Financial Management Report: Dividend Policy and Investment Appraisal

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Financial Management
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Table of Contents
1)......................................................................................................................................................3
A).....................................................................................................................................................3
B).....................................................................................................................................................8
C)...................................................................................................................................................12
Question 3......................................................................................................................................13
Payback period method..................................................................................................................13
Accounting rate of return (ARR)...................................................................................................14
Net present value...........................................................................................................................15
Internal rate of return:....................................................................................................................16
References......................................................................................................................................22
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1)
Dividend Policy
Dividend policy is the policy of the organisation; the policy is only for the shareholder to make
comfort to invest in the organisation to gate the maximum funds from the external part of the
organisation. The organisation is making the structure its dividend payout to shareholders for
making more money for the expansion of the organisation (Corporate finance institute, 2019).
On the other hand, some researcher thinks that the dividend policy is the irrelevant theory;
because the investor wants money for any reason, then the investors will sell the share of the
organisation.
A)
Dividend discount model
Dividend discount model is the method that makes the valuation of the company’s stock price
based on the stock of the theory payment of the dividend in the future fives to the shareholders.
The shareholder’s payment will discuss the future, and they will take the discount in the dividend
policy, and they will earn maximum funds for the running in the present operations. On the other
hand it is making the net present value from future dividends (Vaidya, 2019).
Dividend discount model = D1/ (K-g)
D1 = future dividend of for the next year
K = Cost of capital or Rate of return
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G = Growth
The formula gives the present value of the dividend policy, and this will helps the organisation to
make the effective rate of the dividend policy to the shareholders. Financial theory determines
the value of the stock that is held by the department, and it based on the future cash flows
expected that will generate by the firm from the discounted with all term of risk which has
counted and make the net present value.
Dividend discount model is all discussed then only it makes the price of the value, it includes the
future cash flows discounted by the minimum required rate of the return, and they will make the
investors demand the risk is owing to the stock. The dividend policy is the main objective of the
organisation is making more funds in the organisation, and the organisation is doing for the
expansion or more production from more demand, then they have to give the dividend policy.
The dividend policy will raise funds, and increase the brand value of the organisation; in short,
this is called capital appreciation.
Capital appreciation
Capital appreciation is the method to increase the fund for the organisation, and the capital
appreciation can be done from the different sources of the organisation, such as
 Dividend policy Loan from bank Capital from owners Market
Valuation of the share by dividend method
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The valuation of the share can be made from the dividend method, and in which there are two
types of the valuation, such as based on percentage or rate of dividend, and another one total
amount of dividend.
The percentage of dividend is the dividend, which calculated as per the future value of the
dividend and they will decide the percentage of the dividend will set in the year wise, and they
will gate the satisfaction of the customer as well as organisation. The percentage of dividend is
easy to make, and they will cover the value from the discounted (Jit, 2019).
The total amount of dividend will be issued with the different types of the shareholders, and they
will gate the share as per the purchase share. The shareholders are purchasing, and all the stock
of the shares will give the proper valuation and make the efficient valuation of the share.
The dividend growth rate has calculated by the formula
Growth rate = (next year’s dividend- current years dividend)/ current year’s dividend)* 100
As per the planet share, will issues has announced an ordinary dividend per share of 20p. The
below calculated the value, the average growth also has to give the importance to the investors,
and that has calculated below for all four years (Clear tax, 2018).
Year Dividend rate
0 13%
5

1 14%
2 17%
3 18%
4 20%
Cost of Capital 14%
As per the information it has calculated by Gordon models by management.
Calculation of growth rate
D1 = D0(1+g)4
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(1+g) =
(1+g) =
(1+g) =
(1+g) = 1.113708
7
∜(D0/D1)
∜(20/13)
∜ 1.538

Growth rate = 1.113708-1
Growth rate = 11.37%
Dividend discount model = D1/ (K-g)
D1 = future dividend of for the next year = 20
K = Cost of capital or Rate of return = 14%
G = Growth rate = 11.37%
Valuation of Share = D1(1+g)
K-g
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Valuation of Share = 20*(1+0.113)
.14-.113
Valuation of Share = 22.26
0.027
Valuation of Share = 824
The valuation of the share calculated above the table, and that gives the proper share value, the
value is paid by the shareholder to purchase. The valuation of share can be calculated from the
future dividend and cost of capital and the growth rate, and that has calculated above the table.
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B)
As per the planet now decides to increase its debt level because any organisation is having more
pressure and risk to control the debt. The planet is also increasing the risk with the equity shares.
The planet’s shareholders increase the rate of return for more earning. Planet has changed the
rate of return from 14% to 15.4; from this, it makes all changes, and it also changes in stock.
As per information
Year Dividend rate
0 13%
1 14%
2 17%
10

3 18%
4 20%
Cost of Capital 15.40%
As per the case, the cost of capital has changed, and then it will make all change in the various
think like change in the valuation of the share. The rate of return is an important part of the
valuation of share. In below it will make the valuation of the share. The previous and change in
the cost of capital that is got the changes by 1.4%. From change, the organisation will decrease
the debt, and they will gate the minimum burden to the organisation (My accounting course,
2019).
For calculating the valuation of the share, it used the Gordon Model to get an accurate valuation.
That will change through the cost of capital, and the valuation of a share calculated below:
The formula of valuation of share
Valuation of Share = D1(1+g)
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K-g
Changes in valuation of share
Valuation of Share = 20*(1+0.113)
.154-.113
Valuation of Share = 22.26
0.041
Valuation of Share = 543
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