Financial Management in CA Intermediate
Paper 8B — Financial Management (part of Paper 8 with Business Economics) — is a purely analytical paper. If you can solve the structured question formats and remember key formulas, FM is highly scoring. The paper rewards methodology over memory.
Topic Coverage
- Capital Budgeting (20–25 marks typically): NPV, IRR, ARR, Payback Period, Profitability Index, MIRR
- Working Capital Management (15–20 marks): Operating cycle, cash conversion cycle, debtors/creditors management, cash budgeting
- Capital Structure (15 marks): EBIT-EPS analysis, financial leverage, Modigliani-Miller propositions
- Cost of Capital (10–15 marks): Ke, Kd, Kp — individual components, WACC calculation
- Dividend Policy (10 marks): Gordon's growth model, Walter's model, MM hypothesis on dividend irrelevance
- Financing Decisions: Rights issue, bonus shares, buyback — financial impact analysis
Capital Budgeting Question Format
Step 1: Calculate annual cash inflows (after tax: EBIT × (1−t) + Depreciation). Step 2: Calculate NPV = Σ[CF × PV Factor] − Initial Investment. Step 3: Accept if NPV > 0. Always include terminal cash flow (salvage value × (1−tax)) in the final year.
WACC Calculation Format
WACC = (We × Ke) + (Wd × Kd × (1−t)) + (Wp × Kp). Where We, Wd, Wp = weights by market value. Kd = YTM after tax. Ke = D1/P₀ + g (Gordon) or Rf + β(Rm−Rf) (CAPM).
💡 E-mentor Study Planner for CA Inter FM: Cover one major topic per week for 6 weeks — Capital Budgeting, Working Capital, Capital Structure, Cost of Capital, Dividend Policy, Financing Decisions. Each week, solve 5 numericals from that topic. The planner tracks your weekly topic completion and gives you visibility into whether you are on track for the exam.
Common Mistakes in FM Exams
- Forgetting tax adjustment in after-tax cost of debt — Kd = Interest Rate × (1 − Tax Rate)
- Using book value instead of market value for WACC weights
- Omitting terminal cash flow in NPV calculations
- Not showing working notes — step marks are generous in FM if working is visible