Financial Management Methods PDF

Financial Management

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
QUESTION 2...................................................................................................................................3
(b).................................................................................................................................................3
1) Number of shares & Theoretical ex-right price ......................................................................3
3) Expected earnings per share....................................................................................................3
4) Forms of issue for each of the right issue price ......................................................................3
C) Definition and advantages of scrip dividend from the point of view of company and
shareholders.................................................................................................................................5
QUESTION 3...................................................................................................................................7
(a) Calculation of Investment Appraisal techniques whether to go investing in the project or
not................................................................................................................................................7
B) Critical evaluation of benefits and limitations of different investment appraisal techniques
...................................................................................................................................................10
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Financial management is set of numerous guidelines, rules and regulations regarding
financial ratios, debts and equities of the company. This system can be adopted by those firms
that needs to have their focus on management and take decisions regarding of distribution of
dividends, retained earnings, amount of capital top be raised, etc. In simple words, it can be said
that the financial management is nothing but a system that has been developed for helping
companies in having a better analysis and management of the capital and taking more profitable
decisions regarding making investments of excessive of money held by the business.
The present study shows a brief description regarding various methods that can be used in
investment appraisal techniques for taking the best decision regarding making investment of
excessive of capital held by firm. Along with brief information it also shows a calculation that
helps choosing the best investment option for gaining maximum amount of profit. In addition, it
also shows calculation and descriptive part relating to capital structure required for taking best
capital investment decision.
QUESTION 2
(b)
1) Number of shares & Theoretical ex-right price
EX-right price refers to the market price that the stock theoretically has the new right issue (kob
and Whitby, 2017). It is used by the company in order to offer more shares to the shareholders at the
discounted price.
3) Expected earnings per share
Earning per share is been computed by dividing the profits of the company with that of the
outstanding shares (Price and Williams, 2018). The resultant outcome reflect the profitability of an
enterprise. It is common for the organization to report for the earning per share which is been adjusted for
the potential dilution of the shares and the extraordinary items.
4) Forms of issue for each of the right issue price
Right issue refers to the right that is given by the company to its existing shareholders for raising
the additional capital (Mateus, Farinha and Soares, 2017). Right issue price is the price at which the
new shares are been issued is less than the market price that is prevailing in the market. In other words, it
means that the shares are issued at discount rate.

Particulars Amount (£)
Current market value of Brand (6,00,000*1.90) 11,40,000
Funds to be raised through right issue 1,800000
Final market value 13,20,000
Particulars Amount (£)
Earnings before rights issue (700000*0.2) 1,40,000
Earnings from new funds (1,80,000*0.2) 36000
Total earnings after rights issue 1,76,000
Particulars Right issue price at 1.80
Number of new shares (180000/1.80) 1,00,000
Total shares in issue (600000+100000) 7,00,000
Theoretical ex- rights price (1320000/700000) £1.89 per share
New EPS =100*(176000/700000) 25.14 price per share
Form of rights issue (600000/100000) 6, i.e 1 for shares 6
Particulars Right issue price at 1.60
Number of new shares (180000/1.60) 1,12,500
Total shares in issue (600000+112500) 7,12,500
Theoretical ex- rights price (1320000/712500) £1.85 per share
New EPS =100*(176000/712500) 24.7 price per share
Form of rights issue (600000/112500) 5.5, i.e 2 for 11 shares