Financial Management: Equity Finance and Investment Appraisal Techniques

APC308 FINANCIAL
MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 2 Long term finance: Equity Finaance700...................................................................3
Question 3 Investment Appraisal Technique...............................................................................6
c. Evaluating benefits and the limitation of investment appraisal methods ................................9
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Financial management involves regulating the financial actives that take place in a
company and monitors the procurement as well as utilization of the funds belonging to the
company. In the current report, an analysis will be made on the financial position of the Lexbel
Company where the right issue option will be evaluated and the concept of scrip dividend will
also be discussed (Shapiro and Hanouna, 2019). This report will then identify the viability of the
different investment appraisal techniques for Lovewell Plc and further, in this report, the benefits
and drawbacks of each of the investment appraisal technique that can be used in the evaluation of
the investment in Lovewell Plc will be discussed and analysed in the report. Lastly, an
appropriate conclusion summarizing all the key facts that will be discussed in the report and their
findings will be presented at the end of the report.
MAIN BODY
Question 2 Long term finance: Equity Finaance700
(b) Determination of the different requirements of the Lexbel Plc:
Right issue shares are those shares that are offered to the shareholders of the company, and the
amount of such shares is lower than the market price thus rendering the option beneficial for both
shareholders and the company (Feito-Ruiz, Renneboog and Vansteenkiste, 2018). Ex-Right
value is used to denote the theoretical price of the single share of the company immediately after
they have undergone a rights issue.
Current market price
Right issue price £1.90 £1.80 £1.60 £1.40
Funds to be issued £180,000 £180,000 £180,000 £180,000New shares to be
issued
(Funds to be
issued/Right issue
price)
94,737 100,000 112,500 128,571
Book value of
ordinary shares of
£0.50 £300,000

Numbers of shares
(Ordinary
shares/price)
600,000
Current market value
of the shares
(Number of
shares*Current
market price) £1,140,000
Funds raised through
right issus £180,000
Final value market
(Current market +
Funds to be issued)
£1,320,000
Total new shares after
right issue (
New shares
issued+Number of
shares) 694,737 700,000 712,500 728,571
Reserves shares £400,000
Total value of the
company
(Book value of
shares+rezerved) £700,000
Profit after tax (PAT)
(Value of the
company*20%) £140,000
Earning from new
funds (20%)
(Funds to be
issue*20%) £36,000
Total earnings after
right issue £176,000
Theoretical ex-right
price (TERP)
(Final value
market/Total new
shares after right
issue)
1.90
1.89
1.85
1.81
New earning per
shares
(Total earning after
0.25(25p
)
0.25(25p) 0.25(25p) 0.24(24p)