1. Apna Sapna Money-Money
I. M. Pandey, Financial Management, 9th ed., Vikas.

2. Kaun Banega Crorepati

3. Concepts of Time Value of Money

4. I. M. Pandey, Financial Management, 9th ed., Vikas.
Business Activities
Production
Marketing
Finance
I. M. Pandey, Financial Management, 9th ed., Vikas.

5. I. M. Pandey, Financial Management, 9th ed., Vikas.
Meaning
Financial management is a systematic process that provides the necessary financial information to help a business produce and distribute goods and services in a way that will make the most profit. It also provides feedback about how well the organization is doing.
I. M. Pandey, Financial Management, 9th ed., Vikas.

6. Chapter Objectives Understand what gives money its time value.
Explain the methods of calculating present and future values.
Highlight the use of present value technique (discounting) in financial decisions.
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

7. Our Strategy for achieving these Objectives?
Concepts, Cases and Class Discussion
Punctuality, Participation and Preparation
(Its compulsory to bring your own calculators, Pen, Stationary, Registers, Prescribed Book, Printouts of the Intranet documents- Otherwise necessary disciplinary action will be taken)
Judgment challenge
Learning to communicate ideas
Learning from each other
Learning through discovery
I. M. Pandey, Financial Management, 9th ed., Vikas.

8. I. M. Pandey, Financial Management, 9th ed., Vikas.
Finance Functions
Investment or Long Term Asset Mix Decision
Financing or Capital Mix Decision
Dividend or Profit Allocation Decision
Liquidity or Short Term Asset Mix Decision
I. M. Pandey, Financial Management, 9th ed., Vikas.

9. Financial accounting and Financial Management
Financial accounting gives the financial status of the company to people outside the company. It is recording and reporting the activities and events that lead to cash inflow and outflow.
Financial management means efficiently managing the various resources of the company.
I. M. Pandey, Financial Management, 9th ed., Vikas.

10. Managers Versus Shareholders’ Goals
A company has stakeholders such as employees, debt-holders, consumers, suppliers, government and society.
Managers may perceive their role as reconciling conflicting objectives of stakeholders. This stakeholders’ view of managers’ role may compromise with the objective of SWM.
Managers may pursue their own personal goals at the cost of shareholders, or may play safe and create satisfactory wealth for shareholders than the maximum.
Managers may avoid taking high investment and financing risks that may otherwise be needed to maximize shareholders’ wealth. Such “satisfying” behaviour of managers will frustrate the objective of SWM as a normative guide.
I. M. Pandey, Financial Management, 9th ed., Vikas.

11. Financial Goals and Firm’s Mission and Objectives
Firms’ primary objective is maximizing the welfare of owners, but, in operational terms, they focus on the satisfaction of its customers through the production of goods and services needed by them
Firms state their vision, mission and values in broad terms
Wealth maximization is more appropriately a decision criterion, rather than an objective or a goal.
Goals or objectives are missions or basic purposes of a firm’s existence
I. M. Pandey, Financial Management, 9th ed., Vikas.

12. Financial Goals and Firm’s Mission and Objectives
The shareholders’ wealth maximization is the second-level criterion ensuring that the decision meets the minimum standard of the economic performance.
In the final decision-making, the judgement of management plays the crucial role. The wealth maximization criterion would simply indicate whether an action is economically viable or not.
I. M. Pandey, Financial Management, 9th ed., Vikas.

13. Time Preference for Money
Time preference for money is an individual’s preference for possession of a given amount of money now, rather than the same amount at some future time.
Three reasons may be attributed to the individual’s time preference for money:
 risk
 preference for consumption
 investment opportunities
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

14. Required Rate of Return
The time preference for money is generally expressed by an interest rate. This rate will be positive even in the absence of any risk. It may be therefore called the risk-free rate.
An investor requires compensation for assuming risk, which is called risk premium.
The investor’s required rate of return is:
Risk-free rate + Risk premium.
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

15. Time Value Adjustment
Two most common methods of adjusting cash flows for time value of money:
Compounding—the process of calculating future values of cash flows and
Discounting—the process of calculating present values of cash flows.
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

16. Future Value
Compounding is the process of finding the future values of cash flows by applying the concept of compound interest.
Compound interest is the interest that is received on the original amount (principal) as well as on any interest earned but not withdrawn during earlier periods.
Simple interest is the interest that is calculated only on the original amount (principal), and thus, no compounding of interest takes place.
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

17. Future Value
The general form of equation for calculating the future value of a lump sum after n periods may, therefore, be written as follows:
The term (1 + i)n is the compound value factor (CVF) of a lump sum of Re 1, and it always has a value greater than 1 for positive i, indicating that CVF increases as i and n increase.
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

18. Example
If you deposited Rs 55,650 in a bank, which was paying a 15 per cent rate of interest on a ten-year time deposit, how much would the deposit grow at the end of ten years?
We will first find out the compound value factor at 15 per cent for 10 years which is Multiplying by Rs 55,650, we get Rs 225, as the compound value:
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

19. Present Value
Present value of a future cash flow (inflow or outflow) is the amount of current cash that is of equivalent value to the decision-maker.
Discounting is the process of determining present value of a series of future cash flows.
The interest rate used for discounting cash flows is also called the discount rate.
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

20. Present Value of a Single Cash Flow
The following general formula can be employed to calculate the present value of a lump sum to be received after some future periods:
The term in parentheses is the discount factor or present value factor (PVF), and it is always less than 1.0 for positive i, indicating that a future amount has a smaller present value.
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

21. Example
Suppose that an investor wants to find out the present value of Rs 50,000 to be received after 15 years. Her interest rate is 9 per cent. First, we will find out the present value factor, which is Multiplying by Rs 50,000, we obtain Rs 13,750 as the present value:
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

22. Exercises What's the present value of:
A. $ in 1 years at 16 percent?
B $9,000 in 2 years at 8 percent?
C $20,000 in 5 years at 10 percent?
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

23. Future Value of an Annuity
Annuity is a fixed payment (or receipt) each year for a specified number of years. If you rent a flat and promise to make a series of payments over an agreed period, you have created an annuity.
The term within brackets is the compound value factor for an annuity of Re 1, which we shall refer as CVFA.
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

24. Example
Suppose that a firm deposits Rs 5,000 at the end of each year for four years at 6 per cent rate of interest. How much would this annuity accumulate at the end of the fourth year? We first find CVFA which is If we multiply by Rs 5,000, we obtain a compound value of Rs 21,875:
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

25. Exercises
If you invest $2,000 a year in a retirement account, how much would you have:
a In 5 years at 6 percent?
b In 20 years at 10 percent?
c In 40 years at 12 percent?
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

26. Present Value of an Annuity
The computation of the present value of an annuity can be written in the following general form:
The term within parentheses is the present value factor of an annuity of Re 1, which we would call PVFA, and it is a sum of single-payment present value factors.
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

27. Exercise
John Smith will receive $8,500 a year for the next 15 years from her trust. If a 7 percent interest rate is applied, what is the current value of the future payments?
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

28. Present Value of an Uneven Periodic Sum
Investments made by of a firm do not frequently yield constant periodic cash flows (annuity). In most instances the firm receives a stream of uneven cash flows. Thus the present value factors for an annuity cannot be used. The procedure is to calculate the present value of each cash flow and aggregate all present values.
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

29. Present Value of Perpetuity
Perpetuity is an annuity that occurs indefinitely. Perpetuities are not very common in financial decision-making:
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

30. Value of an Annuity Due
Annuity due is a series of fixed receipts or payments starting at the beginning of each period for a specified number of periods.
Future Value of an Annuity Due
Present Value of an Annuity Due
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.

31. Assignment
Q1,2,3,7,8 of Chapter-2 of Financial Management by I.M. Pandey (IXth Edition), Vikas publishing house
Answers in A4 page
Individual submission
Financial Management, Ninth Edition © I M Pandey
Vikas Publishing House Pvt. Ltd.