Financial management analysis

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  • Publicado : 30 de marzo de 2010
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INTRODUCTION

This report is focus on the analysis of three proposal of “Polasian PLC” which is a company of specializing in adhesive products where is present a huge growing record over the several years, this analysis will be very important for the performance of the company.

In this report will analyze investment of finance in a company and theories which should be analysis in orderto be success in’’ Polasian PLC ” is working with the different calculation which will be explained in the fallowing report, could be able to get a payback period, net present value, internal rate of return, then return on capital employed based on the accounting rate of return. And have a better understanding of which is the best proposal for ‘’Polasian PLC ” the following will help thecompany to know the dividends and equity for the share holders.

COST OF CAPITAL

The cost of capital of a company, the opportunity cost of financial investment decision . it include rate of return that business could earn if it is chose another investment with equivalent risk.

COST OF EQUITY (K.e)

The cost of equity is the minimum rate of return that a business ororganization must offer investors or owners.

To find (K.e):

|  |  |  |  |  |
|K.e = |Dividends per share | X |100 |
|  |Market value per share |  |
|  |  |  |  |  |

|K.e =|0.05(1+0.02) | x 100 = 6.08% |
| |1.25 | | | |
| | | | | |

COST OF DEBT (K.d)

The cost of debt is the effective rate that a company pays on its current loans, bonds and various other forms of debt. The measure provides an ideaas to the overall rate being paid by the company to use debt financing.

To find (K.d):

|  |  |  |  |  |
|K.d = |Interest | X |100 |
|  |Market value per share |  |
|  |  |  | |  |

|K.d1 = |0.03 | x 100 = 2.78% |
| |1.08 | | |

|K.d2 = |0.07 | x 100 = 7% |
| |1 | | |

WEIGHTED AVERAGE COST OF CAPITAL

Acalculation of a firm's cost of capital in which each category of capital is proportionately weighted. the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and a higher risk.

|  |  |  |  |  |
|WACC = |Individual cost| X |Weights |
|  |total cost | |  |
|  |  |  |  |  |

WACC = 1250 x 6.08% + 540 x 2.78% + 200 x 7% = 5.28%

19901990 1990

1 r = D. Rate

(1 + r)n n = Years

|Year |0 |1 |2 |3 |4 |5 |
|0 |(1,700) |(1,700) |(1700) |1 | (1700) |(1,700) |
|1...
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