Assignment on Financial Management and its Area of Activities

Added on - 21 Feb 2021

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Financial Management
Table of ContentsINTRODUCTION...........................................................................................................................1MAIN BODY..................................................................................................................................1Question 01..................................................................................................................................1Question 02..................................................................................................................................4CONCLUSION..............................................................................................................................11REFERENCES..............................................................................................................................12
INTRODUCTIONFinancial management is defined as planning, controlling, analysing, directing the basicbusiness activities in the business organisation (Gottschalk, 2016). It helps in dealing investmentof a business entity that help in the business decision making system. Financial management isapplication of the fundamental accounting principle of management to financial aspects of aenterprises. It may includes financial ratio, debts, equity, dividend pay out and investmentmethods. For the better understanding of financial management, this report covers dividendpolicy of planet company and investment appraisal techniques of a food manufacturingcompany. This report helps in the decision making activities of the business that evaluates thedividend pay out policy of equity share capital and investment tool like pay back period, averagerate of return, internal rate of return to choose the better option in the business that may producesthe more profit in the future.MAIN BODYQuestion 01(A) Dividend policyIt is a financial policy that defined as pay out cash dividend to the shareholders of thecompany (Greenbaum, Thakor and Boot, 2015). It is financial decision that concerned with acertain portion of the net profit after tax of a firm is to be paid out to its real owner orshareholder. A business firm decides the dividend portion in order to pay the dividend out of thenet generated revenue. There are various model of the Dividend policy like Walter's model,Gordon's model.In the given context calculation of the fair price of the planet's shares has been done asfollows:This year dividend has decided by the company 20p, required rate of the return is 14%.As per the this question, Gordon's model of the dividend is more appropriate for the calculationof the growth model. Growth rate is calculated for all of the yearD= 20pk= 14%g1 = (14-13) / 13 * 100 = 7.69%1
g2 = (17-14) / 14 * 100 = 21.43%g3 = (18-17) /17 * 100 = 5.88%g4 = (20-18) /18 * 100 = 11.11%here, D = dividend , k = cost of capital, g= growth rate for the yearsafter calculating the growth rate, dividend formula as follows= D1 / (k-g)here, D1 = dividend per share for the next year or expected yeark= required rate of return or cost of equity that is estimated by the dividend growth modelg= expected dividend growth ratefor the first year, share price is calculated asvalue of the share price = D1 /(k-g)= 14 / (0.14- 0.0769)= 2.22$for the second year,price of the share is estimated asvalue of the share price = D1 /(k-g)= 17 / 0.14-0.2143)= 2.28$for the third year, price of the share is reckoning asvalue of the share price = D1 /(k-g)= 18 / (0.14-.00588)= 2.22$for the forth year, price of the share is figuring out asvalue of the share price = D1 /(k-g)= 20 / ( 0.14- 0.1111)= 6.92$so here growth is inconsistent but the dividend pay out is average between 13 p to 20 p.The average is 11.53% that indicates the dividend of the next year will be as followsGrowth in the price of share = (21.87 – 20)/ 20 *1002
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