Q.1. Define financial management and objective of financial management?

Answer: “Financial management is the application of the planning and control

function to the finance function.” – by K.D. Willson

Objectives of Financial Management

1. To ensure regular and adequate supply of funds to the concern.

2. To ensure adequate returns to the shareholders.
3. To ensure optimum funds utilization.
4. To ensure safety on investment, i.e, funds should be invested in safe
ventures so that adequate rate of return can be achieved.
5. To plan a sound capital structure.
6. To maximization of profit and wealth.

Q.2.Define capital budgeting and type of capital budgeting proposal?

Answer: Charles T. Horngnen defines capital budgeting as “Capital Budgeting is

a long term planning for making and financing proposed capital outlays”.

Types of capital budgeting proposals:

1. Independent Proposals
2. Dependent Proposals or Contingent Proposals
3. Mutually Exclusive Proposals

Independent Proposals: These proposals are said to be economically independent

which are accepted or rejected on the basis of minimum return on investment
required. Independent proposals do not depend upon each other.

Dependent Proposals or Contingent Proposals: In this when the acceptance of

one proposal is contingent upon the acceptance of other proposals. It is called
Dependent or Contingent proposals.

For example construction of new building on account of installation of new plant

and machinery.

Mutually Exclusive Proposals: It refers to the acceptance of one proposal results

in the automatic rejection of the other proposal. Then the two investments are
mutually exclusive. In other words, one can be rejected and other can be accepted.
It is easier for a firm to take capital budgeting decisions on such projects.