Financial Management: Merger and Takeovers, Investment Appraisal Methods

FINANCIAL
MANAGEMENT

Contents
INTRODUCTION.....................................................................................................................................3
MAIN BODY.............................................................................................................................................3
Question 2: Merger and takeovers...........................................................................................................3
Question 3 Investment appraisal methods................................................................................................8
CONCLUSION........................................................................................................................................15
REFERENCES........................................................................................................................................16

INTRODUCTION
Financial management can be defined as a type of field in a company that is connected
with proper management of revenues, costs, return, flow of cash and many other monetary
aspects. By help of this management, it becomes easier for managers of companies to distribute
available financial resources in an appropriate manner (Chandra, 2020). The main aim of project
report is to gain knowledge about various kinds of financial concepts like dividends, investment
appraisal methods etc. In accordance of project brief, there are three questions and out of these
two questions are selected which are related to concept of merger & acquisition, investment
appraisal methods. The report covers information about theoretical and practical implication of
both mentioned concepts.
MAIN BODY
Question 2: Merger and takeovers.
Overview- This task is related to merger and takeovers in which Aztec plc is planning to acquire
Trojan plc. For this purpose, both companies’ financial information is given in order to assess
whether Aztec plc should acquire or not. In order to take suitable decision, a range of methods
has been used along with their calculations which are performed below in such manner:
(a) Price earnings ratio: Share price / Earnings per share
Given information:
Share price £2.05
Number of share outstanding 147 Million
Net income £40.4 Million
Calculation of earnings per share:
Earnings per share: Net income / Number of share outstanding
Earnings per share £40.4 Million / 147 Million
Earnings per share £0.27

Price earnings ratio:
Particulars Value
Share price £2.05
Earnings per share £0.27
Price earnings ratio £2.05 / £0.27 = 7.59
Interpretation: From above calculated value, this can be find out that price earnings ratio
is of 7.59 which is indicating that Trojan plc is generating an effective earning from their
shares. As value of their share is £2.05 on which earnings is £0.27 from each share.
(b) Dividend valuation model:
This is calculated by applying below mentioned formula:
D1 / (1 + k) + D2 / (1 + k) 2 + D3 / (1 + k) 3 + D4 / (1 + k) 4.............
Herein,
D1: Value of dividend for year one
D2: Value of dividend for year two
D3: Value of dividend for year three
D4: Value of dividend for year four
K: Expected rate of return
Given data:
D1 (Value of dividend for year one) 10p
D2 (Value of dividend for year two) 10.5p
D3 (Value of dividend for year three) 11p
D4 (Value of dividend for year four) 12p
K (Expected rate of return) 11%