Financial Management: Merger, Investment Appraisal Methods

Financial Management

Contents
INTRODUCTION...........................................................................................................................3
Question...........................................................................................................................................3
Question 2: Merger and takeovers..........................................................................................3
Question 3 Investment appraisal methods..............................................................................7
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Financial management is being characterized as a form of sector in a organization that has
to do with proper sales control, expenses, profit, working capital and several other
financial aspects. With the aid of this strategy, it is simpler for organization administrators to
assign the necessary financial capital efficiently (Chandra, 2020). The key purpose of the project
study is to acquire knowledge about different types of financial terms such as distributions,
techniques of investment assessment, etc. The process of determining, reporting, analysing and
decision making regarding the financial aspect of business is known as financial management
which support to make decision for increasing company productivity.
There have been 2 questions in relation to the project summary, which are relevant to the
principles of merger & acquisition and technique of investment assessment. The study covers
details about the theoretical and functional consequences of the two principles listed.
Question
Question 2: Merger and takeovers.
This role includes mergers and acquisitions under which Aztec plc plans to buy Trojan plc.
Towards this reason, financial details from both entities are provided in order to determine
whether or not Aztec plc will buy anything. A variety of techniques is used in combination with
their analyses, which are done in a really way as to make appropriate decisions:
(a) Price earnings ratio: Share price / Earnings per share
Given information:
Share price £2.05
Number of share outstanding 147 Million
Net income £40.4 Million
Calculation of EPS:
Earnings per share: Net income / Number of share outstanding
Earnings per share £40.4 Million / 147 Million
Earnings per share £0.27
Price earnings ratio:
Particulars Value

Share price £2.05
Earnings per share £0.27
Price earnings ratio £2.05 / £0.27 = 7.59
Interpretation: It can be ascertained according to the above average worth that the
stock operating margin is 7.59, which means that Trojan plc derives an efficient income from its
shares. As a quality of their interest is £2.05, about which increasing interest gains are £0.27.
(b) Dividend valuation model:
This is calculated by applying below mentioned formula:
D1 / (1 + k) + D2 / (1 + k) 2 + D3 / (1 + k) 3 + D4 / (1 + k) 4.............
Herein,
D1: Value of dividend for year one
D2: Value of dividend for year two
D3: Value of dividend for year three
D4: Value of dividend for year four
K: Expected rate of return
Given data:
D1 (Value of dividend for year one) 10p
D2 (Value of dividend for year two) 10.5p
D3 (Value of dividend for year three) 11p
D4 (Value of dividend for year four) 12p
K (Expected rate of return) 11%
Entering values in formula:
= 10p (1 + 11%) + 10.5p (1 + 11%)2 + 11p (1 + 11%)3 + 12p (1 + 11%)4
= 10 p (0.11) + 10.5p (0.11)2 + 11p (0.11)3 + 12p (0.11)4
= 11.1 + 10.5 (0.0121) + 11 (0.001331) + 12 (0.000146)
= 11.1 + 0.127 + 0.014 + 0.00175
= £11.24
Interpretation: In compliance with the dividend valuation formula, it can be ascertained that
Trojan plc's equity worth is £11.24. This equity worth was evaluated by analysing the dividend
of the last 4 years earned by Trojan plc.
(c) Discounted cash flow method: