Financial Management : Sample Assignment

Running Head: FINANCIAL MANAGEMENT
0
Financial Management

FINANCIAL MANAGEMENT 1
Contents
Part 1..........................................................................................................................................3
Part 2..........................................................................................................................................6
Capital structure ratios............................................................................................................6
Working Capital Management Policies..................................................................................6
Policies of Investments...........................................................................................................6
Debt to Equity Ratio...................................................................................................................8
Profitability ratios.....................................................................................................................12
Part 3........................................................................................................................................15
Distribution Policy................................................................................................................15
Trends Dividend Share.........................................................................................................17
Dividend equation tax system in Australia...........................................................................18
Franked dividends................................................................................................................18
Un-franked dividends...........................................................................................................18
Part 4........................................................................................................................................20
Dividend Reinvestment Plan................................................................................................20
References................................................................................................................................22

FINANCIAL MANAGEMENT 2
Part 1
WACC PARTICULARS AMOUNT IN $
E MARKET VALUE OF
THE COMPANY'S
EQUITY 3113.798
D MARKET VALUE OF
COMPANY'S DEBT 5572.90
E+D
TOTAL MARKET
VALUE OF THE
COMPANY 8686.70
Re COST OF EQUITY 11.3%
Rd COST OF DEBT 1.3%
T TAX RATE 30.00%
E/
(E+D)*COST
OF EQUITY
D/
(E+D)*COST
OF DEBT
(1-TAX
RATE)
WACC
0.040 0.008 70.00% 4.61%

FINANCIAL MANAGEMENT 3
CALCULATI
ON OF
MARKET
VALUE OF
DEBT
LATEST
TWO YEAR
AVERAGE
AMOUN
T IN $
TOTAL
CURRENT
PORTION OF
LONG TERM 70.8
LONG TERM
DEBT AND
CAPITAL
ELASE
OBLIGATIO
N 5572.9 5643.70
CALCULATION OF
COST OF EQUITY
RISK FREE
RETURN
BETA
OF THE
EXPECTE
D
MARKET
EXPECTE
D
AMRKET
COST
OF
EQUIT

FINANCIAL MANAGEMENT 4
ASSET RETURN RETURN
-RISK
FREE
RETUN
Y
2.70% 0.98 8.74% 6.0% 11.3%
CALCULAITON OF COST OF
DEBT
INTEREST
EXPENSE
LATEST
TWO
YEAR
AVERAG
E DEBT
COST OF
DEBT
70.80 5572.9 1.3%
WEIGHTS E/(E+D) D/(E+D)
WEIGHT OF
EQUITY 0.36

FINANCIAL MANAGEMENT 5
WEIGHT OF
DEBT 0.64
Part 2
Capital structure ratios
An optimal capital structure is a financial measurement which is used by the firm to
determine the best available combination of debt and equity to use for the operations and
expansions. This structure is helpful in reducing the cost of capital so the company is not
dependent on the creditor and is able to generate finances through equity (Graham, Leary and
Roberts, 2015). The calculation of cost of equity and cost of debt is required to calculate the
WACC. Companies can raise capital with either debt or equity. Each strategy has its own
benefits and limitations. The debt is usually cheap in comparison to the cost of equity.
Working Capital Management Policies
Working capital is a financial measure which determines the availability of the operating
liquid assets for the business, organisation or any entity. The working capital is considered as
a part of the operating capital. The formula of calculating the working capital is the current
assets minus current liabilities (Gitman, Juchau and Flanagan, 2015). The relationship
between the working capital and the profitability and the liquidity is core and critical (Hope,
Thomas and Vyas, 2017). Various measures have been adopted by the managers of the
companies to make sure that proper cash is available or relevant marketable securities are
there to meet the meet the obligations of the payments when they are about to be paid. If the
working capital ratio of the company is higher it will eventually reflect the flexibility of the
finances. The liquidity is relatively higher and the risk is lower.