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Financial Management - Doc

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FINANCIALMANAGEMENTINORGANISATION
Table of ContentsINTRODUCTION...........................................................................................................................1TASK...............................................................................................................................................1(a) Methods of estimating cost of capital....................................................................................1(b) Business Valuation methods..................................................................................................3(c) Foreign exchange issues related to the finance......................................................................6CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................9
INTRODUCTIONFinance is the lifeline of any organisation which needs to a continuous flow of funds inand out in a business enterprises (Ogiela, 2015). Financial management is an important in anybusiness which is related to marketing and production because it is broad activity of anorganization. It is the process of planning, organizing, controlling and motivating financialresources to achieve required goals and objectives of a company. In the particular report takencompany Vodafone plc, it is a business based in UK, which can operate in many countries. It is aBritish multinational telecommunication company and they have owned network in 25 countriesand their partner network in 47 further countries. In the report focused on various methods ofcost of capital and estimate of the cost of capital of Vodafone investors. Apart from discusspossible business valuation methods and applying in Vodafone to identify issues of eachestimated values. In addition determine the foreign exchange issues related to the financial raisedfrom bonds in different countries.TASK(a) Methods of estimating cost of capitalCost of capital is the required return which is important for company as opportunity costand making a specific investment. The particular rate of return that could have been earned byputting the same money into a different investment with equal risk. In hence, the cost of capitalis the rate of return essential to influence the investor to make a give investment. There ismentioned different methods of estimation of cost of capital -Cost of DebtCost of debt capital states to the total cost or rate of interest paid by an organization inraising debt capital. In present time total interest paid by company on raising debt capital is notreasoned as cost of debt because the total interest is activated as cost of debt because the totalinterest is treated as an expenses and it is deducted from tax(Cho and et.al, 2012). There isapplied formula to calculate cost of debt -Kd = (1-T) * R* 100 (It is applied after tax adjustment)When company issues debentures on premium and discount after then calculating cost ofdebt and principal amount will be adjusted with these amount after adjust amount will benet proceed -1
Kd = I / N.P. (after adjusting premium or discount of floating cost)Cost of debt after tax adjustmentKd = IX (1-t) /N.P.Cost of preference share capitalAccording to this method total of amount of dividend paid and expenses acquisition forincreasing preference shares. The dividend paid on preference shares is not less from tax, asdividend is an acquiring of profit and not well-advised as an expenses(Zimmerman and Roberts,2012). Cost of preference shares can be calculated by using the following formula -Kpc = Dividend / net proceed of preference share capitalCost of Equity capitalThis method is little difficult as compare with cost of debt and cost of preference capital.There is main reason of this method that the equity shareholders do not receive fixed interest ordividend. The dividend on equity share change which is depended on profit because it is earnedby a company. This method is very important and there is risk factor plays an important role todecide rate of dividend to be paid on equity capital. In this method adopted different method tocalculate cost of equity -Dividend Yield method= Ke = Dividend per share / Net proceed per shareDividend yield plus growth rate of dividend method= Ke = Dividend per share /Netproceed per share + growth rateEarning yield method= Ke = Earning per share / Net proceed per shareCost of retained earningsRetained earnings are known as profit reserve of a company which are not distributed asdividend. Retained earnings kept by company for finance long term as well as short termprojects. The investors expect that the company should invest the retained earnings on thoseprojects which is profitable for company. In addition the investors require that the organizationshould divided the profit earned by investing retained earnings in the form of dividend(Sweeting, 2017).Ke = Kr ApproachWeighted average cost of capitalAccording to this method whole cost which is obtained from several source of capitaland calculate of firm's cost of capital. In the category of capital includes all sources and they are2
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