Financial Management: Equity Finance and Investment Appraisal Techniques

Financial
Management

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
a) Calculation of equity finance for Lexbel Plc: .........................................................................1
b) Critical discussion on benefits of scrip dividends from company's view point and
shareholder's point of view:.........................................................................................................3
TASK 2............................................................................................................................................4
a) Calculation of investment appraisal techniques and providing brief recommendations for
economic feasibility for acquiring machine:................................................................................4
b) Critical evaluation of benefits as well as limitations of each technique of investment
appraisal:......................................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial management can be explained as an function that is incorporated in an
organization that is concerned with analysis of financial data for the purpose of evaluating
profitability, expenditures, cash flow as well as credit. It is generally related to working capital
management as it focuses on current assets and liabilities. Motive of incorporating working
capital management is maximization of profit, proper maintenance of cash flow, estimation of
fund requirement and determination of capital structure. This report is based of evaluation of
financial management techniques (Ross and Mughan, 2018). It covers equity analysis of equity
finance of an organization by determining its number of shares, theoretical ex-rights price,
earning per share, and issue price. Further, advantages of crip dividend is critically discussed.
Apart from this, investment appraisal techniques are utilised by application of techniques such as
payback period, accounting rate of return, net present value, and internal rate of return.
TASK 1
a) Calculation of equity finance for Lexbel Plc:
Equity finance: It indicates method of raising capital by the method of selling shares of
an organization to institutional investors, financial institutions as well as public (Susan and
Djajadikerta, 2017). Individuals that purchase share of a company is termed as shareholders of
business as they receive ownership in an organization. Equity financing is opted by an enterprise
for the purpose of meeting its liquidity requirements and hence, it incorporates selling of
company's stock in exchange of cash.
i. Number of shares that is to be issued
Number of shares refers is a financial metric that indicates how many stocks or shares of an
organization is currently owned or acquired by investors. Following is the calculation of number
of shares for company:
Particular Formula Result
Number of shares = 180000 / 0.25 720000
ii. Theoretical ex-rights price
1

Theoretical ex price refers to a market price of a stock which theoretically pertains new right
issue. It can be described as a situation in which stocks and right attached to it is separated.
Following is the computation of theoretical ex price of business:
Particulars Amount
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 4
( 300000 + 180000/ 120000 = 4 )
iii. Expected Earnings Per Share
Earning per share can be defined as essential financial measure which pinpoints profitability of
an organization. Higher earning per share indicates better profitability. Hence, following is the
calculation of earning per share:
Particulars Amount
2