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Financial Management

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The assignments: 1. Victory Ltd is a manufacturing company wishing to expand their operations. The directorshave planned to finance the expansion program by raising the required funds from existingshareholders through a 1-for-5 rights issue. The most recent summarized income of the businessis as follows:RM in millionsSales Revenue 200Operating profit 25Less interest -5Profit before taxation 20Less taxation -4Profit for the Year 16A RM3m ordinary dividends have already been paid for the year.The share capital consists of 150m ordinary shares with a par value of RM1 a share. These arecurrentl...

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The assignments: 1. Victory Ltd is a manufacturing company wishing to expand their operations. The directorshave planned to finance the expansion program by raising the required funds from existingshareholders through a 1-for-5 rights issue. The most recent summarized income of the businessis as follows:RM in millionsSales Revenue 200Operating profit 25Less interest -5Profit before taxation 20Less taxation -4Profit for the Year 16A RM3m ordinary dividends have already been paid for the year.The share capital consists of 150m ordinary shares with a par value of RM1 a share. These arecurrently being traded on the Stock market at a price earnings (P/E) ratio of 20 times and theboard of directors have decided to issue the new shares at a discount of 15% on the currentmarket value.You are required to:a) Discuss the significance of the right mixture of capital for an organization. (5 marks)b) Calculate the theoretical ex-rights price of an ordinary share in Victory Ltd. (10 marks)c) Calculate the price at which the rights in Victory Ltd are likely to be traded. (5 marks)d) Give a brief description of five methods of raising funds and discuss theiradvantages and disadvantages. (20 marks)2. Transparent view Plc. develops advance solutions to help transport operators during foggyconditions. The company is considering various investment projects that should help improve theirservices. They have shortlisted three projects and asked you, as a company investment analyst, torecommend the best option. They have provided you with following information regarding theprojects:i) Project I will last for 3 years. The initial expenditure is RM300,000 and the expected cashflow originating from the project is RM150,000 for the first 2 years of the project and RM50,000in the last year of the project life.ii) Project II will last for 3 years. The initial outlay is RM250,000 and the expected annual cashflow originating from the project is RM150,000 for the project lifeiii) Project III will last for 4 years. The outlays are estimated RM300,000 and the expected cashflow originating from the project is RM100,000 in the first year and then increase by RM50,000 inyear 2, 3 and 4.Current cost of capital is 20%.You are required to:(a) Evaluate the three projects using:(i) Payback Period(ii) Accounting rate of return (ARR)(iii) Net Present Value (NPV)(iv) Internal rate of return (IRR)(b) Explain, which projects should be accepted and why:(c) Discuss the factors management would need to consider in addition tothe financial factors before making a final decision on a project.

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This assignment provides information about the optimum capital structure of the company, right issue, significance of right mixture of capital for an organization, theoretical ex-rights price, methods of raising funds and their advantages and disadvantages, investment appraisal techniques like Payback Period, Accounting rate of return (ARR), Net Present Value (NPV), Internal rate of return (IRR), and the factors which the management would need to consider in addition to the financial factors before making a final decision on a project. This report is paying particular attention on the right issue of shares and investment appraisal techniques. The organization is required to determine the most optimal mix of equity and debt to use for company’s expansion and operations. The company made a philosophical and strategic view of what the capital structure should be adopted by company in order to attain maximum return on capital. There is no perfect format for the optimal capital structure because the structure varies to a high extent by industry. The most appropriate way of analyzing the efficiency of the capital structure of company is the calculation of weighted average cost of capital. The major objective of this assignment was to understand and capital structure, right issue and investment appraisal techniques and applying them to realistic scenarios. Investment decisions of the company impact both the long term and short term success of the organization. The company made planning which facilitates the determination of the investment of the company in both the short term and long term. In this assignment we have evaluated the three projects of Transparent view Plc. who developed the advance solutions for the transport operators to help them in the foggy conditions. 

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