Financial Management: Size of Dividend and Investment Appraisal Techniques

Financial
Management

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
QUESTION 1..................................................................................................................................1
1. Assessment of the size of dividend to offer returns to the stakeholders of the organisation...1
2. Discussion of the issues which are required to be focused while deciding the size of
dividend.......................................................................................................................................2
3. Analysing the impacts of three options on the wealth of all the shareholders who are owning
12500 shares in the company.......................................................................................................2
4. Discussion of how the decisions of company will leave influence on the opportunity to
make investment of 70 million pounds in the project which is having positive NPV.................4
QUESTION 3..................................................................................................................................4
1. Making calculation on the basis of different investment appraisal techniques so that
recommendation regarding economic feasibility of the machine could be provided..................4
2. Discussion of different drawbacks and benefits of all the investment appraisal techniques...8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial management is a technique which is focused by companies to manage the
investments and other financial activities so that the position of business could be maintained in
the market. If the managers working within the entity are not able to perform all their duties
properly then it may result in weak execution of business and improper performance. When it is
focused by managers then they have to pay attention towards different elements. These are
dividend policy, investment appraisal techniques and other final accounts related activities (Al
Nuaimi and Nobanee, 2019). In this report different aspects are focused to understand the
importance of financial management for the businesses. The two questions that are selected for
answering purpose are first and third. First question is about dividend options and size of
Squeezeco. Third question is all about use of investment appraisal techniques for assessment of
feasibility of the new machine in which investment will be made by Lovewell Limited. Different
topics that will be covered in this report is analysis of size of dividend and the issues that should
be focused at this time, impact of different investment decisions on ownership of shareholders
etc. Apart from this, different techniques of capital budgeting such as IRR, NPV, ARR and
payback period will also be used to evaluate feasibility of the project in this assignment.
QUESTION 1
1. Assessment of the size of dividend to offer returns to the stakeholders of the organisation
When an individual invest money in shares of a company then a right to gain returns on
the same is provided by the entity to the shareholder. The return is known as dividend which will
be gained on the total invested amount. While planning to offer return to the shareholders it will
be very important for the companies to decide the size of the dividend. The key factors which are
focused in this process are as follows:
Requirements of the enterprise: It is very important for the management teams of all
the entities to assure that they are able to manage the good financial performance of business. If
it will be good then the size of dividend will be big because in this situation the organisation will
generate higher profits and will be able to offer good dividend to the shareholders (Aldakhil,
2016).
Fair consideration: It is another factor which is focused while planning to decide the
size of dividend. While assessing it for managers it will be very important for the managers to
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determine that they are able to analyse the level of returns that shareholders are willing to
generate on their investments. With the help of it, the managers can decide the size of return
which should be offered to the shareholders.
2. Discussion of the issues which are required to be focused while deciding the size of dividend
When the managers will be formulating decision regarding size of dividend then it will be
very important for them to take all the issues in to consideration which may take place while
deciding the size. All the issues are as follows:
Improper financial position: While deciding the size of dividend it will be very
important for the managers to make sure that they are able to analyse the financial position. If it
will be weak then it may affect the dividend which will be offered to the shareholders. This
problem could be faced by the entity while offering dividend because if it will be weak then no
dividend will be offered (Arofah, Purwaningsih and Indriayu, 2018).
Unsatisfied requirements of the business: It is the second problem which is faced by
the entities when they are planning to decide the size of dividend. If the finance related needs of
businesses will not be met then it may result in small size of dividend. When the requirements
will be fulfilled then it will result in higher dividend for the shareholders.
3. Analysing the impacts of three options on the wealth of all the shareholders who are owning
12500 shares in the company
All the computations of dividend by focusing upon all the options that are available to
Squeezeco are as follows:
i. First option: Cash dividend of 15p per share
When the entities offer the dividend in cash or bank balance then it is known as cash
dividend. If this option will be used by Squeezeco for offering dividend then its calculation will
be as follows:
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