Financial Management: Merger and Takeovers, Investment Appraisal Techniques

Financial
Management

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Question 1- Merger and Takeovers.................................................................................................1
1. Calculate the value for Trojan Plc by using various valuation method...................................1
2. Discussed the problems associated with valuation models with the help of evaluating
advantages or disadvantages........................................................................................................3
Question 2 – Investment Appraisal Techniques..............................................................................4
1. Calculate following investment appraisal technique and give brief recommendations...........4
2. Critically evaluate the Benefits or Drawbacks of different investment appraisal techniques. 8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial management concentrates on proportions of equity and debt. It is valuable for fund
management, income allocation and capital raising, hedging and managing foreign exchange and
commodity process volatility (Antonopoulos and Hall, 2016). Financial analysts are the ones
who can conduct analysis and determine what kind of resources to rise to finance the company's
investments as well as increase the company's worth to all shareholders depending on the study.
In this report, two questions required to address that is about merger and takeover and the other
one is investment appraisal techniques to evaluate most favourable project to invest.
MAIN BODY
Question 1- Merger and Takeovers
1. Calculate the value for Trojan Plc by using various valuation method
Price earnings ratio: As the P / E ratio has been the most popular indicator of how costly
a stock is, knowing the context & value of all its valuation is important. The PE ratio usually
measures how frequent the buyers are willing to pay for the asset. The study of the P / E ratio
demonstrates the direct connection between the stock price of a firm and its results.
Formula:
Price earnings ratio= Net income/total share outstanding
Particulars Value
Share price £2.05
Earnings per share £0.27
Price earnings ratio £2.05 / £0.27 = 7.59
Interpretation: above calculation reveals that Trojan plc received 7.59 a share for
investors. As a consequence of interest and losses accrued, the overall allotted gross
compensation can be split up by an exceptional deal out or just the firm's question of bids. The
1

firm's net payout that year was £ 40.4 million and the absolute exceptional offer is £ 147 million.
Value of each share price is £ 2.05 and earning of single share is £0.27.
Dividend valuation model: This is a dividend based valuation model which depends on a
discounted function to approximate present value of stock price that based on expectations about
its potential success in dividends (Brusca, Gómez‐villegas and Montesinos, 2016). This formula
is used to calculate the price and buyer will realistically normally pay for a share if each year it
pays gradually through dividends.
Dividend Discount Model Fair Value: £ 4.774
Calculation:
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
Calculation:
= 10p (1 + 11%) + 10.5p (1 + 11%)2 + 11p (1 + 11%)3 + 12p (1 + 11%)4
= 10 p (0.11) + 10.5p (0.11)2 + 11p (0.11)3 + 12p (0.11)4
= 11.1 + 10.5 (0.0121) + 11 (0.001331) + 12 (0.000146)
= 11.1 + 0.127 + 0.014 + 0.00175
= £11.24
Interpretation: Value of Trojan Plc shares is £11.24 and it is calculated with the help of
last 4 years dividend. Free market share prices and beta interest carry on critical roles to assess
the conditions; then the exchange rate is regarded as premium or risk prices because competition
provides a threat to this added incentive. Free board prices are impossible to hinder, due to the
unlikely loss of opportunity for the organizations.
Discounted cash flow method: This valuation model ensures that organization can
represent each spending as a single amount that is totally opposite of current cash value (Brooke,
2016). It is applied to all sorts of investment opportunities by investors, analysts and corporate
2