Financial Management Assignment Sample

Introduction

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Financial management is a very crucial activity within an organisational context. This particular report will identify the various financial sourcing with property investment decision making in particular situations. In this context, wow the report will also buy from calculation of sorting investment appraisal techniques against feet some recommendations can be given in terms of enhancing the operational efficiencies of the company. On the other hand, the valuation of shares and stocks curly hair wait on the basis of acquisition and merger of Dragon plc and Kings plc will also be highlighted here.

Question 2 - Investment Appraisal Techniques

(A) Computing the diverse techniques of investment appraisal

1. Payback gap

The Payback gap is the time it takes for firms like Pizza Mat to recoup their original investment in the initiative once it has been activated. When the tenure is modest sufficient or less than half the expected life of the enterprise, it is deemed favourable (Laitinen, 2019).

Understanding the formula integrated into the computation:

As per the above formula, the variables stand at,

As per the formula, the variables stand at,

Presenting and understanding the valuation:

Net value of cash flow=> [Yearly cash incoming- Yearly cash outgoing]

Thence, Net value of cash flow=> [£233.7m - £33.7m]

Thence, Net value of cashflow=> £200.5m

Payback table:

Payback gap would hence, be;

=> Year no. 2 + [£187.5m/£200.5m × 12months]

=> Year no. 2 + [0.935 × 12months]

=> Year no. 2 + 11.22 months

Thence, Payback gap=> 2 years and 11 months approx.

1. Accounting return rates (ARR)

It assesses the likelihood that a business will generate income annually within a certain time period. This frequency can be used to illustrate compounded yearly income (Adebimpe, 2018).

Understanding the formula integrated into the computation:

Original investment contribution is => £588.5m

Presenting and understanding the valuation:

Scrap Amount for the machine =>

The depreciated value of new storage machinery =>

Computing the incremental average earnings:

Hence, the incremental average earnings will stand as;

Incremental Average Earnings =>

Or, Incremental Average Earnings => £127.36m

Hence, incorporating the deduced variables in the ARR formula;

ARR amount =>

Thence, ARR amount => 21.64%

III. Net present values (NPVs)

NPV (net present values) is basically a particular project's profitability scope while taking into account the project's current market value. If positive figures come, it indicates that the venture's ultimate worth will exceed Pizza Mat's original commitment.

Understanding the formula integrated into the computation:

Presenting and understanding the valuation:

Net value of cashflow=>

Thence, Net value of cashflow=>

Therefore, Net value of cashflow=> £200.5m

NPV table:

 Therefore, the NPV value can thus be,

Aggregate present values as per the above-placed table is => £1043.80m

Original investment contribution is => £588.5m

NPV amount=>

Or, NPV amount=>

Thence, NPV amount=> £455.3m

1. Internal return rates (IRR)

IRR can be simply defined as an oversimplified percentage that is domestically calculated to offer some understanding of the projected yield that the endeavour may provide focusing on external factors. The pricing of wealth is also ignored here to eliminate any superfluous peril of incorrect computation.

Understanding the formula integrated into the computation:

As per the above formula, the variables stand at,

Presenting and understanding the valuation:

IRR table:

Net value of cashflow=>

Thence, Net value of cashflow=>

Thence, Net value of cashflow=> £200.5m

Deriving the first NPV1;

NPV1 amount=>

Or, NPV1 amount=>

Thence, NPV1 amount=> £455.3m

Deriving the second NPV2;

NPV2 amount=>

Or, NPV2 amount=>

Thence, NPV2 amount=> £134.08m

IRR amount would hence, be;

IRR =>

=>

=>

Thence, IRR amount=> 25%

Basic suggestions:

Depending on various stock investment estimations presented earlier, there seems possible also whether firm Pizza Mat will emerge lucrative well with procurement of warehousing apparatus. The principal sum would be reimbursed before half the life of the machinery, according to its repayment gap (Baum et al., 2021). As a result, the duration may be considered quite brief and brief. The NPV calculated a particular benefit of £455.3m, whereas the ARR calculated a response rate (21.64 per cent) better than the COC (8 per cent). Similarly, the assumed IRR rate produced a significant 25% return percentage. As a result of all of the good outcomes inferred from the initiative, Pizza Mat can be advised to proceed with its purchase owing to its positive economic viability. 

(B) Appraisal of the proposal’s influence on the business

Even though the chairman advises reinvesting shareholdings with half of the upfront investment, this will not be recommended as an alternative plan for the organisation (CFI, 2022). This is due to the fact that this option increases statistics including such ROE and EPS, fooling incumbent owners. A dearth of stocks, on the other hand, may lead share value to soar, fooling present purchasers.

(C) Merits and demerits of diverse investment appraisal types

1. Payback gap derivation

Merits

• It is a very simple model since it employs very few numbers and variables to calculate the repayment length
• It enables firms such as Pizza Mat to identify and rate the financing option that would repay the primary amounts the easiest

Demerits

• The approach is ineffective in determining the lucrative scale of the operation. As a result, the results of payback may be deceptive for Pizza Mat
• This model's practical value is extremely low because it just offers the approximation of the likely expenditure repayment period
• Accounting return rates (ARR)

Merits

• It provides a likely image of the venture's lucrative extent.
• It meets the worries of stakeholders and investors since it recognises the return element given by the endeavor.

Demerits

• This approach ignores the effect of exogenous elements, resulting in untrustworthy outcomes (accountlearning, 2022).
• The shifting time and market value aspects impacting the program's return execution remain ignored here

III. Net present values (NPVs)

Merits

• This is the strategy that combines the changing time and market value into its profit-returning scope.
• The uncertainties and hazards that exist in the potential market are considered here, resulting in very dependable conclusions.

Demerits

• Projects of diverse scales cannot be compared using this technique since profitable scopes for each will differ massively.
• This technique solely takes into account the quantitative aspects without the qualitative ones. Hence, its accuracy can be barred.

1. Internal return rates (IRR)

Merits

• The cost of capital does not have to be exact and can be estimated depending on the investors' selected rate (Fraga et al., 2022). This eliminates the possibility of calculation based on an incorrect return rate.
• Since the result is calculated in a form of percentage, it is easy to grasp.

Demerits

• It is commonly used as an assumption rate and so cannot be totally depended on for final investment choices.
• The firm's future prospective expenses are not addressed here.

Question 3: Mergers and acquisitions

A firm's purchase or merger is defined as a financial procedure for regulating corporate expansion and maintaining cooperation functioning. Furthermore, it is critical to developing a business evaluation during the expansion process in order to limit financial development within the functioning regions. The following questions will concern business expansion for incorporating financial processes and managing the takeover and merger procedure. According to the corporate enterprise, it is critical for administering the operations of Kings Plc and Dragon Plc. This will necessitate running business processes in preparation for the industry's merger and takeover. In connection with the merger and acquisition of Kings Plc and Dragon Plc, it should be concluded that the company's operations must be promoted correspondingly. According to the instance, a merger occurs when a corporation partners with a second organisation to combine commercial growth and handle tasks appropriately. Takeover examines when a corporation establishes its dominance in all stakes for successful collaborative functioning in the same circumstance.

(A) Price Earnings Ratio

The exchange rate ratio is defined as the technique of building the organization's capital funds. Furthermore, it informs investors of the company's true value for carrying out commercial duties. In the future, the price-earnings ratio will aid in determining the company's financial position in order to monitor sharing value and management and administration. It is calculated by dividing the company's share price by the revenues per share generated during the fiscal year. Furthermore, a growth in net worth that performs functional activity aids in focussing on the administration of the organisation. The company's stock price which is less than 15 is referred to as the cheap price. However, controlling the PE ratio is beneficial for evaluating the true worth of the firm and whether it is overpriced or undervalued. The following computation comprises a discussion of whether the firm's profitability is discounted or overpriced.

Formula: PE ratio: Market per share/Earnings per share

Market per share is 4.25 and EPS is 0.31

PE ratio = 4.25/0.31 = 13.70 (Answers)

Analysis: According to the PE proportion measurement, it can be deduced that the organisation's budgetary leadership benefit people in extrapolating the placement for the forming economic climate. Furthermore, the business's exchange rate ratio aids in the discussion of the production process for attempting to control the intensive interpretation and coordinating the collaborative relationships and direction of the organisation within the considered necessary market. It aids in the operation of all functional areas for controlling the management of marketing activities. The result of the PE ratio study is 13.70, which measures the company's posture for developing promotional activities. It can be concluded that determining all of the company's stakes will be extremely beneficial in developing the business scenario and controlling control in the operational sector.

(B) Discounted Cash flow statement 

The delayed cash flow accounting calculates the corporation's assessment in order to estimate private sector judgement call for directing the revenue production summary. Furthermore, DCF aids in the computation of the corporation for managing the management of the current investment. It also relies on the service provider's corporate position in order to appropriately oversee all activities and manage the scenario for quality and process performance. This also assists the corporation in promoting finances and generating additional trading opportunities, as well as management activity to regulate various functions. The total merger and acquisition process obtains business, builds promotional activities, and controls the company's operation. Furthermore, it is critical to concentrate on the function and maintain control over the efficient production regions.

Formula: CF/1+r

Here, r is 6% and CF is the £32,000,000

DCF = 32,000,000/ 1+12%

Or, 2,66,66,666.7 (Answer)

Analysis: The aforesaid computation generates a derivation for the company's anticipated cash flow statement in order to complete the project's specific requirements. Furthermore, it may be considered that the company's cash flow statement aids in focusing on promotional activities for regulating all finances. It will now aid in the company's ability to manage business functions and absorb the operational expansion. As a result of the computation, it can be claimed that 2,66,66,666.7 derives accurate company functions by managing business operations and deriving development prospects within the needed year (Sinha et al., 2020). Additionally, those can be addressed similarly that developing the company's functional activity is critical to controlling the company's financial management and analysing the company's market position. As a result, Kings Plc can achieve growth within its operational sectors in order to improve the market condition and promote competitiveness improvement within the field.

(C) Dividend valuation method

According to company achievement analysis, the dividend valuation approach is quite successful in absorbing financial status. It also aids in completing the combined total yield procedure to coordinate all of the processes. As a result, the dividend valuation approach aids in focusing on business finances and administering the company's financial services properly. Then it develops an effective assessment for management activity and the operation of the corporation's stakeholder investment.

Formula: P = D1 /r – g, the formula stands for Stock value = dividend expected/ (Cost of Equity – Growth rate)

The given value of equity of cost is 4.25 and the growth rate is 2.5%

Stock value = 0.14/ (4.25 – 2.5%) = 0.14 /0.106

Or, 1.32 (Answers)

Analysis: It can be deduced from the preceding that the stock appraisal technique above represents the company's financial operation for building business capital and controlling management of the operation. Additionally, during the year of Kings Plc and Dragon Plc merger, it is critical for controlling various responsibilities and incorporating career progression. It follows from the preceding function that the dividend valuation approach may be used to develop the company's various functional undertakings. Furthermore, the firm's performance may be designed appropriately for processing all company operations and controlling administration of the tasks performed. As a consequence of the computation, a conclusion of 1.32 will be gathered from the income appraisal technique, which may be managed correspondingly.

(D) Critical discussion on the limitation of the valuation techniques

PE ratio limitations

1. Inability to compare results across industries: The achievement of the firm in the same industry is used to calculate the overall PE ratio. In the same case, the performance of a firm from a different industry makes it impossible to calculate the PE ratio. As a result, it is extremely helpful for analysing the company's business success by controlling the administration and beneficial accomplishments throughout the year. The company's operational activity will now focus on business expansion by controlling all operations and managing various corporate functions.
2. Deceptive profits per share: The company's earnings per share finishes a deceptive operation that minimises the engagements and processes created during the year. It assesses the organization's ability to function in accordance with market demands. Furthermore, if the company's profits per share show a decrease in business performance, it would indicate a worse functionality of the company in the marketplace.

Limitations of Discounted cash flow method

Inadequate assumptions: The organisation mostly fails to assume the accounting rate of return approach to producing sufficient cash for business operations. It is now very critical to manage the operational activities while computing the discounted cash flow approach within. Furthermore, in the instance of reduced cash flow statements, the payback method produces incorrect conclusions. 

Limitations of Dividend valuation method

One of the major limitations off the dividend valuation method is its accuracy results. The in accurate results of this method can also affect the operating business growth and it becomes very significant to control the business activity of the company with proper results.

Recommendation

• The first recommendation can be the measurement and control of the different operations and activities in Dragon plc and Kings plc.
• With the help of P/E ratio, the requirements and other business operations can be easily performed.
• Moreover, the collaboration between Kings plc and Dragon plc can further boost the operational efficiency and business growth.

Conclusion

On the basis of the above report, it can be stated that proper investment decisions within an organisation needs various appraisal techniques, merging and also take over. For that reason, and effective collaboration between the organisations like Dragon plc and King plc can help the companies to enhance their operational performance. Moreover, different other Inc essential calculations can be derived to understand the managerial functions and outcomes of the company in terms of achieving the business objectives.