Effect of Divident Policy on Wealth
14 Pages3912 Words144 Views
Added on 2019-12-28
Effect of Divident Policy on Wealth
Added on 2019-12-28
ShareRelated Documents
CORPORATE FINANCIALMANAGEMENTmlsu1
TABLE OF CONTENTSIntroduction..........................................................................................................................................41) Analysts often value a firm by reviewing its dividends and the firm’s policy on dividend; Miller & Modigliani posit that a firm’s dividend policy is irrelevant in its valuation......................42) Examine capital structure of British land Plc...............................................................................8a) Business and financial risks facing the firm.................................................................................8b) Financial performance..................................................................................................................9c) Debt capacity of the business and sources of financing available to the firm............................12d) Recommendation on an optimal capital mix of the firm............................................................13Conclusion..........................................................................................................................................13References..........................................................................................................................................14mlsu2
INTRODUCTIONFinancial status of an entity is important in order to survive in the competitive market as thiswould heal the health of the business from sudden attacks. This project is all about Tesco, WHSmith and British Land pc organisation in discussing about the corporate structure of their business.This corporate structure mainly includes capital structure including debt and equity as importantcomponent that drives the overall growth of the firm. The performance will be regulated by payingdividend in order to retain shareholders within the same entity for long time period.1) Analysts often value a firm by reviewing its dividends and the firm’s policy on dividend; Miller & Modigliani posit that a firm’s dividend policy is irrelevant in its valuationCapital structureThis terminology is widely used in the corporate finance in which the efficiency of existingcapital of an entity is increases. The capital structure of enterprises is regarded as special frameworkthat speaks about various components used as efficient source of financing. The businessrequirements will be financed using different factors such as equity as well as debt component inorder to uplift their existing market conditions (Amiraslani, Lins, Servaes and Tamayo, 2016). Theposition of business can be strengthened by making significant changes in the overall capitalstructure of the business enterprise as usage of various components in the business will help inachieving desired goals and the objectives of an enterprise owner like British land Plc. The relativeproportion of equity and debt will be determined in order to bring market volatility in the existingbusiness. The value of an enterprise can be increases by increasing the internal value of business bydecreasing cost of capital for using variety of finance in the business.Walter modelThe efficiency of the dividend will be increase with the execution of this approach in orderto determine the deserving dividends to all the shareholders. The dividend is essential for theshareholders in order to maintain the loyalty among all the shareholders of WH smith and Tesco plcstakeholders to strengthen the overall business. This strength is essential in order to grab highermarket share. The current model of determination of dividend propounded by Walter is emphasiseson the value of an enterprise (Chakraborty, Baum and Liu, 2017). The primary motive of thisparticular model is to show the relationship between internal rate of return and cost of capital and itsoverall effect on the business value of an enterprise like Tesco and WH Smith plc.Assumptions to be followed by an entity in order apply the current model in their business togenerate better results includes:100% financing through retained earningmlsu3
Internal rate of return(r) and cost of capital (k) remains constantAll profits are distributableOpening profits and dividends never changeThe life of firm should be infiniteP= D+r (E-D)/K/KP= Current market price of equity shareE= Earnings per shareD= Dividend per share(E-D)= Retained earningr= rate of returnK= cost of equityParticularsWH SmithTESCOP1760190.25E95.62.77D43.911.29(E-D)3783265R72.77%4.22%K7.5%4.34%P= D+r (E-D)/K/K48.7918.60Gordon ModelIt is regarded as another important method used to determine the amount of dividendpayable by an entity owner to its variety of shareholders holding adequate share in the business.This model is popular method used by an enterprise owner which is externally related to the marketvalue of firm (Fracassi, 2016). This model is developed by Myron Gordon in order to assess theexisting financial resources in order to determine the adequate amount of dividend to retain all theshareholders in the same entity for long period of time.AssumptionsAll source of financing is from only equity and no other source of financeNo external source of finance is availableInternal rate of return (r) remains constant in the firmCosts of capital will also remains constant denotes by symbol KCorporate taxes doesn’t existsP0= D1/Ke-gD1= Expected dividendG= growth ratemlsu4
End of preview
Want to access all the pages? Upload your documents or become a member.
Related Documents
Dividend Irrelevance and Capital Structure Theorieslg...
|7
|2067
|323
Corporate Financial Management: Dividend Policy and Financial Analysis of Sainsbury Plclg...
|22
|4536
|446
Analysis of Dividend Policy Assignment 2022lg...
|12
|3178
|26
Corporate Financial Management: Dividend Policy Theories and Financial Analysis of Easy Jet Airlinelg...
|21
|4550
|401
Assignment on Advanced Corporate Financelg...
|12
|3820
|192
Dividend Relevance and Irrelevance Theory for Mergers and Acquisitionslg...
|12
|3705
|423