Financial Management: Mergers and Takeovers, Investment Appraisal Techniques

Financial Management

Contents
INTRODUCTION.....................................................................................................................................3
MAIN BODY.............................................................................................................................................3
Question 2 – Mergers and Takeovers......................................................................................................3
Question 3: Investment appraisal techniques...........................................................................................8
CONCLUSION........................................................................................................................................16
REFERENCES........................................................................................................................................17

INTRODUCTION
In general, the term financial management can be known as a process of managing
available funds in a manner so that an organization can make proper utilization (Shapiro and
Hanouna, 2019). For companies, management of financial resources is a key of success. In the
absence of managing financial resources, it may lead to cause of higher expenses and lower
revenues. The project report is based on two separate questions which are chosen from available
set of three questions. The question one is related to merger and acquisition in which a company
wants to acquire a small business. In the second question, a financial project is evaluated by help
of different kinds of investment appraisal methods.
MAIN BODY
The brief of this project contains three questions which are distinct from each other. Out of these
three questions, there are two questions which have been chosen that are question two and three.
Below detailed analysis of these selected questions have been done.
Question 2 – Mergers and Takeovers.
Overview of question: In accordance of given scenario, there are two companies which are Aztec
plc and Trojan plc. The directors of Aztec plc are planning to takeover Trojan plc and for this
purpose valuation of company has been done under different models.
Valuation of Trojan plc under below mentioned methods:
(a) Price/earnings ratio- Share price / Earnings per share
The above mentioned formula indicates that there will be need of information about share
price of company as well as earnings per share.
From given brief, below mentioned information can be derived that is as follows:

The above table indicates that value of share price is of £2.05 and earnings per share need
to be calculated whose formula is as:
Earnings per share: Net income/number of share outstanding
= £40.4 Million / 147 Million
= £0.27
Now, we have value of all the data which will be needed to compute price earnings ratio:
Price/earnings ratio: £2.05/£0.27
= 7.59
Interpretation: From above information, this can be stated that price earnings ratio of
Trojan plc is around 7.59 that is measured in order to find out relation between price of
each share and earnings on each share. Along with Trojan plc is performing well in the
context of generating higher return on each value of share.
(b) Dividend valuation method
As per the name of this model, it is based on dividend paid by an organization during a
financial year. It is a formula based method which is implemented in such manner: