Managing Finance: Capital Structure and Dividend Policy
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This article discusses the capital structure and dividend policy of Royal Bank of Canada. It covers the sources of funds for financing debt, dividend payment trend, and implications of increased dividend payment.
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Running head: MANAGING FINANCE Managing Finance Name of the Student: Name of the University: Author’s Note: Course ID:
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1MANAGING FINANCE Table of Contents Question 1: Capital structure...........................................................................................................2 Answer to Part 1:.........................................................................................................................2 Answer to Part 2:.........................................................................................................................2 Answer to Part 3:.........................................................................................................................2 Answer to Part 4:.........................................................................................................................3 Answer to Part 5:.........................................................................................................................3 Question 2: Dividend policy............................................................................................................4 Answer to Part 1:.........................................................................................................................4 Answer to Part 2:.........................................................................................................................4 Answer to Part 3:.........................................................................................................................4 Answer to Part 4:.........................................................................................................................5 Answer to Part 5:.........................................................................................................................5 References:......................................................................................................................................6
2MANAGING FINANCE Question 1: Capital structure Answer to Part 1: Answer to Part 2: Royal Bank of Canada is not identified to issue any preferred equity in the last three years. Therefore, preferred equity has not been taken into account. Answer to Part 3: The primary source of the funds for Royal Bank of Canada for financing its debt are listed below as follows: Lease commitments At present, finance lease commitments have been identified with leasing computer equipment from third parties under finance these agreements. The different types of leases have their individual escalation and renewal rights. The “net carrying amount of computer equipment
3MANAGING FINANCE held under finance lease as at October 31, 2017 was$44 million (October 31, 2016 – $47 million)”. This amount is used to finance its debt obligations (Rbc.com, 2018). Bonds and deposit notes: Royal Bank of Canada is commented to raise its long-term finance using “Canadian Deposit Notes, Canadian NHA MBS, Canada Mortgage Bonds, credit card receivable-backed securities and Kangaroo Bonds” which are issued in Australian domestic market by the various foreign firms. In addition to this, the bank has deposited in Yankee Certificates of Deposit “(issued in the U.S. domestic market by foreign firms)”. The total amount of investment has amounted to $ 25 Billion(Rbc.com, 2018). Answer to Part 4: Answer to Part 5:
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4MANAGING FINANCE Question 2: Dividend policy Answer to Part 1: Answer to Part 2: Answer to Part 3: Based on the findings, it has been observed that the bank has maintained its dividend per share on an increasing trend. The total annual dividend payment has increased from $ 44 million in 2015, $ 48 million in 2016 to $ 50 million in 2017. Furthermore, the dividend payment has increased from 3.08 in 2015, 3.24 in 2016 and 3.48 in 2017. The increasing trend is backed up by linear growth in the net income of RBC (Finance.yahoo.com, 2018). The nature of the dividend is depicted to be regular dividend policy in which the investors have obtained a usual rate for the dividends. This is due to the fact that most investors are retired individuals who are willing to receive more amount of regular income. The rationale
5MANAGING FINANCE of RBC for such a dividend policy is because of its regular earning from various sources such as “personal and commercial banking, wealth management, insurance, capital markets, treasury services and corporate support”. Answer to Part 4: The implications of increased dividend payment deliver the following indications to the market investors: It shows that market values of share are stable in nature It creates confidence among the shareholders through increased dividend payments Ensuring regular income for shareholders The goodwill of the bank is increased with the help of dividend policy (Momani & Stirk, 2017) Answer to Part 5: As per the depictions of the discourse it has been observed that most of the banks in Canada follow a stable dividend policy for ensuring constant dividend paid by share. In case of RBC, the bank maintains the reserves for certain amount of dividend support the situation when there is decreased earnings. Henceforth, the bank follows a separate dividend policy to diversify its base of shareholders and “obtain maximum funds from the market” (Rbc.com, 2018).
6MANAGING FINANCE References: RY : Summary for Royal Bank Of Canada - Yahoo Finance. (2018).Finance.yahoo.com. Retrieved 27 April 2018, from https://finance.yahoo.com/quote/RY/ Momani, B., & Stirk, J. (2017). Diversity Dividend: Canada's Global Advantage. Rbc.com.(2018).Retrieved27April2018,from http://www.rbc.com/investorrelations/pdf/ar_2017_e.pdf Rbc.com.(2018).Retrieved27April2018,from http://www.rbc.com/investorrelations/pdf/ar_2016_e.pdf Rbc.com.(2018).Retrieved27April2018,from http://www.rbc.com/investorrelations/pdf/ar_2015_e.pdf