Payout Decision and Working Capital Management

 

This question provides an opportunity to get some hands-on experience applying corporate finance theory and models to real firms. In the process, students will get a chance to analyse a companyas corporate payout policy to its shareholders and thereby conclude which policy (cash dividends or share repurchases) the company had applied.
Choose three companies from the same industry of the FTSE100 companies from London Stock Exchange.
Required:
a)Analyse the corporate payout policy to shareholders for each of the three companies for the financial year 2010-11, 2011-12 and 2012-13.
b)Critically evaluate the strategy applied for financing the payout for each of the three companies overtime i.e. is it from retained earnings, excess cash, or financed through debt.
c)In your opinion, which company has the most effective and efficient payout policy in last three observed years? Provide your arguments and support them with theory and articles from few finance journals.
d)Critically discuss if the payout policy observed by all the three firms above is an aoutcomea of an efficient working capital management so as to reward the shareholders or merely a asubstitutiona of a poor working capital management and therefore payout is a tool to misguide the shareholders. You have to discuss the two aspects in vein with the outcome and substituion hypothesis of payout policy discussed in aLa Porta et al., 2000. Agency problems and dividend policies around the world. Journal of Finance 55, 1-33a.

Question 2 – Capital Budgeting and Net Present Value
Maxine Peru, the CEO of Peru Resources, hardly noticed the plate of savory quenelles de brochet and the glass of Corton Charlemagne a94 on the table before her. She was absorbed by the engineering report handed to her just as she entered the executive dining room.
The report described a proposed new mine on the North Ridge of Mt. Zircon. A vein of transcendental zirconium ore had been discovered there on land owned by Ms. Peruas company. Test borings indicated sufficient reserves to produce 340 tons per year of transcendental zirconium over a 7-year period.
The vein probably also contained hydrated zircon gemstones. The amount and quality of these zircons were hard to predict, since they tended to occur in apockets.a The new mine might come across one, two, or dozens of pockets. The mining engineer guessed that 150 pounds per year might be found. The current price for high-quality hydrated zircon gemstones was $3,300 per pound.
Peru Resources was a family-owned business with total assets of $45 million, including cash reserves of $4 million. The outlay required for the new mine would be a major commitment. Fortunately, Peru Resources was conservatively financed, and Ms. Peru believed that the company could borrow up to $9 million at an interest rate of about 8 percent.
The mineas operating costs were projected at $900,000 per

Referencing Requirements:
In all InterActive modules, you are required to use Harvard style on your coursework (exams
and assignment). This tip sheet describes many of the basic Harvard citation procedures.
Please remember that it is your responsibility to ensure the accuracy of all citations in your
written work; when in doubt reference the Harvard Referencing: Student Style Guide, which
can be found in most libraries, online, and in many bookstores.
Introduction
The Harvard style is an Author/Date system. This means that you are required to cite the
source of quotations and references within the text of your work. You do this by placing the
authoras name and the publication date in parentheses at the appropriate point in the text.
You are also required to have a bibliography at the end of the paper that lists the references
in alphabetical order by the authoras surname. The titles of books, journals, and newspapers
must be italicised. The bibliography must include all sources directly consulted in the course
of making a dissertation or an assignment. A bibliography is a wider term covering all
sources that have had an influence on your intellectual development, but were not
necessarily directly consulted in producing the current assessment.

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