Financial Management Assignment - (Solution)

Added on - 22 Nov 2020

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Financial management
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1MAIN BODY...................................................................................................................................1Question 2 Long term finance – Equity finance..............................................................................1A) Determination of number of shares, theoretical ex rights price, expected earnings pershares and form of issue for each right price..............................................................................1B) Advantages of scrip dividends from the point of view of the company and the shareholders.....................................................................................................................................................2Question 3 Investment Appraisal techniques...................................................................................31. Calculation showing various investment appraisal techniques...............................................32. Critical evaluation of benefits and limitations of different investment appraisal techniques.6CONCLUSION..............................................................................................................................10REFERENCES..............................................................................................................................11
INTRODUCTIONFinancial management refers to a process of management that includes planning,organising, controlling and motoring each financial activity performed by a business organisation(Bader, Al-Nawaiseh and Nawaiseh, 2018). This system of management ensures the company tobecome more financially efficient. With the help of maintaining financial management in thebusiness, it can ensure effective use of all the financial resources and funds and achieve its goalsand objectives in more effective way. The present study includes various calculations of thefinancial management system including calculation related to share price of the company,calculation showing the various investment appraisal techniques, etc. further, the current studyalso recommend the companies to select the best option of various financial managementtechniques and option for the purpose of gaining the best result for the company and help thecompany in achieving its objectives and set goals of gaining return from the investments andissue of shares as well.MAIN BODYQuestion 2 Long term finance – Equity financeA) Determination of number of shares, theoretical ex rights price, expected earnings per sharesand form of issue for each right priceCalculation of number of shares to be issued by Brand Plcnumber of Brand's shares, which is:£200,000 = 400,000 shares0.5 per share.Theoretical ex right priceTheoretical ex right price refers to a situation arisen in the business in which the sharesand the list of rights attached with them are separate from each other. In this situation, thetheoretical ex right price of the shares are considered as the deemed value of the shares(Bragg,2016). This value is attributed to all the shares of the company after occurrence of the right issuesituation.It can be calculated as under:Theoretical ex right price =Market Value of shares prior torights issue + Cash raised from1
rights issue/ Number of shares after rights issueTherefore, theoretical ex right price = 76000 + 160000/360000 = .65 per share.Market value per share = 20000/.5*1.9 =76000number of shares after right issue= 20000+160000/1.9=360000Calculation of expected earning per sharesCurrent market value of Brand plc:400,000 x £1,90 = £760,000Funds to be raised from right issue = £160,000Final market value £920,000Third: Earnings before right issue:600,000 x 15% = £90,000Earnings from new funds:160,000 x 15% = £24,000Total earning after right issue =_£114,000.00___________1) Number of new shares /using £1,80/ = £160,000 = £88,889£1,802) Total shares in issue = 400,000 + 88,889 = 488,8893) Earnings per share = £114,000 = 23,3 p. per share488,8894) Theoretical ex-right price = 920,000 = £1,88 per share488,889Calculation of New earnings per share114,000 x 100 = 23.32 per share488889right issue: 400,000 =2
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