Financial Management for Valuation Techniques and Capital Appraisal Techniques

FINANCIAL
MANAGEMENT

TABLE OF CONTENTS
QUESTION 2..................................................................................................................................3
a) Calculation of valuation of company by using price/ earning ratio.......................................3
b) Computation of valuation of Trojan plc by Dividend valuation method................................4
c) Estimation of organization's value via Discounted cash flow method...................................5
d) Discussing the problem associated with valuation techniques..............................................6
QUESTION 3..................................................................................................................................8
a) Payback Period (PP)................................................................................................................8
b) Accounting Rate of Return (ARR)..........................................................................................9
c) Net present value (NPV)..........................................................................................................9
d) Internal Rate of return (IRR)................................................................................................10
Evaluating the benefits and drawbacks of capital appraisal techniques....................................12
REFERENCES..............................................................................................................................15

QUESTION 2
a) Calculation of valuation of company by using price/ earning ratio
This particular method is used to estimate the current price of share relative to its
per stock net earnings. It is widely used to evaluate the value of market of those
organization that has the profitable history. In this method the relationship between two
parts are found such as market price per share and its relative earnings that is willing to
pay fro stock based on its current earnings (Akkaya, 2020.). In addition to this, it helps in
evaluating value that investors are willing to pay for the company's share. It is widely
taken into consideration for assessing the its risky investment than those with other others.
Making comparison of the companies operating in the same sector can be exerted. This
allows the organization to be prompt in identifying results as per the industrial standards
(Al Janabi, 2021). Their growth rate will be mostly same so it provides fair outcome to the
organizations while valuing firm. It is one of the investment indicator that aids the firm to
have proper valuation in turn better decision can be taken for having leading position in
industry. It is one of the most beneficial method that need to be highlighted in order to
have full detailed information that can aid in making strategic decision for accomplishing
objectives of businesses.
Particulars Formula Amount (in £)
Distributable earnings 40.4
Market price per share 3.89
earning per share 0.21
Number of shares outstanding 147
Price earning ratio of Aztec Market price per
share /earning per share
18.5238095238
EPS of Trojan plc 0.21
value of shares Trojan plc PER of Aztec* EPS of
Trojan plc
3.89

Estimating the market value of
Trojan plc
value of shares of
Trojan plc* number of
outstanding share
571.83
From the above calculation it can be identified that market value of Trojan Plc is
£571.83 as per the price earning ratio method.
b) Computation of valuation of Trojan plc by Dividend valuation method
Dividend valuation is another method sued by company to accomplish the purpose
of making proper estimation of market price of specific organization. It is based on the
theory that it present day price is worth of all of sum of future dividends payments when
they are discounted to their present worth. This basically focus on determining the fair
value irrespective of taking the market based components into consideration. The time
when the stock should be buy is evaluated by value obtained from the dividend valuation
method. Basically large emphasis is given on valuing company by considering the time
value of money. It is one of the major method that can be taken into consideration by
organization for having market value of company on the basis of dividend providing of
company.
Particulars Formula Amount (in £)
latest dividend payment 0.13
Growth rate 2.00%
free rate 5.00%
Beta 1.10%
Number of shares
outstanding
147
Return on market 11.00%
For determining
expected rate of return
CAPM model will be