Financial Management: Leverage and Investment Appraisal

Financial Management

Contents
MAIN BODY.............................................................................................................................................3
Question 1..................................................................................................................................................3
Question 2..................................................................................................................................................5
Question 3..................................................................................................................................................7
Question 4................................................................................................................................................10
Question 5................................................................................................................................................13
REFERENCES........................................................................................................................................16

MAIN BODY
Question 1.
a. Compute Taxable Income
Particulars Amount ($)
Sales 4500000
Less: Cost of goods sold 2000000
Gross profit 2500000
Realized gain on securities (120000-40000) 80000
2580000
Less: Operating expenses 1200000
Less: Interest expense 150000
Less: Depreciation expense 50000
Taxable income 1180000
b. Compute the tax liability for Analtoly?
Tax rate: 34%
tax liability: $1180000*34%
= $401200
(c) Objectives of Corporate Financial Management:
Financial management- Financial management is the field or role of an organization that deals
with productivity, expenditures, cash, and credit in order for the "company to have the means to
carry out its mission as adequately as practicable." The latter is often described as optimizing the
firm's valuation for shareholders (Shapiro and Hanouna, 2019). Investment analysts are skilled
specialists who report up of senior managers, typically the financial director (FD); the position is
known as 'People' rather than 'Line'. In other words, financial accounting is the application of

general management concepts to an organization's financial properties. Quality gasoline and
routine service are provided by proper financial management in order for an organization's
operations to run smoothly. If an organization's budgets aren't handled adequately, it can face
roadblocks that might stifle its growth and progress (Finkler,Smith and Calabrese, 2018). Below
some key objective of financial management are explained in such manner:
 Wealth maximization: Financial accounting also has as a primary goal the maximization
of wealth (shareholder value). The term "wealth maximization" refers to maximizing
profits for owners (Yuniningsih, Pertiwi and Purwanto, 2019). As a result, the financial
officer strives to pay the highest possible payout to the owners. He also seeks to increase
the stock's market valuation. The market price of the new equity is directly proportional
to its output. The higher the results, the higher the equity price valuation, and vice versa.
As a consequence, the finance officer would aim to increase value for shareholders.
 Proper estimation of total financial requirements: Financial management's primary goal is
to accurately estimate overall financial needs. The company's overall budgetary needs
must be estimated by the finance officer. He has to work out how much money he'll need
to start and run the firm. He would assess the higher capital and operating capital needs.
He must be right in his judgment. Otherwise, there would be a cash shortage or surplus.
Trying to estimate the financial criteria is a daunting challenge. Many considerations
must be considered by the financial manager, including the type of technology used by
the corporation, the number of workers hired, the size of operations, regulatory
regulations, and so on.
 Proper mobilization- The mobilization (collection) of funds is a key goal of financial
management. The finance organization must know on the sources of funds after
calculating the financial criteria (Ameliawati and Setiyani, 2018). This may get money
from a number of ways, including bonds, preferred stock, and bank loans. A proper
balance between held and loan financing is needed. The business wants to borrow money
at a low rate.
 Maintaining proper cash flow- Financial management's short-term goal is to maintain
sufficient cash flow. The business wants a good cash balance to meet day-to-day costs
like buying raw materials, paying wages and bonuses, paying rent, paying energy bills,
and so on (Yap, Komalasari,andHadiansah, 2018). If a capital structure is high, it can