BB831: Corporate Finance – Dividend policy - Return on Investment - Accounting and Finance Assignment Help

Assignment Task:

Task:

Learning Objectives

At the end of this session, you will be able to:
• Understand whether changing dividend policy can add value to a firm
• Know more about various approaches to dividend policy
• Discuss the empirical evidence gathered by researchers on dividend payout policy

Dividend Policy

• Can changing dividend policy increase overall value of the firm?
• Is there an optimal dividend policy which management can adopt to increase a company’s worth?

Why do companies pay dividends?

• Especially when dividends are taxed twice!
• Companies pay Corporate tax to arrive at post tax earnings
• Companies/shareholders pay income tax on dividend that is distributed (dividend distribution tax)
• Thus there is double taxation on dividends
• In other words, dividends are tax inefficient

Learning outcomes
At the end of this unit you should be able to:
. estimate future values, present values, annuity values and bond values if the appropriate discount rate is known
. estimate the discount rate if the price of a financial instrument and its future cash flows are known
. understand the concept of net present value
. understand the concept of return on investment or ROI
. know that the ROI is made up of three elements: the time preference rate, an inflation premium and a risk premium
. estimate expected returns and standard deviations of returns (as a measure of actual risk)

Session 1: Return on investment
The Module introduction on the BB831 website considered some fundamental themes in finance. A key question is:
What is a fair return for the providers of finance to receive for the use of their savings?
You may remember it also said that nearly all significant financial decisions can be reduced to just two major questions:
1 Which projects should the organisation invest in?
2 How should the organisation procure the funds to pay for them?

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