Question

. Krishna Ltd. is manufacturing steel at its plant at Noida. Due to economic growth, the demand for steel is also growing. The company is planning to set up a new steel plant at Gurgaon. It needs Rs. 800 crore to start the new plant. It decides to raise Rs. 300 crore through debentures, Rs. 200 crore through long-term loan from banks and Rs. 200 crore by issue of equity share to the public. It decided to finance the remaining amount by utilizing its reserves and surplus.
a) State the importance of financial planning for this company.
b) What is the capital structure of this company? Explain.
c) Identify the financial decision involved when the company decides to raise Rs. 800 crore from different sources of funds.
d) How will the dividend decision of Krishna Ltd. be affected? Explain

Answer 1

Answer:

Yes. For a student who is planning to settle abroad, ACCA is the best option. After qualifying the ACCA, you become eligible to work in different aspects of business and management on high-end profiles like Auditor, Chartered Accountant, CFO, Management consultant, etc.

Answer 2

The answers to the following questions are given below.

EXPLANATION:

• Financial planning is the best choice that the company had made, as it helps to prevent the company from major business surprises and collapses.

• Capital structure is the combination of owners(company) funds and borrowed funds. So the company's capital structure is

         Debt = Debenture + Long term Loans from banks

                  = 300 + 200 = 500 crores.

         Equity = Share capital + Reserves/ Surplus

          = 200 + 100 = 300 crores

        The debt Equity ratio = 500 = 1.67 : 1 : 300

• "The Financing Decision "is the Financial decision made by the company. Financing decision means to raise funds/finances.

• The company has separated 100 crores to finance the investment. Since the debenture is more than the equity, the company can pay a higher dividend.