INTRODUCTIONIn each and every company financial management is necessary as well as essential as ithelps the investors in making the correct and appropriate decisions. Supervision of finance helpsin flow of money in the effective and efficient manner so that employees of the business entitycan accomplish the goals and objectives. It is the function which is specified in the firm and it isdirectly associated with the top management of the enterprise. In the company, finance managerhaving the different functions which includes the estimating the amount which requires thecapital. Along with this they have to determine the capital structure and also have to manage thefunds by using the appropriate resources. Financial manager of the business entity have toprovide the proper control so that they can evaluate or analyse the financial performance. Forputting control on the activities they can use Return on Investment method (MSc Business withFinancial Management, 2017). In Question 1, the calculation needs to be done on the basis offinancial statement of Trojan PLC. In question 2, computation needs to be done by using thedistinctive investment appraisal technique and the values to be taken of Love-well Limitedcompany along with the benefits and limitations. Question 2a)Price earning ratio- It is a common practice for the investors to use this ratio as it assist indetermining the company's stock price whether it is over or undervalued. If companies havinghigh earning price ratio then it having typically growth shares (Petty and et. al., 2015). Priceearning ratio is also known as earnings multiple and it is one of the most popular valuationmeasures which is used by the investors to do analysis. It is calculated by using the formula thatis market price per share which is divided by earning per share. Ke = Rf + beta(Rm – Rf)= 5 + 1.1( 11-5)
= 5+6.6 = 11.6MPS = 1/11.6*100 = 8.62b)Dividend valuation method- It is a method which helps in providing a value for the stockof company and it is based on the theory that means it provides worth of stock which is sum ofall its future payment of dividends and it is discounted back to their present value. Along withthis it is used to the value of shares which is based on the present value of the future dividends. Ithelps the investors in making the correct decision so that they can attain the success in thecompetitive market (Finkler and et. al., 2016). It also helps in maintaining the relationshipbetween dividends along with the security values. P0 = Dividend + growth /Ke – growth= 13+2% / 11.6+ 2% = 138.125pvalue of Trojan PLC = 138.125 * 147/100= 203.04c)Discounted cash flow method-It is a tool or technique which helps in doing the analysisof finding the value of the project, company along with the asset by using the concept of timevalue of money (Brown, 2016). All the cash flows which are estimated for the future and theyare discounted by using or adopting the rate of cost of capital they can give their present valueswhich will help the business entity in attaining the success. ParticularsYear 1Year 2Year 3Year4Year 5Profit beforeinterest and tax6467.270.5674.08877.792Interest6.56.636.766.897.02Profit beforetax57.560.5763.867.19870.772Taxation17.112.11412.7613.439614.1544Net profit orFCF40.448.45651.0453.758456.6176Growth rate5.00%5.00%5.00%5.00%
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