The paper "Approaches to Financial Management" is a perfect example of a management assignment. Financial management is a discipline that is concerned with the generation and allocation of scarce resources such as funds so as the most efficient users within the company through a market pricing system which is usually the required rate of return. Financial management approach usually measures its scope in a diverse field that basically comprises of the fundamental part of the finance (Brigham & Houston, 2012). Theoretically, a financial management approach is widely divided into two parts. Traditional Approach The traditional approach is considered to be the first stage of financial management that was utilized in the 20th century.
This approach is based on the earlier period experience and the customarily accepted techniques because the key part of this approach is usually to raise funds for the business concerns. Traditional approaches usually comprise of vital areas such as the arrangement for funds from the lending body, arrangements of funds via diverse financial instruments and funding out the various sources. The prominence in the traditional approach is basically on the procurement of funds by the corporate firms that were woven around the viewpoint of the suppliers of funds as investors (Finkler, Smith, Calabrese, & Purtell, 2016).
The aspect implies that the traditional approach was the outsider looking approach. Modern approach A modern approach is considered to be a methodical approach of looking into the company financial problems. According to this approach, the finance functions cover both acquisitions of funds in addition to funds allocation to diverse other uses. Basically, financial management is apprehensive with the aspects implicated in raising funds, efficiency and proper allocation of funds.
The modern approach is considered to be more balanced as it articulates that financing is mostly concerned with funds procurements and funds application as it offers equal weights to both utilization and procurement of funds. Question 2 Differences between fund flow and cash flow According to financial management, cash flow statement is considered to be a report that depicts the alterations in the cash position that is outflows and inflows of a company. Cash flow is a methodical reconciliation statement that enlightens the main purposes for the variation between the closing and opening cash balances over the period (Madura, 2011).
On the other hand, fund flow statement is considered to be a statement that shows the financial position ups and down or the variation in working capital of the firm between two financial periods. Question 3 Basing on the question, the PV of an ordinary annuity of $100 per year in perpetuity at the 7% rate of interest is $1,428.57. Present Value $100 0.07 $1,428.57 Present Value $100 0.14 $714.29 The PV of an ordinary annuity of $100 for every year in perpetuity at an interest rate of 14% is $714.29.
The PV of the perpetuity will decline because of the higher rate of discount (Brigham & Houston, 2012). Question 3 (b) Amortization $1,000,000 = PMT (PVIFA 15%^-5) PMT = $1,000,000/3.3522 = $298,316 Loan amortization table Year Beginning Bal. Payment Interest Principal End Bal 1 $1,000,000 $298,316 $150,000 $148,316 $851,684 2 $851,684 298,316 127,753 170,563 681,122 The principal is $170,563/$298,316 = 57%. Question 4 (a) Equity shares Equity shares are considered to be the share that is not preference shares as the dividends on this particular type of shares is usually paid after the fixed dividends rate have been paid on preference shares. Usually, the dividends rates on the equity shares are usually not fixed and largely depend upon the available revenue and the board intention (Madura, 2011).
Equity shares holders usually enjoy voting rights on all aspects that relate to the company business.