Financial Analysis and Management

Financial Analysis and Management (FAM) Module
AB plc is a listed company, which operates in the construction of residential property. It is currently financed
principally by equity. Its board of directors is currently considering purchasing all the shares of an unlisted
company, which will allow it to expand into a new geographical region. The price being asked by the
shareholders of the unlisted company equals about 25% of market capitalization.
The scale of the investment is such that AB plc could not raise the cash from internal sources. A decision now
needs to be made on the method of funding. The directors are not sure which method of funding best suits
the AB plc.
Required:
1. Suggest 4 alternative methods (Analysis, 1-Evaluation and synthesis. 2-logic, argument and
judgement. 3- Analytical reflection. 4- organisation of ideas and evidence) of funding to the
board of directors of AB plc debating critically the reasons for using each of these methods
of funding. All the relevant factors must be explained and placed clearly in the context of the
particular circumstances of AB plc.
(1950 words)
MARKING SCHEME-1: Alternative methods of funding [1,950 words]
1. Research-informed Literature – 05 marks
2. Knowledge and Understanding of Subject – 05 marks
3. Analysis: For the 4 methods of funding critically discussed. (1650 words & 10 marks for
each method of financing)
4. Practical Application and Deployment: Recommended source of funding/financing (300
words & 10 marks)
5. Skills for Professional Practice – 05 marks
[Total Word Count: 1,950 words & 65 marks]
2. Critically discuss the link between the above financing decision and investment decision
relating to the acquisition of the unlisted company.
(1050 words)
MARKING SCHEME-2: link between ‘financing decision’ and ‘investment decision’ [1,050
words]
1. Research-informed Literature – 05 marks
2. Knowledge and Understanding of Subject – 05 marks
3. Practical Application and Deployment: Links between financing and the investment
decision – (20 marks)
4. Skills for Professional Practice – 05 marks
[Total Word Count: 1,050 words & 35 marks]Report Structure
1- Introduction: (PART A)
• As a recent finance article demonstrated a acquisition strategy can help a company to expand,
acquire new knowledge or technology, move into new geographical markets, or vastly increase
output via one transaction. However, these benefits and opportunities often come at a significant cost
to both the acquirer and target.
• A typical acquisition deal will involve lawyers, accountants/corporate finance advisers, investment
banks and potentially, consultants. For the acquirer, in addition to these costs is the cost of the target
company itself. In the absence of significant cash reserves most companies will have to consider a
range of financing options to fund an acquisition.
• What are the alternative methods of funding for an acquisition decision?
1. Equity Financing
A.) The Objective of using equity finance
• What is ‘Right Issue’?
B.) ADVANTAGES
C.) DISADVANTAGES
D.) DECIDING FACTOR
2. Debt Financing
A.) The objective of Debt financing
B.) ADVANTAGES
C.) DISADVANTAGES
D.) DECIDING FACTOR
3. Venture Capital
A.) ADVANTAGES
B.) DISADVANTAGES
C.) DECIDING FACTOR
4. Crowd Financing
A.) Objectives of crowd financing
B.) Advantages of crowd financing
C.) Disadvantages
D.) Deciding Factor:
2- Critical analysis of the link between the financing decision and investment decision relating to the acquisition:
Following critical issues are identified;
• Investment Decisions
• Discounted cash flows take into account: In other words, the decision will be based on estimating appropriate cash
inflows and cash outflows of the target company and then discounting with an appropriate WACC rate (or Discounting Rate)• When predicting the target company’s cash inflows, it’s important to consider a variety of factors, including
revenue growth, industry trends, economic data, and the target company’s competitive advantages
• “DCF analysis can SHOUL BE applied
• WACC: It is also crucial to estimate the firm’s cost of capital accurately
Cost of Equity
Cost of debt
5 Years CASH FLOR (example)
WACC = (E/V) x RE + (P/V) x RP + (D/V) x RD x (1- TC)
3- Discussing the link between ‘financing decision’ and ‘investment decision
Finally:
• References must be shown in alphabetical order.
• Bibliography must be shown in alphabetical order.
• Proper formatting, proper numbering, proper paragraphing etc must be pursued.
• There must be a high degree of critical thinking with the application of good English, effective
presentation, logic of argument and clarity of exposition must be seen in your assignment.
FORMATTING AND LAYOUT OF THE REPORT:
Please note the following when completing your written assignment:
1. Writing: Written in English in an appropriate business/academic style
2. Focus: Focus only on the tasks set in the assignment.
3. Length:3000 words +/- 10%. Any deviation from this will be penalised.
4. Formatting: Typed on A4 paper in Times New Roman or Arial font 12 with at least 2.5
centimetre space at each edge, double spaced and pages numbered.
5. Document format: Report6. Ensure a clear title, course, and name or ID number is on a cover sheet and a
bibliography using Harvard referencing throughout is also provided.
7. Research: Research should use reliable and relevant sources of information e.g.
academic books and journals that have been peer reviewed. The research should be
extensive.
The use of a range of information sources is expected – academic books, peer reviewed
journal articles, professional articles, press releases and newspaper articles, reliable
statistics, company annual reports and other company information. All referencing should
be in Harvard style.
NOTE: The guidance offered below is linked to the five common assessment criteria overleaf and
specifically aligned to the “exceptional” outcome category to which we anticipate students aspire.
1. Research-informed Literature
Your work must embed and be informed and supported by relevant and credible scholarly material that is
accessible in the learned journals listed on the module schedule. You should refer to at least 10 such sources.
Additionally, you should refer to text books, current news items and benchmark your organisation against
other organisations to ensure your assignment is current and up-to-date. High-level referencing skills using
the Harvard Method must be demonstrated throughout your work and all sources listed alphabetically
within your bibliography.
2. Knowledge and Understanding of Subject
Your work must demonstrate the growing extent of your knowledge and understanding of concepts and
underlying principles associated with the subject area. This means that within your work, you should provide
evidence of your growing mastery in critical awareness of current challenges, new insights and the constant
need for innovation within the field. Furthermore, a critical awareness of the ambiguities and limitations of
knowledge and even understanding, should be considered and examples of such, illustrated within your
work.
3. Analysis
To be considered master’s worthy, your work must contain evidence of analysis, evaluation and synthesis.
This means not just describing “What!” but also justifying: Why? How? When? Who? Where? And at what
cost! At all times, you must provide justification of your arguments and judgements. Evidence that you have
reflected upon the ideas of others on matters occurring in the real world of business is crucial to you
providing a reasoned and informed debate within your work. Your choice of methodologies to gather data
and information must be rigorously defended. Furthermore, you should provide evidence that you are able
to make sound judgements and convincing arguments in the absence of complete data, since within the real
world of work, we rarely have access to, or know all the information! Persuasive conclusions are especially
necessary and must be derived from the content of your work – there should be no new information
presented within your conclusion. Your work should aspire to resemble work which is of journal publishable
quality.4. Practical Application and Deployment
It is essential that you rationalise how you decided upon certain methods, materials, tools and techniques
to inform and complete your work. You must demonstrate what informed your decision(s) to apply certain
concepts that enabled you to formulate innovative and creative solutions to the challenges presented to you
or that you identified for yourself. Plausible, costed and justifiable recommendations are demanded and
where these are absent, your work is undermined. Your work should provide evidence that you are growing
in mastery in developing cutting edge processes and techniques within the subject area.
5. Skills for Professional Practice
Your work must provide evidence of your attributes in the application of professional practice. This includes
demonstrating that you are highly capable of individual and collaborative working. Regarding the
presentation of your work, you must demonstrate your ability to select and deploy the appropriate media
that is “fit for purpose. Additionally, you must exhibit your ability to: communicate with an exceptionally
high level of professionalism; work professionally, autonomously and within a team; develop leadership
skills; and produce/present work that is coherent, cogent and specifically addresses the challenges set for
you or you have set yourself. Importantly, your work should be easily understood by specialists and nonspecialists in the field.
Core texts and recommended reading books:
1. Financial management for decision makers 6th ed. by Atrill Peter
2. Foundations of financial management 13th ed. by Block Stanley Band Hirt Geoffrey A
3. Principles of corporate finance 8th ed. by Brealey Richard A
4. Financial management: core concepts 2nd ed. by Brooks Raymond
5. Analysis for financial management 9th ed. by Higgins Robert C
6. Corporate finance and investment: decisions and strategies 6th ed.by Pike Richard and Neale Bill
7. Financial management: principles and applications 11th ed. by Titman Sheridan
8. Financial management 10th ed. by Pandey, M

 

 

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