OBJECTIVES:
i) To learn the basics of Financial Decision Making
ii) To understand the logic and mathematics of decisions, techniques involving thrust areas, in the management of the finance function.
iii) To develop Analytical and Numerical abilities for using decision criteria in the areas of financing, investments and deployment of resources of a business firm.

1. The Finance function: Nature and Scope. General organisation structure for the finance function. Role delineation for finance functionaries. Evolution of finance function - The new role in the contemporary scenario - Goals of finance function - maximising vs. satisfying (Simon School); Profit vs. Wealth vs. Welfare; The agency relationship and costs - The new debate on maximising vs-satisficing.

2. The window to understanding Financial Decision Making: The focus on wealth maximisation. Two prime parameters - Time value of money and discount rate; and Risk Return trade off.

3. The Investment Decision :

(A) New Investments : The concept of a project : Scouting for Project Ideas; Project development cycle; Initial Screening; Macro level appraisal - Market feasibility, Technical feasibility, Operational feasibility and Financial feasibility.

(B) On going Investments: Developing Cash Flow Data. Using Evaluation Techniques. Traditional and DCF methods. The NP vs. IRR Debate. Approaches for reconciliations.

(C) Capital budgeting decision under conditions of risk and uncertainty: Measurement of Risk for single Assets and in a Portfolio Context - Risk adjusted Discount Rate, Certainty Equivalents and Beta Coefficients (a brief discussion of concepts and their numerical applications only). Probability tree approach.

4. The Financing Decision :

(A) Sources of Finance - a brief survey of Financial Markets and Instruments of Finance.

(B) Understanding the theory of capital structure: Concept and financial effects of leverage. The theoretical debate with regard to effects: MM Vs. Traditional Schools; A step toward reconciliation. The capital structure decision in practice: EBIT - EPS analysis; Debt capacity evaluation and cash flow ability.

(C) Cost of Capital: The concept - Average vs. Marginal Cost of Capital. Measurement of Cost of Capital - Component Costs and Weighted Average Cost. Cost of Capital in the CAPM context (only the concept and illustrative numerals).

5. The Dividend Decision: Major forms of dividends - Cash and Bonus shares. The theoretical backdrop - Dividends and valuation: Major theories centered on the work of Gordon. Lintner and MM - The basic dividend theorems for valuation. Economics and Financial Effects of Bonus Shares. The legal setting for the dividend decision. Dividend policies of Indian Corporates.

6. Current Asset Management: Concepts and characteristics of working capital. Factors determining the working capital. Estimating working capital requirements. Working capital policy. Management of current assets - cash receivables and inventory. Factoring current assets - Customers credit. Short term bank finance. The debate on maximum permissible bank finance. The concept and emerging practice of single window for project and working capital finance. The new roles for development and commercial banks in the new era of integration.

Suggested Readings:
1. James C. Van Home and John M. Wachowicz. Jr. Fundamentals of Financial Management, Prentice Hall India, 1996.
2. John J. Hampton: Financial Decision Making, Prentice Hall India, 1992.
3. Shim J.K. and Siegal JG : Theory and Problems of Managerial Finance. Schaums outline series, McGraw Hill, 1987.
4. Brigham, E.F. and Gapenski L.C.: Financial Management Theory and Practice, Dryden Press, New York, 1994.
5. Prasanna Chandra: Financial Management Theory and Practice, Tata McGraw Hill, 1997.