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Financial Management Concepts

   

Added on  2020-05-16

12 Pages1852 Words77 Views
Running Head: Financial Management ConceptsFINANCIAL MANAGEMENT

Financial Management Concepts1Question 1Part a)Tax slabsTax rateTax 0-$50000 $ 50,000.00 15 % $ 7,500.00 $50001-$75000 $ 25,000.00 25 % $ 6,250.00 $75001-$10000000 $ 11,50,000.00 34 % $ 3,91,000.00 Total tax $ 4,04,750.00 Part b)Though the main objective of taxation of incomes of individuals and business units is to collect the revenue for meeting the capital expenditures. Major portion of governmental activities are financed from the revenue generated by taxing the incomes. But taxation of income has certain non-revenue related objectives such as economic development. In the modern world, taxation is considered as the most important instrument of the economic policies of the country (Arnold, 2008). Economic development of company is supported by the growth in the capital formation of such country. To prevent the problems of scarcity of capital resources, government mobilise such resources to facilitate rapid accumulation of capital. Through appropriate tax planning, the savings to national income ratio can be improved.The taxation of income has also some social objectives such as reduction of inequalities. A country intending to promote the equality of income must use taxation tool as it can effectively reduce the inequalities of wealth of the community (Lee & Gordon, 2005).Question 2Part a) Return from both the common stocks

Financial Management Concepts2Return =R1WI + R2W2 + R3W3(0.20*12)+(0.50*18)+(0.30*27)A19.5%BR1WI + R2W2 + R3W3 + R4W4(0.10*4)+ (0.30*6)+(0.40*10)+(0.20*15)9.2%Standard deviation from the common stocksCommon Stock AProbabilityReturn(%)DeviationDeviationsquareDeviationsquare x P0.20.12-19.38375.5875.120.50.18-19.32373.26186.630.30.27-19.23369.79110.94Variance 372.69Standard Deviation19.31%Common Stock BProbabilityReturnDeviationDeviation square0.10.04-9.1683.90568.390560.30.06-9.1483.539625.061880.40.10-9.182.8133.1240.20.15-9.0581.902516.3805Variance 66.58Standard Deviation8.16From the point of view of return the common stock A will be chosen as it has higher return potential and from the view point of standard deviation common stock B will be selected as itwill have lower risk (Higgins, 2012).

Financial Management Concepts3Part b)All investments involve some or the other financial risk due to the uncertainty factor attachedwith the returns intended to be generated from the investment. As the risk of any investment rises, the investors expects higher return on such investments. Diversification of investment is the most effective method of minimising the risks of the investments and maximising the returns out of such investments. Diversification involves allocating the surplus funds to the different areas of investments such as financial instruments, industries etc. (Heaton, 2002). Different investments does not react to the market and business conditions in the same way and at the same time. Therefore, the combination of various investment assets reduces the sensitivity of ones portfolio to the typical market swings.Question 3Part a) Total funding requirement= Total Assets = $ 18000000Part b)Net funding requirement= Total Liabilities – Total Assets = 17250000 – 18000000 = $ 750000Workings:

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