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Financial Management- PDF

   

Added on  2020-10-04

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FINANCIALMANAGEMENT

Table of ContentsINTRODUCTION...........................................................................................................................3PART A...........................................................................................................................................3Explain dividend irrelevant and relevant theory:.......................................................................3PART C............................................................................................................................................6Explain Merger and takeover activity fundamental role in corporate finance :.........................6Evaluate the merger and acquisition are helps in maximisation of share holder wealth: ..........8Recent merger and acquisition example:....................................................................................9CONCLUSION...............................................................................................................................9REFRENCES.................................................................................................................................11

INTRODUCTIONFinancial management refers to how to manage the money or funds to fulfil theorganisational objectives. This is a differentiated function of a management it is related to topmanagement. This report is related to financial management it cover the dividend theoriesrelevant and irrelevant theory in this determine the share price of a company and to discuss andevaluate both the theories which is supported to the research. And to discuss about merger andtakeover plays a fundamental role in finance for there external and internal growth of thecompany. And also evaluate both the activities are the financial objectives of maximising theshareholder wealth. In this report we also discuss about recent merger and acquisition held in thecountry which is more elaborate the both merger and takeover efficiently.PART AExplain dividend irrelevant and relevant theory:Dividend is a part of profit which is given by the company to their shareholder. It is fixedby the company the shareholder received the dividend if the company not earn profit but thefirm give the dividend to their share holders. Dividend policy is the distribution of the companyearnings between the reinvestment and net profit payments (Asimakopoulos,andAthanasoglou,2013. ). Retained earnings is related to internal finance and it is the main source ofit. Dividend policy is affect the value of the firm, and this policy is also help to maximise theprofit. Company board of director take the decision regarding dividend . Dividend policy willhelp the company shareholders to earn maximum profit and to increase shareholder wealth.Dividend policy can be divided into two parts which are dividend relevance theory and dividendirrelevant theory.The Irrelevant theory of dividend: This theory says that the company will only pay dividendfrom retained earnings. These are dividends are to be paid only if the rest of the funds after allsuitable investment have been financed or paid(Brigham,and Houston,2012.). The value of thefirm is directly related with investment decision which is makes the dividend policy relevant(Dividend theories 2018). The irrelevance theory refers to that policy has been not effect thecompany cost of capital. Miller and Modigliani gives the irrelevance theory of dividend.Modigliani and Miller modelAccording to Modigliani and Miller says that the situation where the total value of thecompany is not depends on its capital structure (Deshmukh,and et.al 2013.). They argued on

some points which are market participants have more possibilities for effective investment.According to this model perfect markets for capital investment is exists and its includes zerofees , taxes and legal proceeding. A in constant rate companies and investors and share holdercan borrow or lend the money. In this model there is unlimited opportunity for credit .Modigliani and Miller model says it does not affect the share price because the value of the firmis a main components of its earnings. Modigliani and Miller model is related to followingassumption these are:In this model the perfect capital market should be exists so there is no personal orcorporate taxes and no transactions costs.The company investment policy is free form the firm dividend policy.Risk is not exist in the firm if it is applicable.Investor behaviour is god or rational towards the firm and information is freely given tothem. It suggests there is no information imbalance between company's investor ,shareholders,actual data for future cash flows and profits for the company.Investor of the firm are able to forecast dividends and future cost from which onediscount rate is suitable for all securities in all time periods (Ferris, Jayaraman,and Sabherwal,2013.). Rate of return of the company is calculating by using this formula which is given byModigliani and MillerP0=D1+P1/(1/Ke)where P0 is prevailing market price of the share, Ke is cost of equity capital,D1 refers todividend is to be received at the end of period, P1 is market price of a share at the end of theyear. According to this model market value of a share before the company should announce thedividend which is equal to current value of dividends paid and add the market value of the shareafter dividend is declared. Relevance theory of dividend:The dividend policy which is affect the value of the firm or a company is a relevant . Inthis theory suggest that directly relationship between firms policy and its market price (Halkos,and Tzeremes, 2013). Dividend policy may affect the share price of the company, because thistheory is focuses on frims behaviour on daily basis. There are two types of relevance theory :1)Walter's approach

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