Question

1. Explain your analysis, why organization having importance of following functions of financial management?                                                                                                                                                                       

                                                     

1. .Allocation of funds
2. Acquisition of funds

Answer 1

These following functions of Financial Management is important for an organisation because-

A) Allocation of funds-this is majorly related with the capital budgeting decision because company should always be allocating its funds to such projects which will be generating the highest rate of return and which will be beneficial for the company in the long run so the company should be adopting analysis like net present value or internal rate of return or discounted payback period in order to select the best possible method for selection of best possible project to invest into, in order to maximize the overall organisational value.

B) Acquisition of funds- acquisition of funds is relating to the capital structure decisions because this should be related to financing of various projects using either debt capital or equity capital.

Debt capital is generally associated with benefits related to interest payment because interest are tax deductible in nature whereas equity capital will be having flotation cost involved, so this project should be adequately financed in order to select the best possible source of fund to acquire this financing which will be helpful in generation of the higher rate of return than the overall cost of capital for the company so that, the company can record growth.