Financial Management Report (Doc)

Financial management

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 2 LONG TERM FINANCE; EQUITY FINANCE.....................................................1
2.1 Determining the:...................................................................................................................1
2.1.1 Number of shares need to be issued ..................................................................................1
2.1.2 Computation of theoretical ex-right price .........................................................................1
2.1.3 Expected earnings per share ..............................................................................................2
2.1.4 Presenting the form of the issue for each rights issue price...............................................2
2.1.5 Presenting results in a tabular form and critically evaluating the best option among the
three right issues..........................................................................................................................3
2.2 Scrip dividends with its critical views..................................................................................3
Question 3 Investment appraisal techniques...............................................................................5
3.1 Calculating different investment appraisal techniques with recommendations....................5
3.2 Merits and demerits of investment appraisal techniques (Payback period, Accounting rate
of return, Internal rate of return and Net present value).............................................................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial management gives an effective and efficient management of fund which will be
attaining the organization's objective as it is directly specialised function along with top
management. It is integrated with proper decision making process. Future planning of a person or
business ensure a cash flow which is positive which also includes maintenance and
administration of financial assets. It also gives ways and its alternative that how business can
finance it from shareholders fund with the combination of equity share capital, preference share
capital and profits which are accumulated. All the financial decision which consists of
acquisition of finance which is required from perspective of long term investments. In this report
there is a brief discussion about dividend decisions i.e. particular profit which has been earned
and there alternatives for retaining profit and how to distribute the margins from shareholders.
The present report gives an understanding about how to identify the shares which are to issued
with there theoretical ex rights price, earnings per share which has been expected, forms of issue
for every rights issue price and that results with interpretation in tabular form. And significance
of scrip dividend has been elaborated. Different investment appraisal techniques like Net present
value, Internal rate of return, accounting rate of return and payback period with the merits and
demerits has been explained.
QUESTION 2 LONG TERM FINANCE; EQUITY FINANCE
2.1 Determining the:
2.1.1 Number of shares need to be issued
Company wants to raise : 180000
Total shares issued by company: 300000
rate of per share: 50
Number of shares needed to be issued is = 180000/50 i.e. 3600
2.1.2 Computation of theoretical ex-right price
Theoretical Ex-Rights Price:
= Market Value of shares prior to rights issue + Cash raised from rights issue
Number of shares after rights issue
When price of right issue is £1.80
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Particulars Figures
Current number of shares 60000
Number of additional shares issued 10000
Current market price per share 1.90
Rights issue price 1.80
Theoretical ex-rights price 1.89
When price of right issue is £1.60
Particulars Figures
Current number of shares 60000
Number of additional shares issued 10000
Current market price per share 1.90
Rights issue price 1.60
Theoretical ex-rights price 1.86
When price of right issue is £1.40
Particulars Figures
Current number of shares 60000
Number of additional shares issued 10000
Current market price per share 1.90
Rights issue price 1.40
Theoretical ex-rights price 1.83
2.1.3 Expected earnings per share
EPS (earnings per share): Net income – preferred dividend / average number of shares
outstanding
Earning per share: (300000-180000) / 700000
0.17
2.1.4 Presenting the form of the issue for each rights issue price
 When price of right issue is 1.80 then the current price is 600000 and expected price has
been calculated as 700000 by getting the amount (180000/1.8) that is 100000. On this
perspective our 20% profit is evaluated as 140000 (Dasgupta, Prat and Verardo, 2011).
 When price of right issue is 1.60 then the current price is 600000 and expected price has
been calculated as 712500 by getting the amount (180000/1.6) that is 112500. On this
perspective our 20% profit is evaluated as 142500.
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