FINANCIAL MANAGEMENT

Financial Management and Analysis

Executive Summary

The report provides an analysis and evaluation of the investment banking function, treasury and finance function and effect of inflation on the required rate of return and the approaches used to evaluate projects in an inflationary environment. The report begins with a brief discussion on the rights issue and its implications. It then discusses in what ways an investment bank can assist a company in raising additional funds. It then goes on to discuss the different roles a treasury department and finance department assumes once separated and the interaction of the two departments in achieving organizational goals. The report concludes with a discussion of inflation and its impact on rates of return and the distinction between real and nominal approaches to a project evaluation in an inflationary environment along with tax implications of both the approaches.

Table of Contents

Executive Summary1

Answer to question # 014

Advantages of right issue4

Services of an investment bank in raising additional finance:4

1.Investigation5

?Legal analysis5

?Market analysis5

2.Underwriting5

3.Selling6

Answer to question#026

Responsibilities of Treasury Department after separation7

Management of liquidity7

Investment Management7

Treasury risk management7

Fund raising8

Responsibilities of Finance Department after separation8

Bookkeeping8

Capital budgeting9

Profit and loss9

Update managers9

Answer to question#0310

Impact of inflation on the rates of return10

Approaches to valuation in an Inflationary environment11

Impact of inflation in tax free environment12

Inflationary influences on NPV in the presence of taxes:14

References18

Financial Management and Analysis

A) The Directors have been considering the possibility of raising the additional funds required for the project through rights issue. Critically examine the services that an Investment bank could provide to XX Chemicals with the raising of additional finance.

Answer to question # 01

Advantages of right issue

A right issue is a right issued by a company to buy additional shares of in a company to the existing security holders. Sometimes rights issue is carried out as a shelf offering. Existing security holders have a privilege to a fixed number of securities at a specified price. Rights issue offer several potential advantages to companies over secondary offering of ordinary shares. Sales commission charged by investment banks associated with rights issue is typically lower than underwriting fees for share placing (Andrew case, 2004). Another advantage that a company has in case of rights issue is that larger placing often requires shareholder approval, the receipt of which is not a certainty and may lead to a significant delay in company's financing plans. The right issue is generally granted at discounted prices so company is giving the existing stockholders a chance to have a greater exposure at their stock at a discount price as a result of which share value remains increases due to the fact that controlling power of the company remains stabilized (Raheja and Bhadwaj, 2011, pp 79)

Services of an investment bank in raising additional finance:

An investment bank can assist XX Company in raising additional money through rights offering in following 3 ways.

Investigation

An investment bank normally provides 2 types of analyses or investigations.

Legal analysis

A bond or common stock is not merely a certificate but it is the evidence of a legal ...