Finance for managers

This project report focuses on capital structure and payout policy of Boral Limited and capital budgeting task for Masters Limited. It includes company overview, evaluation of capital structure and dividend policies, and analysis of investment opportunity using capital budgeting techniques.

Running Head: Finance for managers
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Project Report: Finance for managers

Finance for managers
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Contents
Part 1: capital structure and payout policy.......................................................................3
Introduction...................................................................................................................3
Company overview.......................................................................................................3
Capital structure and dividend policies.........................................................................3
Conclusion....................................................................................................................6
Part 2: capital budgeting task............................................................................................7
References.......................................................................................................................11

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Part 1: capital structure and payout policy
Introduction:
In financial terms, capital structure describes a manner through which a company
could raise the funds for its assets. These sources could be a combination of equity, various
securities and debt. Capital structure is the combination of liability of a company. It briefs
that how could a company raise its funds to enhance the performance and overall growth of
the company. It focuses on the various sources which are used by the companies to raise the
funds (Madhura, 2011). Debt could be categorized into short term debt such as bond issues
and long term debt such as notes payable. On the other hand, the equity could be categorized
in the form of preferred stock, retained earnings, common stock etc. the process of capital
structure is quite crucial for an organization to evaluate and manage so that the new
opportunities could be grabbed by the company easily as well as the investment position of
the company could also be enhanced.
Additionally, payout policies are set of few guidelines and framework which could be
followed by an organization to manage and decide about the dividend payout. Dividend
policy is the other name of payout policy. It helps an organization to make a conclusion about
the total dividend payout ratio. It evaluates that how much amount of net profit should be
given to the stockholders of the company. Basically, the relevant and irrelevant policies are
followed by the companies to set the dividend payout ratio.
Company overview:
Boral limited is an Australian company which operates its business at multinational
level. The company mainly manufactures and supplies the building material and construction
material at Australia as well as at international level. Currently, approx 16,000 employees are
working with the company and the company is operating its business through 700 sites.
Headquarter of the company is in Sydney, Australia. Mainly, the company is running three
divisions which are Boral Australia, Boral North America and USG Boral. The main products
of the company are concrete, quarry, cement, concrete placing, asphalt, hardwood, and
roofing and softwood timber operations (Home, 2018)
Capital structure and dividend policies:

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Capital structure explains about the debt position and equity position of an
organization. In the report, capital structure information of Boral Limited has been collected
and evaluated to evaluate the company’s performance and the total cost of the company.
Capital structure makes it easy for the managers of the company to identify the total cost of
equity and total cost of debt of the company (Kinsky, 2011). Capital structure level of the
company is as follows:
Capital Structure
Total debt 2581800000 32.18%
total equity 5440500000 67.81%
8022300000
(Morningstar, 2018)
It briefs that the total debt of the company is 32.18% of total funds of the company
and the total equity is 67.81%. It briefs about the higher equity level than the debt level of the
company. In this position, the risk of the company is lower but at the same time, the cost of
the company is quite higher. The firm is required to pay dividends to the stockholders of the
company. Through the study, it has been found that the company is required to maintain 4%
of debt and 60% of equity to balance (Robb and Robinson, 2014).
In addition, payout policies are set of few guidelines and framework which could be
followed by an organization to manage and decide about the dividend payout. It helps an
organization to make a conclusion about the total dividend amount of net profit which should
be given to the stockholders of the company. Basically, the relevant and irrelevant policies
are followed by the companies to set the dividend payout ratio (Kaplan and Atkinson, 2015).
Relevant dividend policy explains about the high dividend payout ratio, it expresses that the
company is required to pay good amount of dividend to motivate and attract the investors
whereas the irrelevant dividend policy express about the lower dividend payout ratio, it
expresses that the company should not pay the dividend amount and must retain the profit for
further expenses.
The study on the dividends of the company of last 10 years has been evaluated and it
has been found that the company is following relevant dividend policy. The average payout
ratio of the company in last 10 year is 75% which explains that the 75% of the net profit of
the company is given to the stockholders of the company as the dividend amount (Chittenden
and Derregia, 2015). Relevant dividend policy briefs that the dividends which are paid by the

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company to its stockholders are positive aspect for both the company and the stockholder.
This policy explains that the investors always check the dividend payout ratio of accompany
before investing into the company’s stock. Though, miller and Modigliani (1961) stated in
their report that an organization should reinvest the net profit in its business rather than
distributing it to the stakeholders (Soltani, Nayebzadeh and Moeinaddin, 2014). The
followers of relevance theory explain that the regular dividend and proper dividend reduces
the level of uncertainty in the business. It further explains that due to regular dividends, the
stock price of the company also enhances.
Figure 1: dividend distribution
(Annual report, 2017)
Directors of Boral limited explain that they are following the relevant dividend policy
so that the uncertainty level could be reduced as well as the investors could attract more
towards the company’s stock. The dividend level of the company briefs that in 2017,
company has announced 24.0c dividend per share which is total of $ 281 million (ASX,

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2018). It expresses that the dividend payout ratio of the company is 82% which is quite
better. The stock price of the company also briefs that after dividend declaration, a growth
has been seen in the stock price of the company (yahoo Finance, 2018).
The policy and the evaluation on the company explain that the relevant dividend
policy has helped the company to manage and enhance the performance of the company. It
has helped the company to enhance the level of the stock price as well as the growth rate of
the company has also been enhanced due to great dividend payout ratio.
Conclusion:
The above study explains that the dividend payout policy of the company is quite
better. It assists the company to manage and enhance the stock performance of the company
in the market. Though, the capital structure position of the company explains that company is
required to make few changes into its structure to maintain the risk and the cost of the
company.

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Part 2: capital budgeting task
To: Masters limited
From: ABC (Financial analyst)
Subject: Analysis on the investment opportunity
Concerned person,
The given case briefs that an opportunity is held by you for the purpose of
investment. The investment opportunity has been evaluated and measured on the basis of
capital budgeting techniques. Capital budgeting techniques determine the investment
opportunity on various bases such as on the basis of profits, on the basis of present value, on
the basis of profitability index, total internal rate of return, total time in which inflow would
be achieved back etc. (Lord, 2007) According to the case, masters limited is approaching an
investment opportunity in which $ 10 million is the initial investment of the company and on
the other hand, the current cost of capital of the company is 15%.
The analysis on the case explains that the cash outflow of the company would be in
starting phase and the life of the machinery would be 5 years. The calculations and the
analysis on the total cash flow after 5 years explains that at the end of 5 years, total cash
inflow of the project would be $ 44,97,734. It briefs that the cash inflow is quite higher than
the cash outflow of the company and explains that the opportunity is a better one for the
purpose of investment (Burns and Walker, 2015).
Project evaluation (Calculation of total cash flows)
Year 1 Year 2 Year 3 Year 4 Year 5
Initial Outlay 1,00,00,000
Revenues 1,00,00,000 1,14,40,000 1,30,87,360 1,15,69,226 1,02,27,196
Expenses 10,000 50,00,000 57,20,000 65,43,680 57,84,613 51,13,598
Expenses 15,00,000 15,45,000 15,91,350 16,39,091 16,88,263
EBDT

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35,00,000 41,75,000 49,52,330 41,45,523 34,25,335
Less:
Depreciation 20,00,000 20,00,000 20,00,000 20,00,000 20,00,000
EBT 15,00,000 21,75,000 29,52,330 21,45,523 14,25,335
Less: Taxes 4,50,000 6,52,500 8,85,699 6,43,657 4,27,600
EAT 10,50,000 15,22,500 20,66,631 15,01,866 9,97,734
ADD:
Depreciation 20,00,000 20,00,000 20,00,000 20,00,000 20,00,000
cash flow 30,50,000 35,22,500 40,66,631 35,01,866 29,97,734
Changes in
Working
capital 15,00,000 15,00,000
Total cash
flow 44,97,734
(Levin and Hallgren, 2017)
Though, capital budgeting techniques study has been conducted on the investment
opportunity to identify that whether the investment opportunity is good for the company or
not. Firstly, the net present value of the project has been evaluated and it has been found that
if the company would invest into the project than the total NPV of the company would be $
7,17,937.91 which is quite higher and explains that the current profit value of the company is
$ 7,17,937. It suggests that the company should invest into the project.
Calculation of Net Present Value
Years Cash Outflow Cash Inflow
Facto
rs
P.V. of Cash
Inflow
P.V. of Cash
Outflow
$
-
$
1,15,10,000.00 1.00
$
1,15,10,000.00
$
1.00
$
30,50,000.00 0.87
$
26,52,173.91
$
2.00
$
35,22,500.00 0.76
$
26,63,516.07
$
3.00
$
40,66,631.00 0.66
$
26,73,875.89
$
4.00
$
35,01,865.83 0.57
$
20,02,203.16
$
5.00
$
44,97,734.35 0.50
$
22,36,168.88
$
1,22,27,937.91
$
1,15,10,000.00
NPV= Total Cash Inflow-Total cash outflow $

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7,17,937.91
Further, the internal rate of return of the project has been evaluated and it has been
found that if the company would invest into the project than the total IRR of the company
would be 17% which is quite higher than the cost of capital of the company. It suggests that
the company should invest into the project.
Calculation Of IRR
Years Cash Outflow Cash Inflow Net cash inflows
0 $ 1,15,10,000.00 $ -1,15,10,000.00
1 $ 30,50,000.00 $ 30,50,000.00
2 $ 35,22,500.00 $ 35,22,500.00
3 $ 40,66,631.00 $ 40,66,631.00
4 $ 35,01,865.83 $ 35,01,865.83
5 $ 44,97,734.35 $ 44,97,734.35
IRR 17%
(Shivaani, Jain and Yadav, 2017)
In addition, the payback period of the project has been evaluated and it has been
found that if the company would invest into the project than the total outflow of the project
would be got back in 3.21 years. It suggests that the company should invest into the project.
Calculation Of Payback period
Years Cash Outflow Cash Inflow Cash flows CF
0 $ 1,15,10,000.00 $ -1,15,10,000.00 $ -1,15,10,000.00
1 $ 30,50,000.00 $ 30,50,000.00 $ -84,60,000.00
2 $ 35,22,500.00 $ 35,22,500.00 $ -49,37,500.00
3 $ 40,66,631.00 $ 40,66,631.00 $ -8,70,869.00
4 $ 35,01,865.83 $ 35,01,865.83 $ 26,30,996.83
5 $ 44,97,734.35 $ 44,97,734.35 $ 71,28,731.18
3.21
More, the discounted payback period of the project has been evaluated and it has been
found that if the company would invest into the project than the total outflow of the project
would be got back in 4.76 years which means the total outflow would be get back in 4.76
years. It suggests that the company should invest into the project.

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Calculation Of discounted Payback period
Yea
rs Cash Outflow Cash Inflow
PV
factor P.V. CF
0
$ -
1,15,10,000.00 1.000
$ -
1,15,10,000.00
$ -
1,15,10,000.00
1
$
30,50,000.00 0.870
$
26,52,173.91
$ -
88,57,826.09
2
$
35,22,500.00 0.756
$
26,63,516.07
$ -
61,94,310.02
3
$
40,66,631.00 0.658
$
26,73,875.89
$ -
35,20,434.13
4
$
35,01,865.83 0.572
$
20,02,203.16
$ -
15,18,230.97
5
$
44,97,734.35 0.497
$
22,36,168.88
$
7,17,937.91
4.76
Lastly, the profitability index of the project has been evaluated and it has been found
that the profitability index of the project is 6.2%. It suggests that the company should invest
into the project.
Calculation of profitability index
Year
s Cash Outflow Cash Inflow PV factor P.V.
0 $ -1,15,10,000.00 1.00 $ -1,15,10,000.00
1 $ 30,50,000.00 0.87 $ 26,52,173.91
2 $ 35,22,500.00 0.76 $ 26,63,516.07
3 $ 40,66,631.00 0.66 $ 26,73,875.89
4 $ 35,01,865.83 0.57 $ 20,02,203.16
5 $ 44,97,734.35 0.50 $ 22,36,168.88
$ 7,17,937.91
PI= Total Cash Inflow/Initial Investment 0.062
Hence, according to the study on various capital budgeting techniques of the project,
it has been evaluated that the investment into this project would offer huge returns to the
company as well as the return is also higher than the cost of the company. Thus the Masters
limited is suggested to invest into the project. This opportunity would also enhance the
competitive position of the company.

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References:
Annual Report. 2017. Boral Limited. [Online]. Available at:
https://www.boral.com/sites/corporate/files/media/field_document/Boral-Annual-Report-
2017.pdf [Retrieved on 5th April 2018].
ASX. 2018. Boral Limited. [Online]. Available at: https://www.asx.com.au/asx/share-price-
research/company/BLD [Retrieved on 5th April 2018].
Burns, R. and Walker, J., 2015. Capital budgeting surveys: the future is now.
Chittenden, F. and Derregia, M., 2015. Uncertainty, irreversibility and the use of ‘rules of
thumb’in capital budgeting. The British Accounting Review, 47(3), pp.225-236.
Home. 2018. Boral Limited. [Online]. Available at: https://www.boral.com.au/ [Retrieved on
5th April 2018].
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Kinsky, R. 2011. Charting Made Simple: A Beginner's Guide to Technical Analysis. John
Wiley & Sons.
Levin, V. and Hallgren, A., 2017. The choice of capital budgeting techniques: a human
capital approach.
Lord, B.R., 2007. Strategic management accounting. Issues in Management Accounting, 3.
Madura, J. 2011. International financial management. Cengage Learning.
Miller, M. and Modigliani, F. 1961. Dividend policy, growth and the valuation of shares.
Chcago Journals, Vol 4.p.p. 411-433.
Morningstar. 2018. Boral Limited. [Online]. Available at:
http://financials.morningstar.com/balance-sheet/bs.html?t=BLD&region=aus&culture=en-US
[Retrieved on 5th April 2018].
Robb, A.M. and Robinson, D.T., 2014. The capital structure decisions of new firms. The
Review of Financial Studies, 27(1), pp.153-179.

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Shivaani, M.V., Jain, P.K. and Yadav, S.S., 2017. Perceptual Mapping of Capital Budgeting
Techniques: Empirical Evidence from Corporate Enterprises in India. Research
Bulletin, 42(4), pp.106-112.
Soltani, S., Nayebzadeh, S. and Moeinaddin, M., 2014. The Impact Examination of the
Techniques of Management Accounting on the Performance of Tile Companies of
Yazd. International Journal of Academic Research in Accounting, Finance and Management
Sciences, 4(1), pp.382-389.
Yahoo finance. 2018. Boral Limited. [Online]. Available at:
https://finance.yahoo.com/quote/bld.ax?ltr=1 [Retrieved on 5th April 2018].