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Financial management Level 5 Unit 4 Regent college

Introduction

Financial management gives an effective and efficient management of fund which will be attaining the organization's objective as it is directly specialised function along with top management. It is integrated with proper decision making process. Future planning of a person or business ensure a cash flow which is positive which also includes maintenance and administration of financial assets. It also gives ways and its alternative that how business can finance it from shareholders fund with the combination of equity share capital, preference share capital and profits which are accumulated. All the financial decision which consists of acquisition of finance which is required from perspective of long term investments. In this report there is a brief discussion about dividend decisions i.e. particular profit which has been earned and there alternatives for retaining profit and how to distribute the margins from shareholders. The present report gives an understanding about how to identify the shares which are to issued with there theoretical ex rights price, earnings per share which has been expected, forms of issue for every rights issue price and that results with interpretation in tabular form. And significance of scrip dividend has been elaborated. Different investment appraisal techniques like Net present value, Internal rate of return, accounting rate of return and payback period with the merits and demerits has been explained.

Question 1 Long Term Finance; Equity Finance

Number of shares need to be issued

Company wants to raise : 180000

Total shares issued by company: 300000

Rate of per share: 50

Number of shares needed to be issued is = 180000/50 i.e. 3600

Computation of theoretical ex-right price

Theoretical Ex-Rights Price:

=

Market Value of shares prior to rights issue + Cash raised from rights issue

Number of shares after rights issue

When price of right issue is £1.80

Particulars

Figures

Current number of shares

60000

Number of additional shares issued

10000

Current market price per share

1.90

Rights issue price

1.80

Theoretical ex-rights price

1.89

 When price of right issue is £1.60

Particulars

Figures

Current number of shares

60000

Number of additional shares issued

10000

Current market price per share

1.90

Rights issue price

1.60

Theoretical ex-rights price

1.86

 When price of right issue is £1.40

Particulars

Figures

Current number of shares

60000

Number of additional shares issued

10000

Current market price per share

1.90

Rights issue price

1.40

Theoretical ex-rights price

1.83

Expected earnings per share

EPS (earnings per share): Net income – preferred dividend / average number of shares outstanding

Earning per share: (300000-180000) / 700000

0.17

Presenting the form of the issue for each rights issue price

  • When price of right issue is 1.80 then the current price is 600000 and expected price has been calculated as 700000 by getting the amount (180000/1.8) that is 100000. On this perspective our 20% profit is evaluated as 140000 (Dasgupta, Prat and Verardo, 2011).
  • When price of right issue is 1.60 then the current price is 600000 and expected price has been calculated as 712500 by getting the amount (180000/1.6) that is 112500. On this perspective our 20% profit is evaluated as 142500.
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