Safeerullah MBA-III Cell: 0301-8183254
Corporate Finance
MBA-III ___________________________________________________
Introduction to Corporate Finance
Finance:
Finance is an art and science of managing money. It is concerned with resource allocation as well as resource management and investment. Simply finance deals with matters related to money and the markets.
Functions of corporate finance:
• Planning and analyzing • Acquiring • Utilization of funds All the above functions are performed to achieve the desired goals.
Real Assets:
Assets used to produce goods and services are called real assets. Real assets can be tangible or intangible.
Financial Assets:
Financial assets are the claim against the firm’s real assets and its income.
Investing Decisions:
The decisions regarding the investment in tangible or intangible assets are called investment decisions. Investment decisions are concerned with capital budgeting in which the investment projects are evaluated by capital budgeting techniques. The following are the capital budgeting techniques. 1. 2. 3. 4. 5. Payback Period (PBP). Net Present Value (NPV). Internal Rate of Return (IRR). Accounting Rate of Return (ARR). Profitability Index (PI).
A number of different available investment projects are evaluated through the capital budgeting process. The capital budgeting process is used to select the most profitable project(s).
The Capital Budgeting Process:
1. Generating Project Proposal.
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Safeerullah MBA-III Cell: 0301-8183254
The project proposal can be generated either by internal sources i.e. R&D department, or external sources i.e. suppliers, government. 2. Estimating Cash Flows. 3. Evaluating Project Proposal. The project proposal is evaluated keeping in view the certainty and uncertainty of the situation. 4. Selection: 5. Implementing and Reviewing.
Financial Decisions:
The decisions regarding the acquisition of funds are called financial decisions.