Finance Management: Share Price, Dividend, Proposal Analysis

This document covers topics related to finance management such as share price of bonds, dividend, proposal analysis of Bright Lighting Limited, payback period, net present value, present value index, discounted payback period, internal rate of return, worst case scenario and best case scenario.

Running Head: FINANCE MANAGEMENT 1
FINANCE MANAGEMENT

Running Head: FINANCE MANAGEMENT
Table of Contents
Question 4..................................................................................................................................3
Question 5..................................................................................................................................3
Question 6..................................................................................................................................3
References..................................................................................................................................9

Running Head: FINANCE MANAGEMENT
Question 4
9/1/2019
Share price of Bond
Bond 1 $ 16.13745
Share price of Bond
Bond 2 $ 21.91781
Relative price movements 36%
The relative price movement as can be seen from the table is 36%.
Question 5
Particulars Workings
Dividend 1.44
Rate of return 12%
Growth Rate 5%
(D/(R-G))
Share Price of Sapphire Limited $20.57
The share price would be $20.57 in case of the dividends paid in such a manner for the
Sapphire Limited (Mugoša and Popović, 2015).
Question 6
In this section the proposal is analysed in case of the Bright Lighting Limited which is
considering a new range of the products based on the specific type of the intelligent stage.
Payback period 6.35
Net Present value $306058
Present value index 0.14
Discounted payback period 8.02
Internal Rate of return 16%

Running Head: FINANCE MANAGEMENT
In the regular scenario the net present value of the project tends to be $306058. The net
present value basically indicates the inflows of the cash as well as the outflows of the cash
and their difference in terms of the present value of the cash flows. If the net present value of
the project is positive than it indicates the project shall be accepted, on the other hand the
situation is reversed. In this case the net present value of the proposal is positive hence, the
project shall be accepted (Magni and Marchioni, 2018).
Second measurement that has been undertaken by the company to find out the validity of the
project is the payback period. The payback period is the period which means in how many
years the company will be able to recover the costs incurred. Generally the life of the
equipment is 8 years and in this case the payback period is 6.35 years. Hence, the project
shall be accepted (Rossi, 2015).
The present value index defines the ratio of the present value of the cash flows to initial
investment. If the present value index is more than 1 it tends to be a positive sign and vice
versa. In this case the PVI is 0.14 only. Therefore the project shall be rejected on the basis of
present value index (Magni and Marchioni, 2018).
The discounted payback period of the proposal is even more than its usual years that are 8
years and the company is not able to breakeven from the initial expenditure, by discounting
the future cash flows. Hence the proposal shall be rejected (Magni and Marchioni, 2018).
The internal rate of return is a rate at which the net present value of the cash flows is equal
to zero. In present case the IRR of the project tends to be more than the cost of the capital
which is 12.5% p.a. Hence, on the basis of IRR the project can be accepted (Rossi, 2015).
Further the company also analysed the proposal on the basis of the worst case scenario and
the best case scenario. Under the worst case scenario, the company revenue increased by only

Running Head: FINANCE MANAGEMENT
6% whereas the costs increased by 10% and hence, the effect is such the net present value
tends to be negative at -$1147302, whereas the net present value in case of the best case
scenario is $1042868. This implies that the company shall not reduce the revenues more than
10% and the costs shall increase at the lower pace than only the project will reap benefits in
future. Further, the profit tends to be negative in worst case scenario and it indicates beyond
this the company would suffer losses only. Hence the project shall be accepted in case of the
best case scenario only.
Regular Scenario
Particulars
Amo
unt
Market Research
6000
0
initial outlay
2125
000
Particulars 0 1 2 3 4 5 6 7 8
Sales
1565
000
1713
675
1876
474
2054
739
2249
939
2463
684
2697
734
2954
018
Additional Cost
8500
00
8967
50
9460
71
9981
05
1053
001
1110
916
1172
016
1236
477
Additional labor
costs
3500
00
3692
50
3895
59
4109
84
4335
89
4574
36
4825
95
5091
38
Miscellaneous
5200
0
5486
0
5787
7
6106
1
6441
9
6796
2
7170
0
7564
3
Less opportunity
cost
1000
00
Less Depreciation
2656
25
2656
25
2656
25
2656
25
2656
25
2656
25
2656
25
2656
25
EBIT
4737
5
1271
90
2173
42
3189
64
4333
06
5617
45
7057
97
7671
35
Tax Rate @ 30%
1421
3
3815
7
6520
3
9568
9
1299
92
1685
23
2117
39
2301
40
EBT
3316
3
8903
3
1521
39
2232
75
3033
14
3932
21
4940
58
5369
94
Incremental cash
flows
-
2125
000
2987
88
3546
58
4177
64
4889
00
5689
39
6588
46
7596
83
8026
19
Discounting 1.000 0.888 0.790 0.702 0.624 0.554 0.493 0.438 0.389

Running Head: FINANCE MANAGEMENT
factor 0 9 1 3 3 9 3 5 7
cumulative cash
flows
-
2125
000
-
1826
213
-
1471
555
-
1053
790
-
5648
90 4049
6628
95
1422
578
2225
198
Present value of
cash flows
-
2125
000
2655
89
2802
24
2934
09
3052
18
3157
21
3249
89
3330
92
3128
16
cumulative cash
flows
-
2125
000
-
1859
411
-
1579
188
-
1285
778
-
9805
61
-
6648
40
-
3398
51 -6758
3060
58
Payback period 6.35
Net Present
value
3060
58
Present value
index 0.14
Discounted
payback period 8.02
Internal Rate of
return 16%
Worst case
scenario
Particulars 0 1 2 3 4 5 6 7 8
Sales
1565
000
1658
900
1758
434
1863
940
1975
776
2094
323
2219
982
2353
181
Additional Cost
8500
00
9350
00
1028
500
1131
350
1244
485
1368
934
1505
827
1656
410
Additional labor
costs
3500
00
3850
00
4235
00
4658
50
5124
35
5636
78.5
6200
46.4
6820
51
Miscellaneous
5200
0
5720
0
6292
0
6921
2
7613
3.2
8374
6.52
9212
1.17
1013
33.3
Less opportunity
cost
1000
00
Less Depreciation
2656
25
2656
25
2656
25
2656
25
2656
25
2656
25
2656
25
2656
25
EBIT
4737
5
1607
5
-
2211
1
-
6809
7
-
1229
02
-
1876
60
-
2636
37
-
4522
37
Tax Rate @ 30%
1421
3 4823 -6633
-
2042
9
-
3687
1
-
5629
8
-
7909
1
-
1356
71
EBT 3316
3
1125
3
-
1547
-
4766
-
8603
-
1313
-
1845
-
3165

Running Head: FINANCE MANAGEMENT
8 8 1 62 46 66
Incremental cash
flows
-
2125
000
2987
88
2768
78
2501
47
2179
57
1795
94
1342
63
8107
9
-
5094
1
Discounting
factor
1.000
0
0.888
9
0.790
1
0.702
3
0.624
3
0.554
9
0.493
3
0.438
5
0.389
7
cumulative cash
flows
-
2125
000
-
1826
213
-
1549
335
-
1299
188
-
1081
231
-
9016
37
-
7673
74
-
6862
95
-
7372
36
Present value of
cash flows
-
2125
000
2655
89
2187
67
1756
86
1360
70
9966
2
6622
8
3555
0
-
1985
4
cumulative cash
flows
-
2125
000
-
1859
411
-
1640
644
-
1464
957
-
1328
888
-
1229
226
-
1162
998
-
1127
448
-
1147
302
Net Present
value
-
1147
302
Best case
scenario
Particulars 0 1 2 3 4 5 6 7 8
Sales
1565
000
1799
750
1970
726
2157
945
2362
950
2587
430
2833
236
3102
394
Additional Cost
8500
00
8712
50
8930
31.3
9153
57
9382
41
9616
97
9857
39.4
1010
383
Additional labor
costs
3500
00
3587
50
3677
18.8
3769
11.7
3863
34.5
3959
92.9
4058
92.7
4160
40
Miscellaneous
5200
0
5330
0
5463
2.5
5599
8.31
5739
8.27
5883
3.23
6030
4.06
6181
1.66
Less opportunity
cost
1000
00
Less Depreciation
2656
25
2656
25
2656
25
2656
25
2656
25
2656
25
2656
25
2656
25
EBIT
4737
5
2508
25
3897
19
5440
53
7153
51
9052
82
1115
675
1248
534
Tax Rate @ 30%
1421
3
7524
8
1169
16
1632
16
2146
05
2715
85
3347
03
3745
60
EBT
3316
3
1755
78
2728
03
3808
37
5007
46
6336
98
7809
73
8739
74
Incremental cash
flows
-
2125
2987
88
4412
03
5384
28
6464
62
7663
71
8993
23
1046
598
1139
599

Running Head: FINANCE MANAGEMENT
000
Discounting
factor
1.000
0
0.888
9
0.790
1
0.702
3
0.624
3
0.554
9
0.493
3
0.438
5
0.389
7
cumulative cash
flows
-
2125
000
-
1826
213
-
1385
010
-
8465
82
-
2001
20
5662
51
1465
574
2512
171
3651
770
Present value of
cash flows
-
2125
000
2655
89
3486
04
3781
55
4035
83
4252
81
4436
09
4588
94
4441
52
cumulative cash
flows
-
2125
000
-
1859
411
-
1510
807
-
1132
651
-
7290
68
-
3037
87
1398
22
5987
16
1042
868
Net Present
value
1042
868

Running Head: FINANCE MANAGEMENT
References
Magni, C.A. and Marchioni, A., 2018. Project appraisal and the Intrinsic Rate of
Return. Available at SSRN 3253956.
Mugoša, A. and Popović, S., 2015. Towards and Effective Financial Management: Relevance
of Dividend Discount Model in Stock Price Valuation. Economic analysis, 48(1-2), pp.39-53.
Rossi, M., 2015. The use of capital budgeting techniques: an outlook from Italy. International
Journal of Management Practice, 8(1), pp.43-56.