A business that does'nt grow dies' says Mr Shah, the owner of Shah Marbie Ltd. With glorious 36 months of its grand success having a capital base Rs. 80 crores. Within a short span of time, the company could generate cash flow which not only covered fixed cash payment obligations but also create sufficient buffer. The company is on the growth path and a new breed of consumers in eager to buy the Ilatian marbie sold by Shah Marbie Ltd.
To meet the increasing demand, Mr Shah decided to expand his business by acquiring a mine, This required an investment of Rs.120 crores. To seek advice in this matter, he called his financial advisor Mr Seth who advised him about the judicious mix of equity(40%) and Debt (60%). Mr Seth also suggested him to take loan from a financial institution as the cost of raising funds from financial institution is low. Though this will increase the financial risk but will not dilute the control of equity sharesholders. At the same time, the interest on loan is a tax deductible expense for computation tax liabilty. After due deliberations with mr seth, Mr Shah decided to raise funds a financial institution.
(a) Identify and explain the concept of Financial Mangement as advised by Mr seth in the above situation.
(b) State the four factors affecting the concept as identified in part (a) above which have been discussed between Mr Shah and Mr Seth.

Explanation

(a) Capital structure
(b) (1) Cash flow postion
(2) Floatation cost
(3) Risk consideration
(4) Tax rate
(5) Control