Financial Management: Equity Finance, Investment Appraisal Techniques

Financial
Management

Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1...................................................................................................................................3
Long term finance: Equity finance:.............................................................................................3
Advantage for the companies shareholders choice between the cash dividend, an equivalent
script dividend:.............................................................................................................................5
QUESTION 2...................................................................................................................................6
a) Calculation for the investment appraisal techniques, brief recommendations as to the
economic feasibility of acquiring the machines:.........................................................................6
Evaluate the benefits and limitations for the different investment appraisal techniques:..........10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial management is the process for planning, organising, managing, controlling,
budgeting financial resources in order to achieve organisations objectives. It defines as the
functions of organisation which are related to the profitability, expenses, cash credit etc. It refers
to the strategic planning, organising, directing financial activities for the organisations. Managers
prepares financial reports for the external parties which includes customers, shareholders etc.
financial management is all about planning, allocating, managing resources for the
organisations. Financial management is about acquiring, managing funds for the completing
financial needs for the organisation so that it can runs its activities (Shapiro and Hanouna, 2019).
It helps for financial decision making for the managers for taking efficient decisions. It means
applying general management rules for the financial resources of the organisations. Managers
making financial reports for the financial decision making they provides these information to
higher management so that they takes decisions regarding financial resources. This report is
based for financial resources, their techniques for managers decision making. This report covers
topics which includes equity finance, investment appraisal techniques etc.
QUESTION 1
Long term finance: Equity finance:
Equity finance: Equity finance is the process for raising funds by issuing shares for the
shareholders, financial institutions, investors. The persons who buy shares are known as
shareholders, they receives dividends for their funds. It is about sales for the shares in order to
raising funds for the companies. Equity finance takes place for when the owner of the company
sales their shares (Schill, 2017). The company gives dividends for shareholders as the interest for
their funds. Firms raising funds by issuing shares to the shareholders. This gives higher benefits
to the company for achieving money as it wants to expand its business. It helps firms for
acquiring funds which helps them for completing tasks which will gives higher profitability for
the company.
Number of shares to be issued:
Number of
shares
180000 /
0.25 720000

Theoretical ex-rights price:
It is the process for “theoretical” value of single share for the company after the rights
issue. Theoretical ex price is a situation in which share and rights are attached to the share is
separated.
Theoretical EX rights price
Step 1 calculate market value of ABC to
the right issue
market value before right issue 300000
Step 2 calculate cash proceeds raised
from the right issue
cash raised from right issue 180000
Step 3 calculate number of shares after
the rights issue
number of shares 120000
Step 4 calculate theory ex right share
300000+180000/120000
= 4
Expected earnings per share:
Earning per share
140000 / 1200000 0.12
Earning per shares shows for this company is 0.12.
Form of the issue for each rights issue price: