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Financial management in Kadlex Plc Assignment

   

Added on  2021-02-19

15 Pages3932 Words96 Views
Finance
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FINANCIALMANAGEMENT
Financial management in Kadlex Plc Assignment_1

Table of ContentsINTRODUCTION...........................................................................................................................3MAIN BODY...................................................................................................................................3Question 1: Cost of capital and Capital structure........................................................................3Question 3 Investment Appraisal Techniques.............................................................................7CONCLUSION .............................................................................................................................14REFERENCES..............................................................................................................................15
Financial management in Kadlex Plc Assignment_2

INTRODUCTIONThe term financial management can be defined as an activity of controlling and managingavailable financial resources of business entities (Finkler, Smith and Calabrese, 2018).Basically, it is important for companies to manage their financial activities in an effectivemanner because finance is key of success. There are various kind of methods and functions tomanage the financial resources of companies. The project report covers about different aspectssuch as cost of capital and structure, investment appraisal techniques like payback period, netpresent value, internal rate of return method and many more. Apart from it, various calculation isdone as per the given data. MAIN BODYQuestion 1: Cost of capital and Capital structure.(a) Calculation of book value and market value cost of capital (WACC)Concept of cost of capital - The term cost of capital can be defined as cost which occurs in process of making anyinvestment. In other words, the cost of capital is expected rate of return which could have beenearned by investing equal amount of money in various investments with risk (Renz and Herman,2016). This can be measured by market and presents a degree of risk by investors. The cost ofcapital is calculated in a situation in which there are two investments with equal risk theninvestors compute the cost of capital and select one alternative whose return is higher. Like inthe Kadlex plc, their finance director calculates the cost of capital in order to take importantdecisions. Capital structure - The term capital structure may be defined as the way in which a business entity financestheir assets by combination of equity, debt or any other securities (Pandey, 2015). Basically, thisis helpful for companies in assessing which type of funding the company is applying to financetheir entire activities and operations. In addition, it presents the proportion between debt andequity in funding. In the aspect of Kadlex plc their last five years dividend payment are as follows :
Financial management in Kadlex Plc Assignment_3

YearDividend121p223p325p427p528pS0*(1+g)n = SnHerein, S0 = First year's dividendG = Growth raten = Number of yearsSn = Last year's dividend21 x (1 + g) x 4 = 28 {Herein, number of years are taken 4 because dividend improved 4 times during year 1 to 5}= (1+g) x4 = 28 /21= (1+g)x4 = 1.33= (1+g) = (1.33) 0.25= (1) - ( 1.0757) = 0.0757 Cost of equity = [28 x (1 + 0.075) + 0.075] / 2.65= (28 x 1.15) / 2.65= 12.15 %Cost of preference share = 7 / 75 x 100= 9.33 %Cost of debt = [0.10 x (1- 0.30) x (100 / 107)]= 0.0654 x 100= 6.54 %
Financial management in Kadlex Plc Assignment_4

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