Explanation : Re-engineering refers to the radical redesign of a business process to achieve quantum gains in cost, service, or time. It can be an effective way to implement a turnaround strategy. This concept was popularised by Michael Hammer. He suggests the following seven principles: 1. Organize around outcomes, not specific tasks. Design a person’s or a department’s job around an objective or outcome instead of a single task or a series of tasks. 2. Have those who use the output of the process, perform it. With computer-based information systems, processes can now be re-engineered such that the people who need the result of the process can do it themselves. 3. Subsume information processing work into real work that produces the information. People or departments who produce information can also process it for use instead of sending raw data for people in the organization to interpret. 4. Treat geographically dispersed resources as though they are centralized. With modern information systems, companies can provide flexible service locally while keeping the actual resources in a centralized location for coordination purposes. 5. Link parallel activities instead of integrating their results. Instead of having separate units perform different activities that may eventually come together, have them communicate while they work so that they can do the integration. 6. Fix the decision point where the work is performed, and build control into the process. The people who do the work should make the decisions and be self-controlling. 7. Capture information once and at the source. Instead of having each unit develop its own database and information processing activities, it can be put on a network so that all can access it.
Explanation : Concentration Banking: Large scale organization functions over the wide geographical area. It can increase collections by adopting the method of decentralized collections of accounts receivable. According to this system's number of collections, centers are established by the firm at different places based upon the geographical aspect. In order to speed up its collection in all the places, it has to open its bank accounts in local banks at different places where it has its collection centers. Through this way, collection centers are instructed to collect cheques from their customers and immediately deposit in the local bank account. Every day the amount will be sent to the central office at the earliest.
Explanation : Credit Policy of the Firm: There are two types of credit policies such as lenient and stringent credit policy . A firm that is following lenient credit policy tends to sell on credit to customers very liberally, which will increase the size of receivables. On the other hand, a firm that following stringent credit policy will have low size of receivables because the firm is very selective in providing stringent credit. A firm that is providing string one credit, may be able to collect debts prom ptly this will keep the level of receivables under control.
As we have seen in the credit policy the majority of firms follow a credit policy that lies between stringent and lenient, which is optimum credit policy. Optimum credit policy is one, which maximizes the firm’s operating profit. For establishing optimum credit policy, the financial manager must consider the important decision variables, which have bearing on the level of receivables. In other words, the credit policy variables have bearing on the level of sales, bad debt loss, discounts taken by customers, and the collection expenses. The major credit policy variable indude the following: (a) Credit Standards, (b) Credit Terms, and (c) Collection Policy and Procedures.
Explanation : The foreign trade policy of India, like that of any developing country, was inward-looking till 1991. Through a series of restrictions and substitution approaches, imports into India were highly restricted. With regard to exports, the policy of the government was not harsh. Exports were sought to be allowed and encouraged to earn precious foreign exchange. But a country cannot think of only exporting without importing. The arguments for adopting protectionist policy towards foreign trade were more or less the same as explained earlier. The period after 1991 has been marked by substantial liberalization of the trade policy. While some liberalization measures were initiated by the self-realization of the government about the need for making exports competitive in the overseas markets, the majority of the initiatives were introduced as a part of structural adjustment programs forced on India by IMF and World Bank. In addition, India became one of the founding members of WTO in 1995, forcing it to remove its own trade barriers imposed earlier on foreign markets. India’s foreign trade policy is formulated and implemented by the Ministry of Commerce and Industry. Other concerned ministries also pitch in for the formulation and implementation of the policy. The majority of the ministries involved are (in addition to the Ministry of Commerce and Industry): Finance, Agriculture, and Textiles. Reserve Bank of India is also involved in the process. The Director-General of Foreign Trade (DGFT) is responsible for the execution of the foreign trade policy. Advisory Bodies: Advisory bodies have been set up to advise the government in formulating foreign trade policy and matters relating thereto. The main advisory bodies are as under: 1. Board of Trade: This is a consultative and deliberative body set up to provide recommendations on: (a) policy measures for increasing exports; (b) industry-specific measures to improve exports; (c) streamlining the institutional frame-work for imports and exports; (d) rationalization of policy measures and procedures for imports and exports; and (e) improving the international competitiveness of Indian goods and services. 2. Export Promotion Board: This board was set up in the Ministry of Commerce. Its main function is to coordinate the activities of different authorities for the effective execution of export-related matters. 3. Director-General of Anti-Dumping and Allied Duties (DGAD): This Directorate was constituted in April 1988 for carrying out investigations and to recommend the amount of anti-dumping duty/countervailing duty on the identified articles which would be adequate to check injury to the domestic industry. 4. Director-General of Foreign Trade (DGFT): The DGFT is responsible for the execution of the export-import policy of the Government. 5. Central Advisory Council on Trade: This council advises the Government on matters relating to: (a) export and import policies. (b) operation of import and export controls (c) organization and development of commercial services
MM Hypothesis for the capital structure is based on which of the following assumptions?
(a) Investors are rational and have homogeneous expectations
Explanation : The Modigliani-Miller Thesis relating to the relationship between the capital structure, cost of capital, and valuation. Assumptions:MM Hypothesis for the capital structure is based on the following assumptions: (a) Perfect capital markets: The implication of a perfect capital market is that (i) securities are infinitely divisible; (ii) investors are free to buy/sell securities; (iii) investors can borrow without restrictions on the same terms and conditions as firms can; (iv) there are no transaction costs; (v) information is perfect, that is, each investor has the same information which is readily available to him without cost, and (vi) investors are rational and behave accordingly. (b) Given the assumption of perfect information and rationality, all investors have the same expectation of a firm’s net operating income (EBIT) with which to evaluate the value of a firm. (c) Business risk is equal among all firms within a similar operating environment. That means all firms can be divided into ‘equivalent risk class’ or ‘homogeneous risk class’. The term equivalent/ homogeneous risk class means that the expected earnings have identical risk characteristics. Firms within an industry are assumed to have the same risk characteristics. The categorization of firms into equivalent risk class is on the basis of the industry group to which the firm belongs. (d) The dividend payout ratio is 100 percent. (e) There are no taxes. This assumption is removed later.