Financial Management: Size of Dividend and Investment Appraisal Techniques

Financial
Management

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
QUESTION 1..................................................................................................................................1
a. Analysing the size of dividend to return to the shareholders...................................................1
b. Practical issues which should be analysed while deciding size of dividend payment.............2
c. Impact of all the alternatives upon the ownership of shareholders..........................................2
d. Analysis of the way in which the decision of company could be influenced by opportunity
to invest specific amount in a project which is having positive net present value......................3
QUESTION 3..................................................................................................................................4
1. Calculation using various techniques of investment appraisal to determine suitability of the
investment option.........................................................................................................................4
2. Discussion of different limitation and benefits of all the investment appraisal techniques....8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial management is a broad concept which is focused with formulation of different
types of accounts and reports that are covering detailed information of financial transactions of
an entity. While planning to attain growth and development for business it will be very important
for businesses to assure that all the final accounts are formulated in systematic manner. With the
help of it, the management teams can assure that all the plans that were formed by them
previously are resulting positively or negatively for business (Ajam and Fourie, 2016). Main aim
of this assignment is to understand the importance of financial accounting for the businesses to
attain success in future. First question which is selected to complete this report is question 1 and
the topics which will be covered in it are size of annual dividend to return to shareholders, issues
that are required to be focused while deciding the size, assessment of different options of
dividend etc. Second question which is selected for this report is question 3 which is mainly
based upon use of investment appraisal techniques that could be used by the organisation. These
techniques are payback period, net present value, accounting and internal rate of return. Apart
from this, benefits and drawbacks of using them are also covered in this assignment.
QUESTION 1
a. Analysing the size of dividend to return to the shareholders
For all the businesses it is very important to analyse that they are able to provide returns
to all the shareholders on their ownership so that they could be retained for long run. While
deciding the size of the dividend different factors are required to be focused by the organisations.
The size of it could be small or big and it is dependent upon following factors. Discussion of
them is as follows:
Ownership of the shareholders: It is one of the key factors which decides the size of
dividend because while offering dividend to the shareholders it is required to be assessed that
they are having large or small part in the ownership. When it will be large them high dividend
will be offered the shareholders will small part will receive lower dividend.
Preference of shareholders: It is another key element which helps to decide the size of
dividend of the shareholders. Most of the stakeholders want dividend on their ownership but
some of them want to increase their ownership so they prefer share against the dividend. While
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deciding the size of the dividend then it will be very important to analyse preferences of all the
stakeholders (Danes, Garbow and Jokela, 2016).
b. Practical issues which should be analysed while deciding size of dividend payment
When deciding the size of the dividend to the shareholders it will be very important for
all the managers of the companies to determine the issues which may take place in future. All of
them are discussed below:
Lack of funding: It is one of the main issues which may affect the decision of deciding
the size of dividend. When the organisation will not be having sufficient funds then it will be
very difficult to offer dividend to the shareholders. In case of lower profits, the dividend of them
is retained so that it could be used in future to fund all the operations.
Conflict of interest of shareholders: It is very important for all the entities to determine
that shareholders agree to the dividend scheme which is selected by the organisation whether it is
regarding cash or scrip dividend. If some of them need cash or some of them are agreed with
scrip scheme then it will result in conflict of interest of shareholders. Due to this, the managers
can face issues for meeting expectation of all the shareholders (Delkhosh and Mousavi, 2016).
c. Impact of all the alternatives upon the ownership of shareholders
Squeezeco is the organisation which is planning to select one dividend scheme that best
meet its goals. Calculation of them along with the justification of selection of one of them is as
follows:
Cash dividend: When entities offer cash as discount then it is considered as the cash
dividend. The calculation of it for the entity is as follows:
Scrip dividend: When shares are offered by the companies instead of cash to the
shareholders then it is considered as the scrip dividend (Denison and Kim, 2019). The detailed
calculation of it for the entity is as follows:
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