'S' Limited is manufacturing steel at its plant in India. It's enjoying a buoyant demand for its product as economic growth is about 7 to 8% and the demand for steel is growing. It is planning to set up a new steel plant to cash on the increased demand it is facing. It is estimated that it will require about Rs.5,000 crores to setup and about Rs. 500 crores working capital to start the new plant.
(a) What is the role and objectives of financial management for this company?
(b) What is the importance of having a financial plan for this company?
Give an imaginary plan to support your answer.
(c) What are the factors which will affect the capital structure of this company?
(d) Keeping in mind that it is highly capital intensive sector. What factors will affect the fixed and working capital.

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Solution

The role of financial management
(i) Size and composition of fixed assets
(ii) Amount and composition of current assets
(iii) The amount of longterm and short term financing
(iv) Fixing the debt equity ratio in capital
While playing this role the main objective of finance manager will be maximization of wealth of equity share holders
(b) The main importance
(i) To ensure availability of funds whenever these are required
(ii) To see that firm does not raise resources unnecessarily
(iii) Determination of suitable policies for proper utilization and administration of funds
Financial Plan for this Co
Total finance required: Fixed capital Rs.5,000 crores working capital Rs.500 crores
Source of finance 2:! RAtio, ie 50% finance will be collected by issue of shares and 50% by borrowed fund
Investment of this fund in right investment proposals.

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Q. ‘S’ Limited is manufacturing steel at its plant in India. It is enjoying a buoyant demand for its products as economic growth is about 7%-8% and the demand for steel is growing. It is planning to set up a new steel plant to cash on the increased demand. It is estimated that it will require about Rs 5000 crores to set up and about Rs 500 crores of working capital to start the new plant.

Questions

1. Describe the role and objectives of financial management for this company.

2. Explain the importance of having a financial plan for this company. Give an imaginary plan to support your answer.

3. What are the factors which will affect the capital structure of this company?

4. Keeping in mind that it is a highly capital-intensive sector, what factors will affect the fixed and working capital. Give reasons in support of your answer.

'S' Ltd. is manufacturing steel at its plant in India. It is enjoying a buoyant demand for its products as economic growth is at about 7-8% and the demand for steel is growing. It is planning to set-up a new steel plant to capitalise on the increased demand. It is estimated that it will require about Rs 5000 crores to set-up and about Rs 500 crores of working capital to start the new plant. Explain the importance of having a financial plan for this company. Give an imaginary plan to support your answer.

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What are the factors that will affect the capital structure of this company?

'S' Ltd. is manufacturing steel at its plant in India. It is enjoying a buoyant demand for its products as economic growth is at about 7-8% and the demand for steel is growing. It is planning to set-up a new steel plant to capitalise on the increased demand. It is estimated that it will require about Rs 5000 crores to set-up and about Rs 500 crores of working capital to start the new plant.

Keeping in mind that it is a highly capital intensive sector, what factors will affect the fixed and working capital? Give reasons concerning both in support of your answer.

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