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Indians abroad
Misc fixed assets Prelim and capital issue expenses Pre-op. expenses Contingencies Margin for working capital Initial cash loss
Long term
Intermediate term
Short term
Share capital
Equity
Par value Issue value Book value Market value Right to income Right to control Preemptive right Right in liquidation
Preference capital
Dividend paid from distributable profit Dividend non-tax deductable Dividend rate is fixed Higher claim for holders than equity holders No right to vote
Debentures
Trustee Security Interest /coupon rate Maturity period Call and put Convertability
Term loans
Foreign currency Indian currency
IFCI ICICI IDBI LIC/GIC UTI Ex-Im bank of India
Misc. sources
Unsecured loans Leasing/hire purchase
Leasing
Operating lease
Low period no recovery of full cost Cancellable in short notice Lessor responsible for maintenance
Financial lease
Large period Lessee responsible for maintenance, taxes Right of lessee to renew Cost recovery
Hire Purchase
Asset purchased in installments Flat rate of interest
No
Production=sales
Changes
Cost of Production
Material cost
Quantity
Consumption Experience Specifications
Cost of capital
Rate of return it must earn on its investments for market value of firm to remain unaffected or Rate of return required by investor on capital
Estimate cost of capital required Decision on leasing, long-term financing and working capital policy To maximize: cost of inputs should be minimized
k wi ki
i 1
Ct P t i 1 (1 k )
P=net funds received Ct=expected payment to the source at the end of year t n= maturity period
Financial appraisal
Valuation of project worth
Discounting
NPV B-C Ratio IRR
Non-discounting
Urgency Payback period Accounting rate of return
NPV
CF0 CFn CF1 CF2 NPV ....... 0 1 2 (1 k ) (1 k ) (1 k ) (1 k ) n
CFt= cash flow at the end of year t n = life of project k = cost of capital
NPV
Accept if NPV is + earn excess return
Reject if NPV is -
NPV =0 cash flow just enough to recoup the investment Assumption
Intermediate cash flow reinvested
PCB NBCR 1 I
IRR
Rate of return of unrecovered investment balance Rate of return on initial investment