Companies typically pay dividends to shareholders in cash. Sometimes they supplement cash dividends with bonus shares or stock dividends. When paying cash dividends, companies must have sufficient cash reserves. If reserves are low, companies may need to borrow funds. Companies that follow a stable dividend policy must prepare cash budgets to ensure they can consistently pay dividends. Bonus shares increase the number of outstanding shares but do not affect total shareholder wealth. They provide tax benefits to shareholders and allow companies to conserve cash. A share split increases the number of outstanding shares by reducing the par value but does not change total shareholder equity or wealth.
Let's today to know something about Dividend...... A dividend is an extra income to dividend holder which totally tax-free in hands of Receiver which is considered the source of income.
Let's today to know something about Dividend...... A dividend is an extra income to dividend holder which totally tax-free in hands of Receiver which is considered the source of income.
venture capital, process of venture capital, stages of venture capital, stages and process of venture capital, early stage finance, later stage financing,
Investment Decision — Capital Budgeting Techniques — Pay Back Method — Accounting Rate Of Return — NPV — IRR — Discounted Pay Back Method — Capital Rationing — Risk Adjusted Techniques Of Capital Budgeting. — Capital Budgeting Practices
Gordon Growth Model plays an important role in determining the intrinsic value of a stock based on a future series of dividends that grow at a constant rate.
This ppt is all about the long term finance for the business. From which sources a business firm used to get their long term finance to run the business. So i hope it will help you to give your presentation . Thanks for the download. And if you find any mistake, please feel free to comment and inform.
or send me a mail in tatinpisa@outlook.com
venture capital, process of venture capital, stages of venture capital, stages and process of venture capital, early stage finance, later stage financing,
Investment Decision — Capital Budgeting Techniques — Pay Back Method — Accounting Rate Of Return — NPV — IRR — Discounted Pay Back Method — Capital Rationing — Risk Adjusted Techniques Of Capital Budgeting. — Capital Budgeting Practices
Gordon Growth Model plays an important role in determining the intrinsic value of a stock based on a future series of dividends that grow at a constant rate.
This ppt is all about the long term finance for the business. From which sources a business firm used to get their long term finance to run the business. So i hope it will help you to give your presentation . Thanks for the download. And if you find any mistake, please feel free to comment and inform.
or send me a mail in tatinpisa@outlook.com
This ppt is prepared to make familiar with the dividend policy which includes Types of Dividend policy, Procedure for declaring dividend, Why do companies declare dividend
Milestone 1You calculated the PV of home depot correctly in the .docxARIV4
Milestone 1
You calculated the PV of home depot correctly in the excel workbook, but you didn't make reference to that value in your analysis -- or how that value could change with interest rate movement. Please elaborate on your recommendation with your final submission.
Milestone 2
Hi Robert, your calculation in Part II #2 is incorrect. The formula should be: =FV(0.004375,40,0,-2963). I would like to see the formulas in your excel file and not just the results. You were also missing the dividend yield in Part I.
Milestone 3
The operating costs (row 8) should be $25.5M for each year
Running head: MILESTONE 3 1
MILESTONE 3 4
Robert Shulzinsky
Southern New Hampshure University
6 January 2018
Capital Budgeting Data
Net Present Value (NPV) of the Project
Net Present Value for the project for the five years will be given by the NPV value for the cash flows as shown by the capital budgeting sheet for milestone 3 minus the initial outlay.
NPV of the project = (CF1+CF2+CF3+CF4+CF5) – Initial outlay
= ($21,453,688.38)
Internal Rate of Return (IRR) of the Project
Internal rate of return (IRR) represents the interest rate at which the net present value of all the cash flows of a project will break even or will be equal to just zero value. From the calculations on the capital budgeting sheet of the milestone 3, the IRR of the project is 34% meaning that the company’s investments will need to grow at a rate of 34% to equal the initial outlay, which is way much higher than the interest rate in the market.
Implications of the Calculations
One of the implications of the calculations of the net present value calculations of the project is that it reduces that amount of cash flows for the project. Net present value calculations discount the amount of funds that will be received in future using the interest rate of the company. In this context, the amount is discounted because of the effect of time on the money received b a company. Another aspect of the net present value is that it enables the management of the company anticipate what the company will receive in future and take into account the inflows and outflows when making decisions (Peterson & Fabozzi, 2014).
On the other hand, internal rate of return provide a metric in capital budgeting for measurement of the profitability of a project with the given investments. The 34% internal rate of return mean that the company will require to grow its investments or the compound the investments by 34% in order to enable the company make the investment. A high internal rate of return is desirable when the company want to undertake the project. I would recommend the company to reject the project since it provides a negative net presen ...
The dividend policies of an organization have a significant bearing on the market value of stocks. Companies must distribute dividends in line with the industry standards and previously distributed dividends by the company. The shareholders will otherwise perceive this variability negatively. It casts suspicion on the financial health and motives of the management (signaling effect). In aggregate, an inefficient dividend decision mechanism would adversely impact the valuation of the company.
Table of Contents
What are Dividend Decisions?
Impact of Dividend Decisions on Price
Factors affecting Dividend Decisions
Cash Requirement
Evaluation of Price Sensitivity
Stage of Growth
Good Dividend Policy
Importance of Dividend Decisions
Q. How much Dividend should a Company Distribute to its Shareholders?
Q. What will be the Impact of Dividend Decisions on the Share Prices of the Company?
Q. What is the Consequential Impact of Inability to Maintain Dividend Year after Year?
Types of Dividend Decision
Stable Dividends
Constant Dividends
Alternate Dividend Decisions
Factors affecting Dividend Decisions
Cash Requirement
The financial manager must take into account the capital fund requirements while framing a dividend policy. Generous distribution of dividends in capital-intensive periods may put the company in financial distress.
Evaluation of Price Sensitivity
Companies chosen by investors for their regularity of dividends must have a more stringent dividend policy than others. It becomes essential for such companies to take effective dividend decisions for maintaining stock prices.
Stage of Growth
Dividend decisions must be in line with the stage of the company- infancy, growth, maturity & decline. Each stage undergoes different conditions and therefore calls for different dividend decisions.
Good Dividend Policy
What Constitutes a Good Dividend Policy?
There does not exist a single dividend decision process that works for every organization. A decision suitable for one company may prove fatal for another company. For example, businesses with a consistent order book such as telecom and banking are expected to pay regular dividends. It may impact the stock prices if they do not pay dividends regularly. On the contrary, sectors of pharmaceutical and technology are highly research-oriented. These require huge cash expenses to further their operations. Therefore they cannot afford to pay a regular dividend. Investors of such stocks earn income mainly through capital appreciation. In essence, there are a lot of factors affecting dividend policy or decisions.
We can refer to the following renowned theories on Dividend Policy:
Modigliani- Miller Theory on Dividend Policy
Gordon’s Theory on Dividend Policy
Walter’s Theory on Dividend Policy
A good financial manager must, therefore, answer the following questions before taking crucial dividend decisions
Importance of Dividend Decisions
While deciding the distribution of dividends, management has to answe
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3. Most companies pay dividend in cash .
Sometimes cash dividend may be supplemented by a
bonus issue (stock dividend). A company should have
enough cash in its bank account when cash dividends are
declared .
If the company follows a stable dividend policy
If the company does not have enough bank balance at the
time of paying cash dividend, arrangement should be
made to borrow funds. When the company follows a
stable dividend policy , it should prepare a cash budget
for the coming period to indicate the necessary funds
which would be needed to meet the regular dividend
payment of the company.
If the company follows a unstable policy
It is relatively difficult to make cash planning in
anticipation of dividend needs when the unstable policy
is followed.
4. The cash account and the reserves
account of company will be reduced when the cash
dividend is paid . Thus both the total assets and the net
worth of the company are reduced when the cash
dividend is distributed . The market price of the share
drops in most cases by the amount of the cash
dividend distributed.
5. An issue of bonus shares represents
a distribution of shares in addition to the cash
dividend (known as stock dividend in U S A) to the
existing shareholders . This has the effect in
increasing the number of outstanding shares of the
company. The shares are distributed proportionately .
Thus, a shareholder retain his proportionate
ownership of the company.
6. The bonus shares do not affect the wealth of the
shareholders. In practice , however , it carries
advantages both to shareholders and the company
Shareholders :The following are advantage of the
bonus shares:
Tax benefit
Indication of higher future benefit
Future dividends may increase
Psychological value
7. Company : The bonus share is also advantageous to
the company. The advantages are
Conservation of cash
Only means to pay dividend under financial difficulty
and contractual restrictions
More attractive share price
8. The bonus shares do not affect wealth. In fact bones
issue does not give any extra or special benefit to a
shareholder
It is more costly to the administer than cash dividend
Shareholder preferring cash to stock dividend may be
disappointed
9. A share spilt is a method to increase the
number of outstanding shares through proportional
reduction in the par value of the share . A share spilt
affects only the par value and the number of
outstanding shares, the shareholders total remain
unaltered.
10. As with the shares the total net
worth does not change and the number of
outstanding shares increases with the
share spilt . However , with the share spilt ,
the number of outstanding shares
increases substantially . The bonus issue
and the share spilt are similar except for
the difference in their accounting
treatment.
11. In case of the bonus shares the balance of
the of the reserves and surplus account decrease due to
the transfer to the equity capital and the share premium
accounts. The par value per share remain unaffected with
a share spilt , the balance of the equity accounts does not
change , but the par value per share changes , The
earnings per share will be diluted and the market price
per share will fall proportionately with a share spilt. But
the total value of the holding of a shareholder remains
unaffected with a share spilt
12. The followings are reasons or splitting of firms
ordinary shares
To make share attractive
Indication of higher future profit
Increased dividend
13. Under the situation of falling price of
company’s share , the company want to reduce the
number of outstanding shares to prop up the market
price per share . The reduction of the number of
outstanding shares by increasing per share Par value
is known as reverse spilt