Financial Management: Dividend Analysis and Investment Appraisal

Financial
Management

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
QUESTION 1..................................................................................................................................1
a. Analysing the size of the annual dividend for shareholders....................................................1
b. Analysis of the issues that are required to be considered while deciding on the size of the
dividend payment.........................................................................................................................2
c. Calculation of the effect of different dividend options on the wealth of the shareholders
owning 1250 shares within the organisation...............................................................................2
d. Critical discussion of the way in which company’s decisions will be influenced by the
opportunity to invest 70 million pounds in a project with positive NPV....................................4
QUESTION 3..................................................................................................................................4
1. Calculations using different techniques of investment appraisal............................................4
2. Critical evaluation of all the benefits and limitations of different investment appraisal
techniques:...................................................................................................................................8
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Financial management could be defined as the process of forming final accounts of an
entity and keeping track record of all the activities where money is invested so that actual
performance of business could be analysed. If the organisations will not be able to pay attention
towards it then it may result in decreased performance. While planning to enhance profits and
formulate strategic decisions for future it will be the one of the common factors which will be
required to be focused as it plays major role in attainment of long-term business goals. There are
various types of financial statements that are prepared under this procedure. These are profit and
loss account, balance sheet and cash flow statements (Ajam and Fourie, 2016). With the help of
all of them, actual position, liquidity, profitability etc. could be analysed so that future policies
could be formulated. Present report is based upon financial management of different companies
so that importance of it for them could be analysed. The questions that are selected for answering
purpose are first and third. First one is based upon the Squeezeco’s dividend policy and third one
is based upon different types of investment appraisal techniques which could be used by
Lovewell for the purpose of making decision in future.
QUESTION 1
a. Analysing the size of the annual dividend for shareholders
Dividend are the returns that are offered to the shareholders on the total funds that are
provided by them for carrying out all the operational activities of business in systematic manner.
With the help of it, all of them could be engaged in the operations of business as it motivates
them to ignore the withdrawal of investment form the enterprise. There are various types of
factors that are focused while calculating the actual value of dividend which is offered to the
shareholders. These are interest, depreciation, taxation etc. After paying all of them the
remaining earning is divided in to the shareholders in proportion of their ownership. While
analysing the size of annual dividend following two aspects are analysed by companies:
Requirement of company: The main aim of managers in companies is to make sure that
they are maintaining the good financial position. It is one of the main requirements of business
because if it will be able to carry out all the operations systematically with good financial
position then it can offer good returns to the shareholders. In this situation the size of annual
dividend will be high (Cantillon, Maître and Watson, 2016).
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Fair consideration: It is very important for all the managers of companies to have proper
details about the level with which the shareholders are expecting to receive the benefits in
monetary terms. When they will not be able to do the same then it will be very difficult for them
to make sure that they are keeping all the creditors happy. It may also result in negative
implications on market image of business.
b. Analysis of the issues that are required to be considered while deciding on the size of the
dividend payment
While allocating dividend to the shareholders following are some of the issues that are
required to be considered by the entities:
Weak financial position: When the financial position of the entity will be weak then it
will be very difficult to allocate good amount of dividend between shareholders. It is one of the
major issues which is faced by companies when they decide the size of dividend payment.
Unfulfilled financial requirements of business: It is another issue which is also faced
by the entities while deciding the size of dividend payment. When the financial requirements of
firm will not be fulfilled then it will eb very difficult to distribute dividend to the shareholders
because in this situation good profits are not generated. In this situation the management teams
are required to handle all the difficulties properly so that they can contribute in growth of
business (Denison and Kim, 2019).
c. Calculation of the effect of different dividend options on the wealth of the shareholders
owning 1250 shares within the organisation
The calculations of dividend on the basis of three options that are available to Squeezeco
are as follows:
i. A cash dividend payment of 15p per share
The dividend which is paid to the shareholders in cash or as bank balance is known as
cash dividend. Squeezeco is considering an option of offering cash dividend to all its
shareholders the calculation of it is as follows:
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