
down, strategic planning works from the bottom up. Rather than top
managers, specialized strategic planners develop the firm's strategies
within the strategic planning system. It is used to develop a wide array
of strategies, including marketing strategies, product development
strategies and financing strategies.

 Project Planning - is part of project management, which relates to the

use of schedules such as Gantt charts to plan and subsequently report
progress within the project environment.

Initially, the project scope is defined and the appropriate methods for
completing the project are determined. Following this step,
the durations for the various tasks necessary to complete the work are
listed and grouped into a work breakdown structure. Project planning
is often used to organize different areas of a project, including project
plans, workloads and the management of teams and individuals. The
logical dependencies between tasks are defined using an activity
network diagram that enables identification of the critical path. Then
the necessary resources can be estimated and costs for each activity
can be allocated to each resource, giving the total project cost. At
this stage, the project schedule may be optimized to achieve the
appropriate balance between resource usage and project duration to
comply with the project objectives. Once established and agreed, the
project schedule becomes what is known as the baseline schedule.

The inputs of the project planning phase include the project

charter and the concept proposal. The outputs of the project planning
phase include the project requirements, the project schedule, and
the project management plan.

 Operational Planning - is the process of linking strategic goals and

objectives to tactical goals and objectives. It describes milestones,
conditions for success and explains how, or what portion of, a strategic
plan will be put into operation during a given operational period, in the
case of commercial application, a fiscal year or another given
budgetary term.
  The operations plan is both the first and the last step in preparing an
operating budget request. As the first step, the operations plan
provides a plan for resource allocation; as the last step, the OP may be
modified to reflect policy decisions or financial changes made during
the budget development process.

2. Why budgeting is necessary in both private and public undertaking?

Budgeting in both private and public undertakings are of paramount

importance, hence, it needs special care on account of the following
reasons:

1. Long-term Implications: A capital budgeting decision has its effect over

a long time span and inevitably affects the company’s future cost
structure and growth. A wrong decision can prove disastrous for the long-
term survival of firm. On the other hand, lack of investment in asset would
influence the competitive position of the firm. So the capital budgeting
decisions determine the future destiny of the company.

2. Involvement of large amount of funds: Capital budgeting decisions

need substantial amount of capital outlay. This underlines the need for
thoughtful, wise and correct decisions as an incorrect decision would not
only result in losses but also prevent the firm from earning profit from other
investments.

3. Irreversible decisions: Capital budgeting decisions in most of the cases

are irreversible because it is difficult to find a market for such assets. The
only way out will be scrap the capital assets so acquired and incur heavy
losses.

4. Risk and uncertainty: Capital budgeting decision is surrounded by great

number of uncertainties. Investment is present and investment is future.
The future is uncertain and full of risks. Longer the period of project,
greater may be the risk and uncertainty. The estimates about cost,
revenues and profits may not come true.

5. Difficult to make: Capital budgeting decision making is a difficult and

complicated exercise for the management. These decisions require an
over-all assessment of future events which are uncertain. It is really a
marathon job to estimate the future benefits and cost correctly in
quantitative terms subject to the uncertainties caused by economic-
political and social technological factors.

3. What are the importance of investing financial resources?

The importance of investing financial resources cannot be overstated.

Money is a fluid thing. Something worth one peso one day
could cost significantly more the next day. This is because history shows
us that things always cost more over time. When you view this dynamic
over years and decades, it becomes obvious that doing nothing with your
money will cause it to lose its buying power. It is therefore important to
invest to make your money grow rather than shrink or sleep.
 BA 509 ENTREPRENEURIAL MGT - FINAL EXAM

1. Some entrepreneurs consider an innovative idea as a form of capital that is

more precious than money. From financial view point, however, capital
comes in money terms and in three forms as follows: fixed capital, working
capital and growth capital. Please discuss each.

• Fixed Capital - Assets or capital investments that are needed to start up

and conduct business, even at a minimal stage. These assets are
considered fixed in that they are not used up in the actual production of
a good or service, but have a reusable value. Fixed-capital investments
are typically depreciated on the company's accounting statements over
a long period of time, up to 20 years or more.

Examples include factories, office buildings, computer servers, insurance

policies, legal contracts and manufacturing equipment – anything that is
not continually purchased in the course of production of a good or
service.

• Working Capital - A measure of both a company's efficiency and its short-

term financial health. The working capital is calculated as:

WC = Current Assets – Current Liabilities

The result can be positive or negative, depending on how much debt the
company is carrying. In general, companies that have a lot of
working capital will be more successful since they can expand and
improve their operations. Companies with negative working
capital may lack the funds necessary for growth.

• Growth Capital - An asset allocation strategy that seeks to maximize

capital appreciation, or the increase in value of a portfolio or asset over
the long term.
Portfolios with the goal of capital growth consist mainly of equities. The
exact proportion of equities to the total portfolio will vary according to the
individual investor's investment horizon, financial constraints, investment
goals and risks tolerance.

In general, a capital growth portfolio will contain approximately 65-70%

equities, 20-25% fixed-income securities and the remainder in cash or
money market securities. While seeking high returns, this mixture still
somewhat protects the investor against a severe loss in portfolio value if
the higher-risk equity portion of the portfolio takes a plunge.
2. Differentiate entrepreneur and intrapreneur.

• Entrepreneurs can be found anywhere whereas, intrapreneurs are found,

rather encouraged within the confines of an organization.
• While entrepreneurs face hurdles in the form of ridicule and setbacks from
the society in general, intrapreneurs have to face rivalry within the
organization they work.
• Entrepreneurs find it difficult to arrange resources while they are readily
available to intrapreneurs.