(a) LIST the emerging issues (any four) affecting the future role of CFO. (b) EXPLAIN any four Methods for Computation of Cost of Equity Capital.…

(a) Emerging Issues/Priorities Affecting the Future Role of Chief Financial Officer (CFO) (i) Regulation: Regulation requirements are increasing and CFOs have an increasingly personal stake in regulatory adherence. (ii) Globalisation: The challenges of globalisation are creating a need for finance leaders to develop a finance function that works effectively on the global stage and that embraces diversity. (iii) Technology: Technology is evolving very quickly, providing the potential for CFOs to reconfigure finance processes and drive business insight through 'big data' and analytics. (iv) Risk: The nature of the risks that organisations face are changing, requiring more effective risk management approaches and increasingly CFOs have a role to play in ensuring an appropriate corporate ethos. (v) Transformation: There will be more pressure on CFOs to transform their finance functions to drive a better service to the business at zero cost impact. (vi) Stakeholder Management: Stakeholder management and relationships will become important as increasingly CFOs become the face of the corporate brand. (vii) Strategy: There will be a greater role to play in strategy validation and execution, because the environment is more complex and quick changing, calling on the analytical skills CFOs can bring. (viii) Reporting: Reporting requirements will broaden and continue to be burdensome for CFOs. (ix) Talent and Capability: A brighter spotlight will shine on talent, capability and behaviours in the top finance role. (b) Cost of equity capital is the rate of return which equates the present value of expected dividends with the market share price. Methods for Computation of Cost of Equity Capital Dividend Price Approach (: Here, cost of equity capital is computed by dividing the expected dividend by market price per share. Ke = D1/PoEarning/ Price Approach: The advocates of this approach co-relate the earnings of the company with the market price of its share. Ke = E/PRealized Yield Approach: According to this approach, the average rate of return realized in the past few years is historically regarded as 'expected return' in the future. The yield of equity for the year is: Y = D + (P1-P0)/P0Capital Asset Pricing Model Approach (CAPM): CAPM model describes the risk-return trade-off for securities. It describes the linear relationship between risk and return for securities. Ke = Rf + B (Rm - Rf) (c) In the most of the situations the Net Present Value Method (NPV) and Profitability Index (PI) yield same accept or reject decision. In general items, under PI method a project is acceptable if profitability index value is greater than 1 and rejected if it less than 1. Under NPV method a project is acceptable if Net present value of a project is positive and rejected if it is negative. Clearly a project offering a profitability index greater than 1 must also offer a net present value which is positive. But a conflict may arise between two methods if a choice between mutually exclusive projects has to be made. Consider the following example: Project A Project B PV of Cash inflows 3,00,000 1,60,000 Initial cash outflows 1,00,000 40,000 Net present value 2,00,000 1,20,000 P.I 3,00,000 / 1,00,000 = 3 1,60,000 / 40,000 = 4 According to NPV method, project A would be preferred, whereas according to profitability index method project B would be preferred. This is because Net present value gives ranking on the basis of absolute value of rupees, whereas, profitability index gives ranking on the basis of ratio. Although PI method is based on NPV, it is a better evaluation technique than NPV in a situation of capital rationing.