FINANCIAL INFORMATION MANAGEMENT

Financial Information Management



Financial Information Management

Spreadsheet of the Selected Investments

Company

Investment

   Beta  

Weighting Share Price(£)  Investment  Date

 No.  Of  Shares

Amount

  

  BxC 

   investment  price  B/E

Reckitt Benckiser

10000

0.85

8500

4848

2

ABF

10000

0.57

5700

2267

4

Majestic wine plc

2000

0.06

120

554

3

Cobham plc

20000

0.95

19000

288.2

69

Easy jet

18000

0.88

15840

1309

13

Tesco

10000

0.69

6900

364.2

24

FIF PLC

10000

0.68

6800

67

149

M&Spencer

10000

0.71

7100

503.5

19

Goodwin plc

4000

0.38

1520

3699

1

GNS Genus plc

6000

0.48

2880

1320

4

Total

100,000

74,360

Avg Beta

D13/B13

weighted average=0.74%

Selected Approach: Weighted Average Cost of Capital

The approach that has been selected to create the portfolio of the 10 selected companies for this paper is the weighted average cost of capital (WACC) approach. Basically, the weighted average cost of capital is referred to the rate that an organization is expected to pay to all its security holders on average basis for financing its assets. In addition to this, it is clear that the weighted average cost of capital is also considered to be the minimum return that an organization must earn on a current asset for satisfying its owners, creditors and other providers of capital to the organization. If an organization does not fulfill its responsibility of earning a return, then the investors would invest in some other organizations. It is very significant that organizations raise money from different sources including preferred stock, common equity, convertible debt, straight debt, warrants, exchangeable debt, options, executive stock options, pension liabilities, and the governmental subsidies. It is very significant that different securities that represent different sources of finance are expected to generate different returns. The weighted cost of capital is calculated after taking into account the weights of all the components included in the capital structure (Brigham, 2012, pp. 106). A very important finding is that the more complex the capital structure of the organization is; the more laborious it becomes to calculate the weighted average cost of capital. The best advantage of the weighted average cost of capital is that organization could use this approach for identifying that the projects available to them are worthwhile to undertake or no.

The approach of weighted average cost of capital has been applied to the portfolio of the selected companies in this analysis to get a clear view of the worth and sustainability of the projects or the investments that are available. It is very significant through the portfolio that a clear representation of the risk and the investment is presented through the weighted average cost of capital. The main purpose of the portfolio is to diversify the risk and invest more amount of money that would involve minimum risk. A very important finding is that the organizations that have a greater beta value are less exposed to risk. The weighted average cost of capital approach has provided a clear view of all the selected organizations along with their beta values and identifying the amount of risk involved in making investments in the selected organizations (Pratt, 2010, pp. 82). In this way, the diversification of risk has been planned and the weighted average cost of capital has been used mainly for identification of the risks involved in making investments in the selected organizations.

Reasoning for Selection of the Investments

Ten organizations have been selected to make investments and it is also ...