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Financial Management and Accounting

   

Added on  2019-12-03

13 Pages3347 Words161 Views
Financial Managementand Accounting

Table of ContentsIntroduction................................................................................................................................1FINANCIAL MANAGEMENT................................................................................................1Raise funds through equity financing....................................................................................1Business expansion................................................................................................................2Calculation of WACC, NPV and IRR...................................................................................2Management accounting.............................................................................................................5Preparation of income statement...........................................................................................5Calculation of selling price....................................................................................................7CONCLUSION..........................................................................................................................8REFERENCES...........................................................................................................................9

INTRODUCTIONFinancial management plays a vital role in the organization success. It is concernedwith efficient and effective management of the funds that helps to achieve business targets ina great manner. It helps businesses to take effective financial decisions for the long termsustainability of the organizations. Further, management accounting is also important as ithelps mangers in taking financial as well as non financial decisions effectively. In addition toit, the present report describes different types of investment appraisal techniques in order totake better investment decisions.FINANCIAL MANAGEMENTRaise funds through equity financingIssue equity shares:All the entrepreneurs can raise funds through selling equity sharesin the market. Equity shareholders are considered as the owner of the company (Jenkinsonand Ljungqvist, 2001). The cost of getting funds in this way includes that equity shareholdershave controlling rights. Further, company is required to pay dividend to them. Initial public offering (IPO): In case of newly shares, company requires to issueinitial public offering. It is an offer to the public for the sale of shares and mostly usedby companies to raise expansion (Schmid, 2001). Offering rights:Further, for acquiring additional capital, company can offer rights totheir investors (Carpenter and Petersen, 2002). It includes warrants and sweat equityshares to the shareholders. Personal capital: Another way of increasing the business equity funds is thatentrepreneurs can invest their personal savings and mutual funds in their business (Zezhongand Hong, 2008). They can use their own funds for the business venture with the objectivesof bringing higher return on the investment. Venture capital: A business organization that has good track record may provideventure capital to the investors for acquiring funds. Before investing in the organization,investors identify the risk and return so as to predict future business trend (Puri and Zarutskie,2012). Thus, they provide capital to such organization that may yield greater returns. Preference share capital: Along with the equity shares, organization also can issuepreference shares. Preferences shareholders have two rights regarding the dividend andrepayment of their capital (Rasoolpur, 2015). On contrary, shareholders have not any votingrights hence; they cannot control the business operations. Company should issue these kinds

of shares if the mangers do not want to diversify the business control and have adequateamount of profit available for dividend payments. Business expansionAs per the given scenario, company has three options for rapid expansion over theupcoming five years. The advantages and drawbacks are explained here as under:1st option: Company can take loan of £10m from MidBarc Bank plc at initial annualinterest of 9%. The rate of interest is floating hence it may be possible that the ratesmay be up and down in the future period (Yao, 2015). In case of higher rate, companyhave to pay higher interest and vice versa. Therefore company cannot determine thefinancial obligations correctly. For instance, at 9% interest rate, business requires topay £0.9m interest if rate goes increase to 9.25% then interest will be increased to£0.925m. Therefore, it can increase or decrease the financial burden to the business.However, the advantage is that if interest rates get decreases then financial obligationsalso tend to decrease. 2nd Option: Company can issue Eurodollar bond worth $15m at 8% fixed interestrate. Therefore, the yearly interest amount will be $1.2m for five years. The advantageof this method is that company has fixed financial liability and can manage funds inorder to make timely payments. However, the disadvantage is that it creates fixedfinancial burden to the company (Chakraborty and Yilmaz, 2011). For instance, ifcompany is facing loss then it will be a reason for financial risk to the business resultsin reducing the company's financial position. 3rd Option: £10m convertible bond can be offered that will be redeemed at 6%. Inthis case, company is required to make payment of £10.6m at the end of five years.However, if company convert the bonds than it has to pay premium at 15% hencetotal payments will be worth £11.5m. The advantage is that if investors convert thebonds before maturity date than it can be converted at low and Zero coupon rate(King and Mauer, 2014). However, disadvantage is that company is required to makepayments at premium at the point of redemption and conversion. Calculation of WACC, NPV and IRRCash Flows: It is determined throough subtracting the cash expenditures to the totalcash revenues.

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