Financial Management: Dividend Policy and Investment Appraisal Techniques

This document discusses the concept of financial management and its role in assessing funds and financial affairs. It focuses on dividend policy, including the size of annual dividends and practical issues to consider. It also explores different investment appraisal techniques and evaluates their benefits and limitations. The document provides insights into how companies make decisions that affect investment opportunities.

Financial Management

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY.................................................................................................................................................3
Question 2- Dividend Policy.........................................................................................................................3
1. Size of the annual dividend which return to its shareholders...............................................................3
2. Practical issues that need to consider at the time of deciding size of dividend payment......................5
3. Calculate the three options...................................................................................................................6
4. Critically evaluate how companies make their decisions which affects the investment opportunities. 8
QUESTION 3.................................................................................................................................................9
Description of all the investment appraisal techniques............................................................................9
Critical evaluation of benefits and limitations of all the investment appraisal techniques.....................13
CONCLUSION.............................................................................................................................................14
REFERENCES..............................................................................................................................................16

INTRODUCTION
Financial management is defined as having to work with others and assessing funds as well
as financial affairs to promote or budget accordingly after a person or a firm. A aspect of
financial auditing is the component a finance manager does for a company. It requires
information and appropriate management, distribution and exposure to businesses' current
liabilities, and availability of business financing items along with investment, revenue, payable
accounts and accruals, working capital and profitability (Alkordi, Al-Nimer and Dabaghia,
2017). Financial management is described as communicating with and evaluating property and
money to further prepare financial reports for a individual or a company. The instance of cash
decisions is the things undertaken for a corporation by accounts payable. This analysis is focused
on different separate questions where the first concerns dividend policy that covers many aspects
such as the magnitude of the yearly payout returned to its stockholders or many practical
problems that had to be addressed while making informed decisions on retained earnings. It also
includes the estimation of three choices and objectively analyses the measures made by the
organization in the third. Second question focused on capital budgeting techniques that enables
the economy evaluate increasing idea is advantageous to them or they does or doesn't innovate in
it.
MAIN BODY
Question 2- Dividend Policy
1. Size of the annual dividend which return to its shareholders
Dividend is essentially the sum or fraction of the income of a company, the gain in the
valuation and promotion of participants of the council; it is reported and payable as both a
percentage of par company's securities. In essence, a dividend is a component of the bonus which
really occurs after sufficient allocation has now been made for different types of services and
revenues etc. after all expenditure has been withdrawn from the total sales. Supporters are so
responsible for having the profit, and could not consent to the delivery purposes. When the
company wants revenue so entity retains the full percentage of the profits with or without
providing any distribution (Baker and Dellaert, 2017). Thus no dividends are registered in the

event that the net profit is supposed to still be in the context of a standard unit or shortfall.
Understand the two usual things listed below by you concentrate on interest earned.
Fair consideration
Management teams could use a reliable estimate of the magnitude to which stakeholders
expect to take advantage of the resources and take incentives in return. When this is not
achieved, it would also be impossible to keep the creditors absolutely satisfied because this will
want a negative effect on the group's investment performance on shares of gratitude.
Company’s requirement:
Handling the lengthy-term financial position is the administrators' main purpose,
particularly when representatives are expected to make certain concessions to do so. This is
indeed absolutely crucial enough for entrepreneur to be able to visually determine exactly how
often additional capital the industry needs to expand and prosper (Chiappini, 2017).
Factors determined at the time making dividend decisions:
When an organisation takes decision in regard of dividend for the distribution of the
shareholders. This time manager can focus on different things in particular manner such as:
Legal requirements: A corporation has no lawful moral obligation to interest - bearing debt.
There are, however, other law-imposed requirements on how distribution is allocated. There are
essentially three rules pertaining to dividend payouts. They're the law of net income, the law of
negative return and the law of bankruptcy.
Firm’s liquidity position: Payment of dividends is also influenced by the leverage status of the
company. Given ample capital gains, if the profits are not kept in money the company would not
be able to buy outright dividends.
Repayment need: To fulfill their capital needs, a company uses many types of equity financing.
Upon completion, the obligation must be forgiven. If the company needs to maintain its earnings
for debt servicing purposes, the ability to pay dividends reduces.

Expected rate of return: If the anticipated rate of interest on the capital funding is
comparatively higher for a company, the company tends to maintain profits for government
investment instead of just allocate cash dividends (Gaynor and et.al, 2016).
Stability of earnings: When a business has fairly predictable profits, it is much more probable
than with a company with fairly varying income to offer comparatively greater dividends.
2. Practical issues that need to consider at the time of deciding size of dividend payment
There a
Legal, contractual constraints and restrictions: It is among the most important measures
to be taken into consideration when evaluating a company's dividend strategy as it needs to grow
within the corporate framework and constraints. Declaring distributions is not legally enforceable
on the performance of the structure. Upon paying interest, distributions shall are only announced
or payable so out existing or previous income, though its Federal system allows any person to
pay distributions from out expected earnings for any fiscal years prior to spending billions.
Tax policy: The tax policy practiced as a company often influences a company's dividend
strategy. If it is easier to announce and pay dividends in money or by issuing reward securities,
relies on the taxation policy to some degree. Since dividend payments are not so beneficial to
buyers in higher income brackets, either (Gleasure and Feller, 2016).
Stability of dividends: For this reason it really should be given significant weight-age while the
same would vary through one company to the next. For example, the dividend payout should
have a level of consistency, i.e. income / revenue that vary significantly from week to week but
not really the distribution as stakeholders tend to consider predictable distributions rather than
varying ones. In many other terms, the companies consider a secure dividend in almost as often
as they do the annual dividend. Steady distributions relate to the continuity or absence of
variation in the income channel, payments shall be made on a consistent basis, i.e. a certain
specific number of payout.
Inflation: Inflation could also influence a company's payout strategy. Through can costs, the
finances created by deflation can fall well short to replacement outdated technology. The deficit
can be rendered from financing activities (as a funding source). This is really important because

in the foreseeable term the properties have to be substituted. As being such, the dividend yield
throughout times of inflation appears to be small (Halim and et.al, 2019).
3. Calculate the three options
Cash dividend: Cash dividends reflect control of the distributed income to company ’s
shareholders and offer an opportunity for buyers to invest the stock of big businesses, even
though they're not growth-oriented. People paying cash dividends produce usually good working
capital for coming periods and thus are generally seen as economically viable. Yet most
dividend-paying businesses aren't growth-oriented. Rather, they look to enhance the investors'
interests and to create a stable revenue source for their investors. Companies are now looking to
develop into developing companies and are focused on potential prospects for growth. Many
dividend-paying firms preferably place their dividend payment at about fifty percent -55 percent,
and allocate the resulting remaining balance as a distribution to their stakeholders.
Interpretation: Shown above list illustrates that for housing benefits, a requirement of 1250
shares issued are deemed necessary; bribe money is the decision being made to make profits.
And the maximum tax deduction is £187.5 per transaction, at 15 pesa.
5% Script dividend:
Scrip dividend, also recognized as responsibility dividend, is paid by the employer to its
current shareholders of a certification rather than a ways of earning that presents its investors
with the option of collecting distributions at a specific point in time or can take shares rather than
dividend. Industries give such distributions whenever they don't have enough money to meet as a
payment (Holmström and et.al, 2016). The concept scrip dividend means the process of choosing
stakeholders to obtain a special dividend, a return on capital at a certain specific point in time, or

common shares. These help investors to change the amount of their assets while risking any
charges whenever a government announces cash bonuses.
Interpretation: Premised on the said calculation, actual shares of the company are estimated to
be 1250 while 5 per cent are derived from other new deposits as were often pending revenue, and
this would be 62.5. The expenditure per unit is assessed at £270 and the maximum value of the
owner of the business being received new offers is £270.
Repurchase of 15% shares at current market price:
A share buyback is a process by which a corporation is buying back the own stock. A
business may buy back its own shares since they are considered underpriced by leadership. The
corporation purchases stock directly from the marketplace or gives its owners the right to sell
their ordinary shares at a predetermined fee to the firm. Often referred to as a special dividend,
this act decreases the value of the shares, that raises that both equity supply and the value. The
stakeholders will now have to find a lovely plan once the buyback costs increase by 10 per cent.
A further prerequisite for companies' agreement to buy back shares should be that the amount of
the current debt, both protected and unlimited (Karpoff and et.al, 2017).

Interpretation: There are 1250 existing options where only the prevailing purchase price pays a
fixed at a rate of 15 per cent, which are 187.5. The deal cost for the agency is 50p, and the
biggest cost for the enterprise is 432p. Then the relationship between the two might effectively
be 382p and is appealing to creditors. Squizeco buys back the deal and reveals that it would be
established as inventory, a measure made by the directors to communicate.
4. Critically evaluate how companies make their decisions which affects the investment
opportunities
Return on investment: The consequence on sustainability is one of the apparent factors
influencing purchasing decisions. Developers can quantify this in a variety of different ways but
sometimes the easiest method is to calculate a financial return. The value of the land is the
percentage gain and everything to lose by doing an operation
Effect on resources: Remember also the cumulative impact on staff in advertising, human
resources, accounting, development and systems engineering when measuring income from a
sound effect. When producing a specific device prevents employees from other operations, they
might be missing other opportunities for investors. If overburdened workers will start to lose top
personnel for making and selling products (Li and et.al, 2016).

QUESTION 3
Description of all the investment appraisal techniques
The payback period: Whenever a company is able to fund the venture or choose the best
options for organization improvement, and can be used to assess the time that the task will take
to reclaim the initial wealth. In other phrases, it could still be described as the period of time an
undertaking could needed to complete the threshold of breaking quite that is no benefit and no
expense. It is one of the successful budgeting methods which allow all the companies'
administrators identify the best approach for the company. The organizations will determine,
with both the aid of it, whether to consider investing in the venture or otherwise. If the timeframe
is large, the alternative should not be specified and when it is low, it really should be chosen
since this entire construction value can be restored in a short amount of time (Nollet, Filis and
Mitrokostas, 2016).
Payback period = Initial Investment / Cash Inflow
= £ 275,000 / £ 85,000
= 3.79 years
Accounting rate of return: This investment evaluation methodology is also recognized as
average return rate which is used by the companies in fundamental analysis to distinguish
between two various types of organizations. Cash equivalent cost is not factored into the
equation when being used which can influence its classification accuracy. It supports to evaluate
the returns the outlines the advantages would produce. The outcomes of this are expressed in
numerical way to allow management or stakeholders to assess the overall return that could still
be obtained with the aid of the venture chosen. To measure it, the gross income is measured by
the venture's total expenditure and the figures are therefore compounded by 100 in attempt to
determine the level of return.

Accounting Rate of Return = £ 33,541.67 / £ 275,000 * 100
= 12.19 %
Working Notes:
The Net Present Value: This capital budgeting method is being used in fundamental analysis
for the order to calculate the cost of capital of the planned ventures in order to select the correct
option among them all. Majorly, the distinction among discount rate expected revenue and real
cash evaporation or original expense is the one. If the results are satisfactory then the proposal
should be chosen and if the information is wrong then the option must not be chosen since it will
raise the manufacturing profitability in the future seasons (Otley, 2016). To ensure that the
correct design is chosen to achieve all the long-term targets, choosing the correct proposal based
on the net current benefit approach would become quite relevant for the administration of
organizations. Unless the company is unable to pick the right venture, it will have a significant
impact on corporation performance and therefore result in long-term damages.

The internal rate of return: This is primarily related to the sustainability of the projects in order
to make the best plans for the future that also affect the economy. In the use of net present value
it is densely packed because then reliable results can be produced. It is a form of present value
that is used to allow the total value of the cash receipts equal to 0 from either a particular
variation or ultimately pay. In other words, this methodology of investment evaluation is a
calculation of an investment portfolio anticipated rate of return. This is the calculation of the
potential annualized average that could be created as additional income on the venture chosen by
the client.
PV @ 12 %

Present value @ 20%

Recommendations:
• Payback period - based on expected payback period interest, it may be prescribed how Love-
well sets the amount the unit. It is so because an approximate 3.79-year time span is acceptable.
• Return accounting rate - The estimated ARR value is 12.20 per times faster than reasonable
to compensate from investment costs. And corporation Love-well will buy the latest tools.
• Net present value - Whenever NPV indicates tangible consequences for any project then
businesses will purchase the project. As regards the above business, the present values
development of the business industrial equipment is 43700 pounds. Therefore they should
purchase that manufacturing equipment (Quinn and Connolly, 2017).
• Internal Return Rate - The Company IRR of the above business is 6.56 per cent, and was
reasonable for both of them to reimburse infrastructure costs. Then they will keep on buying new
materials.
Based according to the above review, Love-well Corporation should consider this will go
towards capital equipment, as that will be profitable for themselves.
Critical evaluation of benefits and limitations of all the investment appraisal techniques
There are different forms of investment appraisal approaches that the organizations use to
formulate future business decisions. We do have different benefits and disadvantages. These are
all as chooses to follow:
Payback period: Some of the advantages and disadvantages of the repayment method are listed
elsewhere here:
• Benefits: This process easy and possible to recognize, although its measurements are quite
basic. In addition to all of this, it offers effective responses to occur causing.
• Drawbacks: this will not take into account all cash flow yet this strategy is not practical, but
neither does it take into account efficiency.
Return rate of accounting: several of the main return rate advantages and disadvantages are
listed below:

• Benefits: it is very easy to quantify and can be widely accessed and allow management to
develop successful business development decisions. This promotes the evaluation of two
initiatives chosen for potential investment purposes, and then directs you to choose which right
these from these (Rigamonti, Sterpi and Grosso, 2016).
• Disadvantages: lack of understanding of a distance involved has been one of the big drawbacks
to this capital investment methodology. Over this, the findings could not have been adequately
believed, as errors in measurements can occur due to stupidity of the risk premium.
Net present value: The major components to concentrate on when utilizing net present value
approach are listed elsewhere here:
• Benefits: This is focused on capital investment expectations and also serves and provides a god
test of productivity. It aims to compare the threats associated with specific variables.
• Drawbacks: this approach ignores fixed costs which can result in measurement errors. Besides
that, that's not important for this project which had various shapes.
Internal rate of return: The following are both the advantages and disadvantages of someone
using the internal rate of return:
• Benefits: The estimation of the IRR net present value is taken into account in the equations that
help to create consistent outcomes. Interpreting it is very easy approach that can help
organizations quickly understand.
• Drawbacks: The efficiency gains that can influence the outcome and their accuracy are
overlooked when used for calculating the required rate of return. Unless the proposals the
company chooses for financial purposes are equally incompatible then this process can not be
used to choose the right these from everyone (Workman, Shafran and Bark, 2017).
CONCLUSION
It was inferred from the above discussions that financial management is important to know,
as it will help people identify their economic growth. The analysis is split into two categories,
one of which is about debt financing and the other is strategies of investment appraisal. Manager
should be aware of the advantages of scrip dividends for businesses and investors alike. In the

other hand, administrators can determine the business is worthwhile to spend or not by using
analytical methods. Nearly all companies utilized investment appraisal specialists to analyze
their ventures or determine what is effective and profitable for company.

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