Financial Management Assessment: Long Term Finance and Investment Appraisal Techniques

Financial
Management
Assessment

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Question 2. Long term finance: Equity finance:.........................................................................3
Question 3. Calculation as accordance of investment appraisal techniques:..............................7
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial management in every corporation is a critical task. In order to accomplish
strategic business goals, this is a method of preparing, coordinating, managing and tracking
financial resources. This is a preferred procedure for handling an organisation's financial
practices like acquisition of money, use of cash, financial reporting, payouts, risk management,
and anything else related to wealth generation. Financial management is the adaptation of
organizational management concepts to a company's financial resources. Careful management of
the finances of a corporation offers efficient operation controlling and management of numerous
business activities. If finances are not handled appropriately, a corporation may face obstacles
that could have a serious impact on its productivity and development (Akgün, and et.al., 2014).
This study covers different aspects of financial management with help of several
numerical tasks. Study also contains an effective evaluation of multiple benefits and key
limitations of multiple differing investment appraisal approaches/techniques.
TASK
Question 2. Long term finance: Equity finance:
Right issue:
Expected amount to be raise = £180000
The market price of current ex-dividend = £1.90
Recommended right issue price => £1.80, £1.60 and £1.40
Ordinary share @ 50 pence for each = £300000
Add: Reserves => £400000
Total => £700000
Hence PAT = 700000*20%
= 140000
a) Determining the following tasks requirements:
(i) Number of share needed to issue = Fund to be raised / right issue prices

Details Case1 Case 2 Case 3
Existed number of share 600000 600000 600000
Fund to be increased (a) 180000 180000 180000
Recommended right issue prices
(b)
£1.8 £1.6 £1.4
So, the number of shares required
to issue (c)= 1/2
100000 112500 128571.43
(ii) Theoretical ex-rights price assessment:
Details Case 1 Case2 Case 3
Recommended right-issue price £1.8 £1.6 £1.4
Fund to be raised £180000 £180000 £180000
Number of shares required to
issued
100000 112500 128571
Theoretical ex-rights price 1.89 1.85 1.81
(iii) Computation of expected earning per share (EPS) = (Shares before right issue X theoretical
ex- right price) / Current market price
So,
Recent market price => 1.9
Existing number of shares => 600000
Return on shareholder’s fund => 140000
Details Case 1 Case2 Case 3
Recommended right-issue price £1.8 £1.6 £1.4
Fund to be raised £180000 £180000 £180000
Number of shares required to
issued
100000 112500 128571
Theoretical ex-rights price 1.89 1.85 1.81
Expected earning per share
(EPS)
595488.72 585041.55 572136.22
(iv) The issue of right issue price:
Details Case 1 Case2 Case 3