Financial Management: Mergers and Takeovers

Financial Management

Contents
INTRODUCTION.......................................................................................................................................4
QUESTION 2..............................................................................................................................................4
Mergers and takeovers............................................................................................................................4
QUESTION 3..............................................................................................................................................7
a. Investment appraisal techniques.....................................................................................................7
b. Critical evaluation of investment appraisal techniques with the help of its benefits & drawbacks...14
CONCLUSION.........................................................................................................................................16
REFERENCES..............................................................................................................................................17

INTRODUCTION
In the present time business environment the handling and monitoring within each
economic occurrence over a given period of time is identified as financial management. There is
need to control as well as distribute budgetary funds throughout all forms of industry in an effort
to much more efficiently execute the expected activity to maximize revenues and profits. This is
listed as a kind of strategies primarily related to economic strategies, preparation, governance
and coordination. It clearly stresses rate of growth and commitments, since it allows the business
plan to be handled adequately. In addition, all types of organization need this to handle the
financing and financial hub.
In this report, essential tactical choices are made to allow extremely relevant judgments,
basic knowledge of different reasoning skills is addressed for global decision taking. In addition,
the current state's limitations on monetary principles are being established which will allow
much smarter management decisions.
QUESTION 2
Mergers and takeovers
Price earnings ratio: The price-to-earnings ratio (P / E ratio) is the calculation for the
value of a business calculating its net asset value according to its operating income (EPS). The
value-to-earnings ratio is also often referred to as the various value, as well as numerous profits.
Market players use P / E ratios to assess the relative merits of a vegetables-to-apples analysis of a
stock price. This may also be used to equate a business with its own historical evidence, or to
equate cumulative industries or over time.
Aztec P/E ratio = 3.89 / 0.21 = 18.52
Trojan Plc = 40.4 / 147 = 27.48
Share price of Trojan Plc = 18.52 * 27.48 = 5.08
Total market value = 147 * 5.08 = 746.76

Assumption is made here that the market expects Aztec to accomplish a return on Trojan’s assets
comparable to that on it’s own assets.
Dividend valuation model: The dividend discount model (DDM) is a system of
appreciating the price of the stock of an organization predicated on the idea that its inventory is
worth all the money of all its potential dividend payout, reduced down to its valuation. In many
other words, securities are used to measure on the basis of the cost of capital of the potential
distributions.
To calculate of dividend require the dividend model values for both g and r such as:
G = (13 / 10) = 1.14%
Alternatively g = 4 √ (13 / 10) = 1.14%
The cost of equity using CAPM
Ke = 5 + (1.10 * (11 – 5)) = 11.60%
Po = 0.116 – 0.114 = 0.002
Total market value = 147 * 0.002 = 294m
Discount cash flow method = Discounted cash flow (DCF) is an assessment tool was using to
measure an investment's worth based on its potential cash flows. DCF evaluation seeks to
calculate the worth of modern expenditure based on estimates of how much profit it will produce
in the present. It refers both to stakeholders' monetary contributions and to company owners
seeking to make improvements to their companies, such as acquiring new appliances.