Performance of Equity available to shareholders:-

Particulars Amount
Sales Revenue (Unit sold X selling price) X
Less Variable cost (Unit produce X cost per unit) X
Contribution( c) XX
Less Fixed cost X
EBIT XX
Less Interest X
EBT XX
Less Tax X
EAT XX
Less Preference Dividend X
Earnings available to Equity Shareholders (EAES) XX

Notes:

1. Question related to preference Dividend Calculate EAES

2. If Leverage is more than 1 year then calculate degree of OL, FL &CL.
Q2 Capital budgeting and its process:
A2 Capital Budgeting is defined as the process by which a business
determines which fixed asset purchases or project investments are acceptable
and which are not. Using this approach, each proposed investment is given a
quantitative analysis, allowing rational judgment to be made by the business
owners.

Process:
1) To Identify Investment Opportunities:
They recognize the investment opportunities keeping in mind the sales
target set up by them. One must consider some points before searching for
the best investment opportunities. It includes regularly monitoring the
external environment to get an idea about new investment opportunities.
Then, define the corporate strategy based on the organization’s SWOT
analysis.
2) Gathering of the Investment Proposals:
After identifying the investment opportunities, the second process in capital
budgeting is to collect investment proposals. Before reaching the
committee of the capital budgeting process, these proposals are seen by
various authorized persons in the organization to check whether the bids
given are according to the requirements.
3) Decision Making Process in Capital Budgeting:
Decision-making is the third step. In the decision-making stage, the
executives will have to decide which investment needs to be made from the
available investment opportunities, keeping in mind the sanctioning power
open to them.
3) Capital Budget preparations and Appropriations:
After the decision-making step, the next step is to classify the investment
outlays into higher and smaller value investments.
4) Implementation:
After completing all the above steps, it implements the investment
proposal, i.e., put into a concrete project. Several challenges can be faced
by the management personnel while executing the tasks as they can be
time-consuming.
5) Review of Performance:
A review of performance is the last step in capital budgeting. But, the
management must first compare the actual results with the projected
results. The correct time to make this comparison is when the operations
get stabilized.
Q3 Difference between Non Discounted Techniques and Discounted Techniques:

Key points Discounted Techniques Non Discounted Techniques

Incorporated Discounted cash flows are
to cash flows adjusted to
incorporate the time value of
money.
Used for Cash flows are discounted
using a discount rate to arrive
at a present value estimate,
which is used to evaluate the
potential for investment.
Accuracy Time value of money is
considered in discounted
cash flows and thus is highly
accurate.
Use in Discounted cash flows are
investment used in investment appraisal
appraisal techniques such as NPV
Undiscounted cash flows are
the cash flows not adjusted
to incorporate the time value
of money.
This is the opposite of
discounted cash flows and
merely considers the nominal
value of cash flows in making
investment decisions.
Undiscounted cash flows do
not account for time value of
money and are less
accurate.
Undiscounted cash flows are
not used in investment
appraisal.

Q4 Difference between NPV and IRR:

Parameter Net Present Value Internal Rate of Return

Meaning The present value of all IRR is the rate at which
cash flows of a project the cash inflows are
or investment is called equal to cash outflows.
NPV. In other words, it is the
rate at which the Net
Present Value of an
investment is zero.
Representation Represented in Represented in
absolute terms percentage terms
Indicates Surplus from an It is the break-even
investment or a project point of an investment
or a project – no profit
or no loss scenario.
Rate for reinvestment Cost of capital rate Internal Rate of Return
Variable Cash outflows It will not have an Results in negative or
impact on the NPV. multiple IRR
Q5 Roles of financial Manager:
1) Raising of Funds:
In order to meet the obligation of the business it is important to have
enough cash and liquidity. A firm can raise funds by the way of equity and
debt. It is the responsibility of a financial manager to decide the ratio
between debt and equity. It is important to maintain a good balance
between equity and debt.

2) Allocation of Funds:
Once the funds are raised through different channels the next important
function is to allocate the funds. The funds should be allocated in such a
manner that they are optimally used.
The best possible manner in order to allocate funds are:
 The size of the firm and its growth capability
 Status of assets whether they are long-term or short-term
 Mode by which the funds are raised

3) Profit Planning:
Profit earning is one of the prime functions of any business organization.
Profit earning is important for survival and sustenance of any organization.
Profit planning refers to proper usage of the profit generated by the firm.
Profit arises due to many factors such as pricing, industry competition,
state of the economy, mechanism of demand and supply, cost and output.
Fixed costs are incurred by the use of fixed factors of production such as
land and machinery.

4) Understanding Capital Markets:

Shares of a company are traded on stock exchange and there is a
continuous sale and purchase of securities. Hence a clear understanding of
capital market is an important function of a financial manager. Therefore a
financial manger understands and calculates the risk involved in this
trading of shares and debentures. It’s on the discretion of a financial
manager as to how to distribute the profits. The practices of a financial
manager directly impact the operation in capital market.

Q6 Difference between Profit maximization and shareholder wealth maximization:

 KEY shareholder wealth
POINTS: maximization
Definition It is defined as the management of
financial resources aimed at
increasing the value of the
stakeholders of the company.
Focus Focuses on increasing the value of
the stakeholders of the company in
the long term
Risk It considers the risks and
uncertainty inherent in the
business model of the company.
Usage It helps in achieving a larger value
of a company's worth, which may
reflect in the increased market
share of the company.
Profit maximization
It is defined as the management of
financial resources aimed at
increasing the profit of the company.
Focuses on increasing the profit of
the company in the short term.
It does not consider the risks and
uncertainty inherent in the business
model of the company.
It helps in achieving efficiency in the
company's day to-day operations to
make the business profitable.