(Solved) Financial Management: PDF

RUNNING HEAD: Financial management 1 | P a g e
Name of the student
Topic- Financial management
University name-

Financial management 2 | P a g e
Table of Contents
Task-1...................................................................................................................... 3
Introduction............................................................................................................... 3
Task-2...................................................................................................................... 4
Evaluation technique of investment appraisal......................................................................4
Evaluation of the Tender-A..................................................................................... 4
Evaluation of the Tender-B...................................................................................... 6
Evaluation of the Tender-C...................................................................................... 7
Discussion of the Evaluation techniques of investment appraisal..............................................9
Task-3.................................................................................................................... 12
Discussion of the capital structure..................................................................................12
Task-4.................................................................................................................... 12
Discussion of the weighted average cost of capital of Plaggio Limited Company........................12
Task-5.................................................................................................................. 14
Discussion on the factors that could affect the cost of capital.............................14
Task-6.................................................................................................................. 15
A critical discussion of the different ways capital can be raised by an organisation
............................................................................................................................ 15
Raising funds in market.................................................................................... 15
Recommendatio........................................................................................................ 16
Conclusion.............................................................................................................. 17
References.............................................................................................................. 18

Financial management 3 | P a g e
Task-1
Introduction
This report emphasizes upon the financial analysis tools and investment .decisions of
company. There are several financial analysis tools such as ratio analysis, NPV and IRR to
evaluate the particular investment decisions. This report reflects the key understanding on the
capital costing and investment appraisal technique of organization. In this report, Plaggio
Limited Company has been taken into consideration. This report is prepared on the basis of
particular case study and investment decisions of Plaggio Limited Company. In the starting of
this report, investment decision to replace the production machinery of Plaggio Limited
Company has been taken into consideration. However, NPV and internal rate of return and
other appraisal methods have been taken into consideration to evaluate the project proposals.
In addition to this, pay-back period and accounting average rate of return of company. It is
evaluated that these financial analysis tools assist in identifying the best possible investment
option which company needs to take in its business. In the main body part, capital assets price
model has been used to evaluate the cost of equity and cost of debt of the company. It is
evaluated that management of company could use this CAPM method and capital budgeting
methods to evaluate which tender would bring more benefits to an organization. The main
objective of this assignment is to evaluate all the three projects and determine which project
would give more benefits to Plaggio Limited Company.

Financial management 4 | P a g e
Task-2
Evaluation technique of investment appraisal
There are several investment appraisal techniques which could be used to evaluate the
tenders such as NPV, IRR, Payback period, Average accounting period and profitability
index. However, these three tenders have been evaluated by using NPV, IRR, Payback
period, average accounting period and profitability index to determine which particular
project should be accepted by the management of a company.
Evaluation of the Tender-A
Computation of the payback period
Computation of the Payback period
Years
Amou
nt(RM
)
Present Value
Factors
Present Value
amount
Cumulative
frequency (RM)
0
-
310000 1 -310000
1 30000 0.892857143 26785.71429 26785.71429
2 50000 0.797193878 39859.69388 66645.40816
3 25000 0.711780248 17794.5062 84439.91436
4 20000 0.635518078 12710.36157 97150.27593
5 15000 0.567426856 8511.402836 105661.6788
Pay Back
period
There is no payback period. Company will have to wait for more years
to pay back its initial investment
The above computation of the payback period has reflected that company will have to
wait for more years to cover its initial investment (Bekaert and Hodrick, 2017.).
Computation of the average accounting return
Computation of the Average Accounting return
Years Amount Depreciation Real inflow After depreciation
0 310000
1 90000 60000 30000
2 110000 60000 50000
3 85000 60000 25000
4 80000 60000 20000
5 75000 60000 15000
Total cash inflow 140000
Computation of the Average Accounting
return 45%

Financial management 5 | P a g e

Financial management 6 | P a g e
The average accounting return of company is 45% which may be taken as good indicators for
the busienss (Brigham and Ehrhardt, 2013).
Computation of the Net present value and internal rate of return
Computation of the Net Present Value and IRR
Years Amount Present Value Factors Present Value amount
0 -310000 1.00 -310000
1 30000 0.89 26785.71429
2 50000 0.80 39859.69388
3 25000 0.71 17794.5062
4 20000 0.64 12710.36157
5 15000 0.57 8511.402836
Total cash Inflow 105661.6788
Net Present Value -98676.64248
Internal rate of return -33%
This computation reflects that if company accept the Tender A then a company will
have to face a loss of RM -98676.64248. The internal rate of return of the company is also -
33% which reflects the negative indicator for selecting the tender A (Garrett Hoitash and
Prawitt, 2014).