Applied Corporate Finance. Unit 5
|
|
- Augusta Bell
- 6 years ago
- Views:
Transcription
1 Applied Corporate Finance Unit 5
2 Dividend Policy Measures Yield, Payout and Dividend Rate Determinants of Dividend Policy Various schools of though on Dividend Policy Managing Changes in Dividend Policy
3 First Principles Maximize the value of the business (firm) The Investment Decision Invest in assets that earn a return greater than the minimum acceptable hurdle rate The Financing Decision Find the right kind of debt for your firm and the right mix of debt and equity to fund your operations The Dividend Decision If you cannot find investments that make your minimum acceptable rate, return the cash to owners of your business The hurdle rate should reflect the riskiness of the investment and the mix of debt and equity used to fund it. The return should reflect the magnitude and the timing of the cashflows as welll as all side effects. The optimal mix of debt and equity maximizes firm value The right kind of debt matches the tenor of your assets How much cash you can return depends upon current & potential investment opportunities How you choose to return cash to the owners will depend on whether they prefer dividends or buybacks Source: Applied Corporate Finance, Aswath Damodaran
4 What is Dividend When a firm makes profits, it can choose to either retain those within the company as source of funds, or return it to equity holders. When the money is returned to the equity holders, this is known as a Dividend. Dividend policy is thus a very important part of a company s corporate finance decision making, and investor preferences for a company change based on its dividend policy.
5 Dividend Characteristics It has been seen that Dividends tend to be sticky which means that companies usually would not cut dividends unless the financial situation is really bad Dividends tend to follow the earnings, which is logical since from earnings the dividends will get paid Dividends get impacted by taxation laws for dividends. Tax laws are important, else the promoter would take all money out in the form of dividends if there was no tax. Dividend also depends on the maturity of the country s economy.
6 Dividend Yields across countries Source:
7 Dividend Common Terms Dividends can be measured in 3 ways Dividend Rate Dividend Payout Dividend Yield
8 Dividend Common Terms Dividends can be measured in 3 ways Dividend Rate Companies usually use this method to announce the dividend they are paying. This dividend is as a percentage of the face value of the company s stock.
9 Dividend Common Terms Dividend Payout We can calculate what is the payout ratio by dividing the dividend amount with the profits. This is the percentage of profits being paid out. Subtracting this from 1 will give us the retention ratio. Year Consolidated Profit 1, , Equity Share Dividend Tax On Dividend Total spend on Dividend Divident Payout Ratio 11.91% 12.53% 4.40% 4.81% 7.15% Divident Payout Ratio (Excluding Dividend Tax) 9.31% 10.41% 3.76% 4.11% 6.15%
10 Dividend Common Terms Dividend Yield We can calculate this by dividing the company s dividend with the market price. In a way, this is the actual return the investor makes in the form of dividends, and as a shareholder, you should be most concerned about this in the measures of dividend.
11 Companies can declare dividend either during the year (known as Interim Dividend) or at the end of the year (known as Final Dividend). These are combined during the year to understand the total dividend for the year. Dividend Interim and Final
12 Dividend Payout BSE 100 companies Source:
13 Sample question A company has a face value of Rs 10, dividend rate of 50%, shares outstanding at 20 crore, profits at Rs 400 crore, and a share price of Rs 200. What is the dividend yield, dividend rate, and dividend payout ratio?
14 Questions What are the key characteristics of dividend? A company has a face value of Rs 10, dividend rate of 30%, shares outstanding at 10 crore, profits at Rs 200 crore, and a share price of Rs 100. What is the dividend yield, dividend rate, and dividend payout ratio?
15 Applied Corporate Finance Unit 5
16 Schools of thought on Dividend Policy There are 3 schools of thought on dividends Dividends do not matter Dividends are bad Dividends are good
17 Dividends do not matter This is also known as the Miller Modigliani Hypothesis. It makes a few assumptions There is no cost direct or indirect of new stock issuance There is no difference between the tax treatment for capital gains and dividends The companies do not destroy value of unpaid dividend by investing in bad projects If there are no tax disadvantages associated with dividends & companies can issue stock, at no issuance cost, to raise equity, whenever needed, then the investor should be indifferent to getting paid in dividends or via capital appreciation.
18 Dividends are bad If the dividends create a disadvantage for investors due to taxation treatment, then they can be considered bad. Also, sometimes dividends show that the company is not finding enough projects that can make money, and that may result in profits stagnating and share price not performing.
19 Dividends are bad Year Consolidated Profit 3,080 3,193 1,968 1, Equity Share Dividend
20 Dividends are good Most of the times though, dividends are good news Investors are happy about dividends Most of the times, it is about the company signaling good future ahead, since companies are not expected to reduce dividend payouts. Dividends are a way of transferring wealth from lenders to equity holders.
21 Some incorrect reasons to pay dividends While dividend payment are generally considered good, sometimes it does not make sense to increase dividend payments. A couple of such situations are Company has too much cash, but this is a temporary phenomenon Since dividends are sticky, it may make sense to do a buyback, instead of a dividend. Some companies use this to issue a special dividend. Dividends are more certain, and are better than future capital appreciation Here, we are inherently assuming that the company may destroy value with this money in future. Sometimes, companies may be making losses but still paying dividends. This could be because promoters want money. Examples would be Public Sector firms, whose dividend is a source of income for the government.
22 Special Dividend
23 Special Dividend
24 Questions Explain the assumptions inherent in the Dividends do not matter school. What is a special dividend?
25 Applied Corporate Finance Unit 5
26 Assessing the company s dividend policy In assessing any company s dividend policy, it is important to understand two things 1. We should find out how much dividend the company paid, and how much it could have paid. If we find they are paying less as compared to what they should, then we try and gauge if they are creating value by investing that money in good projects. 2. We should find if the company is paying enough when compared to its peers.
27 What did the company pay? To understand this, we need to find out how much dividend the company paid, and how much buyback did it do. We have to add the two to get to this value. It may also make sense to view this over a period of multiple years, since buybacks may not happen every year.
28 What could they have paid the FCFE A measure of what the company could have paid as dividend is the Free Cash Flow to Equity. The FCFE is the measure of how much cash is left in the business after taking care of the non-equity payments (Debt) and reinvestment needed for future growth Capex and Working Capital investments.
29 What could they have paid the FCFE A measure of what the company could have paid as dividend is the Free Cash Flow to Equity. The FCFE is the measure of how much cash is left in the business after taking care of the non-equity payments (Debt) and reinvestment needed for future growth Capex and Working Capital investments. FCFE = Net Profit + Depreciation and Amortization - Capital Expenditure - Working Capital Changes - Debt Repayments + Debts Raised
30 Apollo Tyres Dividend Analysis Let s now check this for Apollo Tyres
31 ROE vs Cost of Equity Let us also try and calculate the Return on Equity vs the Cost of Equity for Apollo Tyres, which will give us an idea if they have indeed created value from the money they did not pay to investors.
32 Similar test for Your Company Try and do the same for your company under the project 1. Calculate FCFE for the last few years 2. Calculate the Dividend Paid and Buybacks over those years 3. Compare ROE vs Cost of Equity for the period under consideration, to see if the company has created value with undistributed dividends, if any
33 Questions What number tells us about the potential of a firm to pay dividend? How do we calculate it? Should buybacks be also considered as a dividend payment? Why?
34 Applied Corporate Finance Unit 5
35 Assessing the company s dividend policy In assessing any company s dividend policy, it is important to understand two things 1. We should find out how much dividend the company paid, and how much it could have paid. If we find they are paying less as compared to what they should, then we try and gauge if they are creating value by investing that money in good projects. 2. We should find if the company is paying enough when compared to its peers.
36 What about peers? Let us also look at MRF and Ceat Tyres over the last year. Let us calculate FCFE for them over the last year, and try and check what dividend they have paid.
37 Questions What would your views be about the Dividend Policy of Apollo Tyres vs its peers?
38 Applied Corporate Finance Unit 5
39 Stock Dividend / Bonus Assume that the company gives a stock dividend of 1 share for every 1 share held Now Shares Outstanding 10,00,000 EPS 10 Net Profit 1,00,00,000 Stock Price 200 Market Cap 20,00,00,000 Face Value 10 Share Capital 1,00,00,000 Reserves and Surplus 5,00,00,000 P/E 20 Dividend 30% Dividend per share 3 Dividend Yield 1.5% After Bonus 20,00, ,00,00, ,00,00, ,00,00,000 4,00,00, % 3 3%
40 Why Stock Dividend? So why would companies give stock dividends? In general, this increases the investor base over a period of time All else being equal, lower share price results in attracting more investors It is a cashless transaction, but dividend payout increases Stock dividend does not disturb leverage ratios or solvency ratios
41 Bonus vs Split Now Shares Outstanding 10,00,000 EPS 10 Net Profit 1,00,00,000 Stock Price 200 Market Cap 20,00,00,000 Face Value 10 Share Capital 1,00,00,000 Reserves and Surplus 5,00,00,000 P/E 20 Dividend 30% Dividend per share 3 Dividend Yield 1.5% After Split 20,00, ,00,00, ,00,00, ,00,00,000 5,00,00, % % After Bonus 20,00, ,00,00, ,00,00, ,00,00,000 4,00,00, % 3 3%
42 Stock Bonuses Why investors like it? Companies that give stock bonuses are expected to give more bonuses in future. Usually the stock market expects that.
43 Stock Bonuses Why investors like it? Once a company gives a stock bonus, it is in a way specifying that it is doing well, and is expected to do well in the future as well. It can continue to pay the extra dividend.
44 Buybacks in India Off late, buybacks have increased in India. The reason is that the government has applied a new tax on any dividends in excess of Rs 10 lakhs. This has resulted in companies going for a buyback instead of paying dividends.
45 Dividend Policy Some Examples ITC Axis Bank BHEL
46 ITC
47 Axis Bank
48 BHEL
49 Dividend Policy - Summarizing The key determinants of dividend policy are thus Type of Industry Age of the Company Shareholder Distribution Reinvestment Needs Business Cycles Government Policies
50 Project work Try and look at your firm, and find out about the dividend policy of your firm in detail, just like we have done for Apollo Tyres
51 Questions Write down the key determinants of the dividend policy What is your expectation from a company s stock price, when the company has consistently increased dividend in the past, but has recently cut it down.
Applied Corporate Finance. Unit 4
Applied Corporate Finance Unit 4 Capital Structure Types of Financing Financing Behaviours Process of Raising Capital Tradeoff of Debt Optimal Capital Structure Various approaches to arriving at the optimal
More informationMeasures of Dividend Policy
Measures of Dividend Policy 154 Dividend Payout = Dividends/ Net Income Measures the percentage of earnings that the company pays in dividends If the net income is negative, the payout ratio cannot be
More informationReturning Cash to the Owners: Dividend Policy
Returning Cash to the Owners: Dividend Policy Aswath Damodaran Aswath Damodaran 1 First Principles Invest in projects that yield a return greater than the minimum acceptable hurdle rate. The hurdle rate
More informationHandout for Unit 4 for Applied Corporate Finance
Handout for Unit 4 for Applied Corporate Finance Unit 4 Capital Structure Contents 1. Types of Financing 2. Financing Choices 3. How much debt is good? 4. Debt Benefits vs Costs 5. Approaches to arriving
More informationDividend Decision FINANCE VOL 5
Dividend Decision FINANCE VOL 5 Returning cash to the owner DIVIDEND POLICY Steps to the Dividend Decision 4 I. Dividends are sticky 5 The last quarter of 2008 put stickiness to the test.. Number of S&P
More informationApplied Corporate Finance. Unit 1
Applied Corporate Finance Unit 1 Introduction to Corporate Finance Principles of Corporate Finance real world focus Objectives in Decision making Choosing the right objective Classical Objective Maximize
More informationFunctions of finance. Investment decision Financing decision Dividend decision Liquidity decision
Functions of finance Investment decision Financing decision Dividend decision Liquidity decision Relationship to accounting Accounting and finance are both forms of managing the money of the business,
More informationDividend Policy. Supplement to Chapter 17 FIL 341 Prepared by Keldon Bauer
Dividend Policy Supplement to Chapter 17 FIL 341 Prepared by Keldon Bauer Dividends or Capital Gains? The ultimate goal of financial managers should be the maximization of shareholder wealth. Shareholder
More informationAFM 371 Winter 2008 Chapter 19 - Dividends And Other Payouts
AFM 371 Winter 2008 Chapter 19 - Dividends And Other Payouts 1 / 29 Outline Background Dividend Policy In Perfect Capital Markets Share Repurchases Dividend Policy In Imperfect Markets 2 / 29 Introduction
More informationModule 4: Capital Structure and Dividend Policy
Module 4: Capital Structure and Dividend Policy Reading 4.1 Capital structure theory Reading 4.2 Capital structure theory in perfect markets Reading 4.3 Impact of corporate taxes on capital structure Reading
More informationDistributions to Shareholders
Chapter 14 Distributions to Shareholders Investor Preferences on Dividends Signaling Effects Residual Dividend Model Dividend Reinvestment Plans Stock Repurchases Stock Dividends and Stock Splits 14 1
More informationValuation! Cynic: A person who knows the price of everything but the value of nothing.. Oscar Wilde. Aswath Damodaran! 1!
Valuation! Cynic: A person who knows the price of everything but the value of nothing.. Oscar Wilde Aswath Damodaran! 1! First Principles! Aswath Damodaran! 2! Three approaches to valuation! Intrinsic
More informationApplied Corporate Finance. Unit 2
Applied Corporate Finance Unit 2 Calculating the Hurdle Rate Definition of Risk Risk vs Return Hurdle Rate Choosing a risk return model CAPM Risk Free Rate Equity Risk Premium Beta First Principles Maximize
More informationCHAPTER 14 Distributions to shareholders: Dividends and share repurchases. What is dividend policy?
CHAPTER 14 Distributions to shareholders: Dividends and share repurchases Theories of investor preferences Signaling effects Residual model Dividend reinvestment plans Stock dividends and stock splits
More informationCHAPTER 19 DIVIDENDS AND OTHER PAYOUTS
CHAPTER 19 DIVIDENDS AND OTHER PAYOUTS Answers to Concepts Review and Critical Thinking Questions 1. Dividend policy deals with the timing of dividend payments, not the amounts ultimately paid. Dividend
More informationCornell University 2016 United Fresh Produce Executive Development Program
Cornell University 2016 United Fresh Produce Executive Development Program Corporate Financial Strategic Policy Decisions, Firm Valuation, and How Managers Impact Their Company s Stock Price March 7th,
More informationTHE FINANCING DECISION
1 THE FINANCING DECISION You can have too much debt or too little.. Debt Ratios across Companies 2 2 Debt Ratios across Sectors 3 3 The Financial Balance Sheet 4 Assets Liabilities Existing Investments
More informationCA - FINAL SECURITY VALUATION. FCA, CFA L3 Candidate
CA - FINAL SECURITY VALUATION FCA, CFA L3 Candidate 2.1 Security Valuation Study Session 2 LOS 1 : Introduction Note: Total Earnings mean Earnings available to equity share holders Income Statement
More informationFINANCIAL MANAGEMENT (PART-19) DIVIDEND POLICY I. Dear students, Welcome to the lecture series on Financial Management.
FINANCIAL MANAGEMENT (PART-19) DIVIDEND POLICY I 1. INTRODUCTION Dear students, Welcome to the lecture series on Financial Management. Learning Objectives Introduction Types of Dividend Policy Major issues
More informationPAPER No.: 8 Financial Management MODULE No. : 25 Capital Structure Theories IV: MM Hypothesis with Taxes, Merton Miller Argument
Subject Financial Management Paper No. and Title Module No. and Title Module Tag Paper No.8: Financial Management Module No. 25: Capital Structure Theories IV: MM Hypothesis with Taxes and Merton Miller
More informationDcf Vs. Multiples. August 8, 2013 by Kurt Havnaer of Jensen Investment Management
Dcf Vs. Multiples August 8, 203 by Kurt Havnaer of Jensen Investment Management If good investors buy businesses, rather than stocks (the Warren Buffet adage), discounted cash flow valuation is the right
More informationA Framework for Getting to the Optimal
A Framework for Getting to the Optimal 100 Is the actual debt ratio greater than or lesser than the optimal debt ratio? Actual > Optimal Overlevered Actual < Optimal Underlevered Is the firm under bankruptcy
More informationA final thought: Side Costs and Benefits
A final thought: Side Costs and Benefits Most projects considered by any business create side costs and benefits for that business. The side costs include the costs created by the use of resources that
More informationDIVIDEND DISTRIBUTION POLICY OF AEGIS LOGISTICS LIMITED
DIVIDEND DISTRIBUTION POLICY OF AEGIS LOGISTICS LIMITED The Board of Directors (the Board ) of Aegis Logistics Limited (the Company ) has adopted the Dividend Distribution Policy (the Policy ) of the Company
More informationChapter 13 Capital Structure and Distribution Policy
Chapter 13 Capital Structure and Distribution Policy Learning Objectives After reading this chapter, students should be able to: Differentiate among the following capital structure theories: Modigliani
More informationValuation. Aswath Damodaran. Aswath Damodaran 186
Valuation Aswath Damodaran Aswath Damodaran 186 First Principles Invest in projects that yield a return greater than the minimum acceptable hurdle rate. The hurdle rate should be higher for riskier projects
More informationQuiz Bomb. Page 1 of 12
Page 1 of 12 Quiz Bomb Indicate whether the following statements are True or False. Support your answer with reason: 1. Public finance is the study of money management of individual. False. Public finance
More informationFN428 : Investment Banking. Lecture : Dividend Policy
FN428 : Investment Banking Lecture : Dividend Policy Dividend Policy : The Questions Profitable companies regularly face three important questions: (1) How much of our free cash flow should we pass on
More information600 Solved MCQs of MGT201 BY
600 Solved MCQs of MGT201 BY http://vustudents.ning.com Why companies invest in projects with negative NPV? Because there is hidden value in each project Because there may be chance of rapid growth Because
More informationCIS March 2012 Exam Diet
CIS March 2012 Exam Diet Examination Paper 2.2: Corporate Finance Equity Valuation and Analysis Fixed Income Valuation and Analysis Level 2 Corporate Finance (1 13) 1. Which of the following statements
More informationCapital Allocation Policy
Capital Allocation Policy Approved and Released on 12 th February, 2018 DISCLAIMER This presentation/policy has been prepared by Vakrangee Limited ( Vakrangee or VL or the Company ) solely for your information
More informationMGT201 Financial Management Solved MCQs A Lot of Solved MCQS in on file
MGT201 Financial Management Solved MCQs A Lot of Solved MCQS in on file Which group of ratios measures a firm's ability to meet short-term obligations? Liquidity ratios Debt ratios Coverage ratios Profitability
More informationEMP 62 Corporate Finance
Kellogg EMP 62 Corporate Finance Capital Structure 1 Today s Agenda Introduce the effect of debt on firm value in a basic model Consider the effect of taxes on capital structure, firm valuation, and the
More informationMGT201 Financial Management Solved MCQs
MGT201 Financial Management Solved MCQs Why companies invest in projects with negative NPV? Because there is hidden value in each project Because there may be chance of rapid growth Because they have invested
More informationCentury Plyboards (India) Limited
Century Plyboards (India) Limited DIVIDEND DISTRIBUTION POLICY PREAMBLE The shares of Century Plyboards (India) Limited ( the Company ) are presently listed on The National Stock Exchange of India Ltd.
More informationDividend Decisions. LOS 1 : Introduction 1.1
1.1 Dividend Decisions LOS 1 : Introduction Note: Total Earnings mean Earnings available to equity share holders Income Statement Sales Less: Variable cost Contribution Less: Fixed cost excluding Dep.
More informationDIVIDEND DISTRIBUTION POLICY OF AVANTI FEEDS LIMITED
AVANTI FEEDS LIMITED: DIVIDEND DISTRIBUTION POLICY OF AVANTI FEEDS LIMITED The Board of Directors (the Board ) of Avanti Feeds Limited (the Company ) has adopted the Dividend Distribution Policy (the Policy
More information9. A firm has $2,000,000 in its common stock account and $20,000,000 in its retained earnings account. The firm issued 500,000 shares of common
02 Student: 1. Which of the following is not one of the three basic financial statements required by Generally Accepted Accounting Principles (GAAP)? A. Income Statement B. Statement of Retained Earnings
More informationDROP Plan Design and Investment Considerations. David Kent, FSA, MAAA Ryan Miller, ASA, MAAA
DROP Plan Design and Investment Considerations David Kent, FSA, MAAA Ryan Miller, ASA, MAAA Agenda History Features and Plan Design Considerations What Has Gone Right? What Has Gone Wrong? Investment Considerations
More informationRelative vs. fundamental valuation
Relative Valuation Relative vs. fundamental valuation The DCF model is a method of fundamental valuation. Value of equity is the present value of future cash flows. Ignores the current level of the stock
More informationDIVIDEND POLICY
DIVIDEND POLICY 2017 1 General Thoughts on Dividends 2 Dividend Policy Russki Stil 28 April 2017 - Russia demands big dividend payouts from state-owned companies Putin-backed move sparks rise in shares
More informationChapter 17 Payout Policy
Chapter 17 Payout Policy Chapter Outline 17.1 Distributions to Shareholders 17.2 Comparison of Dividends and Share Repurchases 17.3 The Tax Disadvantage of Dividends 17.4 Dividend Capture and Tax Clienteles
More informationFor Dialogue with Shareholders/Investors. Concerning Capital Policy: Focusing on Recap CB
For Dialogue with Shareholders/Investors Concerning Capital Policy: Focusing on Recap CB March 17, 2017 Tokyo Stock Exchange, Inc. Introduction The Stewardship Code and Corporate Governance Code urge constructive
More informationChapter 15. Chapter 15 Overview
Chapter 15 Debt Policy: The Capital Structure Decision Chapter 15 Overview Target and Optimal Capital Structure Risk and Different Types of Financing Business Risk Financial Risk Determining the Optimal
More informationCapital Structure. Outline
Capital Structure Moqi Groen-Xu Outline 1. Irrelevance theorems: Fisher separation theorem Modigliani-Miller 2. Textbook views of Financing Policy: Static Trade-off Theory Pecking Order Theory Market Timing
More informationIII. One-Time and Non-recurring Charges
III. One-Time and Non-recurring Charges 130 Assume that you are valuing a firm that is reporting a loss of $ 500 million, due to a one-time charge of $ 1 billion. What is the earnings you would use in
More informationAims of Financial Financial Management:
CHAPTER 9 Financial Management Introduction Business Finance = Money or funds available for a business for its operations (that is, for some specific purpose) is called finance. It is indispensable for
More informationCHAPTER 18: EQUITY VALUATION MODELS
CHAPTER 18: EQUITY VALUATION MODELS PROBLEM SETS 1. Theoretically, dividend discount models can be used to value the stock of rapidly growing companies that do not currently pay dividends; in this scenario,
More informationDISTRIBUTIONS TO OWNERS: BONUSES, DIVIDENDS, AND REPURCHASES
CHAPTER DISTRIBUTIONS TO OWNERS: BONUSES, DIVIDENDS, AND REPURCHASES 19 Learning Objectives After studying this chapter, readers should be able to Explain how owner distributions differ between large and
More informationDIVIDEND DISTRIBUTION POLICY
T.V. TODAY NETWORK LIMITED Regd Office:-F-26, First Floor, Connaught Circus, New Delhi- 110001, CIN: L92200DL1999PLC103001, Website: www.aajtak.intoday.in, Email: puneet.jain@aajtak.com, Telephone No.:
More informationCapital Structure Management
MBA III Semester Capital Structure Management POST RAJ POKHAREL M.Phil. (TU) 01/2010) 1 What is Capital Structure? Definition The capital structure of a firm is the mix of different securities issued
More informationRevenue (TTM) 79.74M Revenue (Qtrly YoY Growth) EPS Diluted (Quarterly) EPS Diluted (Qtrly YoY Growth) N/A. Profitability. Revenue (Quarterly)
Attractive VNR.TO is probably worth a deeper look. Price is low compared to sales, earnings or assets, and historical fundamentals look strong. Value Score Good (9/10) Fundamental Score Strong (8/10) Valuation
More informationCHAPTER17 DIVIDENDS AND DIVIDEND POLICY
CHAPTER17 DIVIDENDS AND DIVIDEND POLICY Learning Objectives LO1 Dividend types and how dividends are paid. LO2 The issues surrounding dividend policy decisions. LO3 The difference between cash and stock
More informationCorporate Finance. Dr Cesario MATEUS Session
Corporate Finance Dr Cesario MATEUS cesariomateus@gmail.com www.cesariomateus.com Session 4 26.03.2014 The Capital Structure Decision 2 Maximizing Firm value vs. Maximizing Shareholder Interests If the
More informationInstructions for completing Share Appraisal Form (SAF)
ASX online courses - Instructions Instructions for completing Share Appraisal Form (SAF) The information you need to complete the SAF is available from a variety of sources, including: Financial section
More informationFCF t. V = t=1. Topics in Chapter. Chapter 16. How can capital structure affect value? Basic Definitions. (1 + WACC) t
Topics in Chapter Chapter 16 Capital Structure Decisions Overview and preview of capital structure effects Business versus financial risk The impact of debt on returns Capital structure theory, evidence,
More information2013/2014. Tick true or false: 1. "Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities.
Question One: Tick true or false: 1. "Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities. 2. Diversification will normally reduce the riskiness
More informationSolved MCQs MGT201. (Group is not responsible for any solved content)
Solved MCQs 2010 MGT201 (Group is not responsible for any solved content) Subscribe to VU SMS Alert Service To Join Simply send following detail to bilal.zaheem@gmail.com Full Name Master Program (MBA,
More informationQuestion No. 1 is compulsory. Attempt any five questions from the remaining six questions. Working notes should form part of the answer.
Test Series: September, 2014 MOCK TEST PAPER 1 FINAL COURSE: GROUP I PAPER 2 : STRATEGIC FINANCIAL MANAGEMENT Question No. 1 is compulsory. Attempt any five questions from the remaining six questions.
More informationTechnical Note: Financial Data Reports
Technical Note: Financial Data Reports Contents Background... 2 Data Source... 3 Price Volume Data... 3 Financials... 3 Ratio Analysis... 4 Market Related... 4 Corporate... 6 Bank / NBFI... 8 Insurance...
More informationDividend Policy. Return of Buybacks. Performance of Dividends Stocks. Cash Dividend vs. Stock Repurchase Dividend Theories.
Dividend Policy Cash Dividend vs. Stock Repurchase Dividend Theories Return of Buybacks Source: Damodaran Performance of Dividends Stocks Source: Ned Davis Research, Data:1972-2011 1 Types of Dividends
More information02 1. The income statement is the major device for measuring the profitability of a firm over a period of time. True False 2. The income statement
02 1. The income statement is the major device for measuring the profitability of a firm over a period of time. 2. The income statement measures the increase in the assets of a firm over a period of time.
More informationSYBBI (SEM. 3) F.C. ROLL NO. 219
SYBBI (SEM. 3) F.C. ROLL NO. 219 1) Types of bank. 2) Functions of commercial banks 3) Wealth management is not necessary? 4) Role of NABARD in microfinance ROLL NO.242 1) Emerging trends in banking 2)
More informationMaximizing the value of the firm is the goal of managing capital structure.
Key Concepts and Skills Understand the effect of financial leverage on cash flows and the cost of equity Understand the impact of taxes and bankruptcy on capital structure choice Understand the basic components
More informationAll In One MGT201 Mid Term Papers More Than (10) BY
All In One MGT201 Mid Term Papers More Than (10) BY http://www.vustudents.net MIDTERM EXAMINATION MGT201- Financial Management (Session - 2) Question No: 1 ( Marks: 1 ) - Please choose one Why companies
More informationCHAPTER 4 SHOW ME THE MONEY: THE BASICS OF VALUATION
1 CHAPTER 4 SHOW ME THE MOEY: THE BASICS OF VALUATIO To invest wisely, you need to understand the principles of valuation. In this chapter, we examine those fundamental principles. In general, you can
More informationBond Ratings, Cost of Debt and Debt Ratios. Aswath Damodaran
Bond Ratings, Cost of Debt and Debt Ratios 49 Stated versus Effective Tax Rates You need taxable income for interest to provide a tax savings. Note that the EBIT at Disney is $10,032 million. As long as
More informationB Com 3 rd YEAR FINANCIAL MANAGEMENT
B Com 3 rd YEAR FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT UNIT I Financial management is concerned with management of fund. It may be defined as acquisition of fundat optimum cost and its utilization with
More informationMeasuring Investment Returns
Measuring Investment Returns Aswath Damodaran Stern School of Business Aswath Damodaran 1 First Principles Invest in projects that yield a return greater than the minimum acceptable hurdle rate. The hurdle
More informationQuestion # 1 of 15 ( Start time: 01:53:35 PM ) Total Marks: 1
MGT 201 - Financial Management (Quiz # 5) 380+ Quizzes solved by Muhammad Afaaq Afaaq_tariq@yahoo.com Date Monday 31st January and Tuesday 1st February 2011 Question # 1 of 15 ( Start time: 01:53:35 PM
More informationUNIT 9 DIVIDEND THEORY MODULE - 3
UNIT 9 DIVIDEND THEORY MODULE - 3 UNIT 9 DIVIDEND THEORY Dividend Theory Structure 9.0 Introduction 9.1 Unit Objectives 9.2 Issues In Dividend Policy 9.3 Dividend Relevance: Walter s Model 9.3.1 Growth
More informationFINANCIAL MANAGEMENT (PART 16) DIVIDEND POLICY-II
FINANCIAL MANAGEMENT (PART 16) DIVIDEND POLICY-II 1. INTRODUCTION Dear Students, Welcome to the lecture series on Financial Management. Today in this lecture we shall cover the topic Dividend Policy. Under
More informationPersonal Financial Planning for Accountants
Personal Financial Planning for Accountants 3 rd Edition Distributed by The CPE Store www.cpestore.com, 1-800-910-2755 Chapter 1 What You Should Know About Financial Planning... 1 Learning Objectives...
More informationReturn on Capital (ROC), Return on Invested Capital (ROIC) and Return on Equity (ROE): Measurement and Implications
1 Return on Capital (ROC), Return on Invested Capital (ROIC) and Return on Equity (ROE): Measurement and Implications Aswath Damodaran Stern School of Business July 2007 2 ROC, ROIC and ROE: Measurement
More informationFinancing decisions (2) Class 16 Financial Management,
Financing decisions (2) Class 16 Financial Management, 15.414 Today Capital structure M&M theorem Leverage, risk, and WACC Reading Brealey and Myers, Chapter 17 Key goal Financing decisions Ensure that
More informationSHARES 101. Differences Between Stocks And Shares. What Is A Stock? Five Things To Know About Shares. What Is A Stock Market?
SHARES 101 Differences Between Stocks And Shares None. There are always questions being asked about the differences between stocks and shares. The bottom line is that stocks and shares are the same thing,
More informationWrap-Up of the Financing Module
Wrap-Up of the Financing Module The Big Picture: Part I - Financing A. Identifying Funding Needs Feb 6 Feb 11 Case: Wilson Lumber 1 Case: Wilson Lumber 2 B. Optimal Capital Structure: The Basics Feb 13
More informationSKBA CAPITAL MANAGEMENT, LLC
Investment Perspectives November 25, 2013 Should Corporate Dividends Matter to Investors? Part I Summary of Discussion By Andrew W. Bischel, CFA CEO & Chief Investment Officer Many studies of U.S. stock
More informationEconomic Value Added (EVA)
Economic Value Added (EVA), 2018 Definition Features and problems Computation EVA EVA is promoted by a consulting firm Stern Steward & Co., which was established in 1982 and pioneered the EVA concept in
More informationExcess Cash and Shareholder Payout Strategies A Summary
Excess Cash and Shareholder Payout Strategies A Summary Neeti A++ Dixit This article discusses, unarguably, one of the key principles of finance i.e. extra cash and its treatment by companies. After chalking
More informationChapter -9 Financial Management
Chapter -9 Financial Management Business Studies (VKS) Definition Financial management is concerned with efficient acquisition and allocation of funds. In other words, financial management means estimating
More informationCHAPTER 21: A FRAMEWORK FOR ANALYZING DIVIDEND POLICY
CHAPTER 21: A FRAMEWORK FOR ANALYZING DIVIDEND POLICY 21-1 a. Dividend Payout Ratio = (2 * 50)/480 = 20.83% b. Free Cash Flows to Equity this year Net Income $480 - (Cap Ex - Depr ) (1-DR) $210 - (Change
More informationMGT201 Financial Management Solved Subjective For Final Term Exam Preparation
MGT201 Financial Management Solved Subjective For Final Term Exam Preparation Operating lease Operating Lease offers Financing AND MAINTENANCE: often the Lessor is the Supplier / Vendor of the Asset i.e.
More informationDIVIDEND DISTRIBUTION POLICY OF GREENPLY INDUSTRIES LIMITED
DIVIDEND DISTRIBUTION POLICY OF GREENPLY INDUSTRIES LIMITED The Board of Directors (the Board ) of Greenply Industries Limited (the Company ) has adopted the Dividend Distribution Policy (the Policy )
More informationDisclaimer: This resource package is for studying purposes only EDUCATION
Disclaimer: This resource package is for studying purposes only EDUCATION Chapter 6: Valuing stocks Bond Cash Flows, Prices, and Yields - Maturity date: Final payment date - Term: Time remaining until
More informationKnowledge Boosting Capsules. Knowledge Boosting Capsules K.B.C
Knowledge Boosting Capsules Knowledge Boosting Capsules K.B.C Product Developement Compiled till 21 th January 2013 Knowledge Boosting Capsules KBC Manual (Compilation of all KB Capsules) By: Product Development
More informationASSESSING DIVIDEND POLICY: OR HOW MUCH CASH IS TOO MUCH?
1 ASSESSING DIVIDEND POLICY: OR HOW MUCH CASH IS TOO MUCH? It is my cash and I want it now The Big Picture 2 Maximize the value of the business (firm) The Investment Decision Invest in assets that earn
More informationCHAPTER 17 DIVIDEND THEORY
CHAPTER 17 DIVIDEND THEORY Q.1 What are the essentials of Walter s dividend model? Explain its shortcomings. A1. Prof. J E Walter argues that the choice of dividend policies almost always affects the value
More informationCHARTERED INSTITUTE OF STOCKBROKERS. September 2018 Specialised Certification Examination. Paper 2.5 Equities Dealing
CHARTERED INSTITUTE OF STOCKBROKERS September 2018 Specialised Certification Examination Paper 2.5 Equities Dealing 2 Question 2 - Equity Valuation and Analysis 2a) An analyst gathered the following data:
More informationUNIT 5 COST OF CAPITAL
UNIT 5 COST OF CAPITAL UNIT 5 COST OF CAPITAL Cost of Capital Structure 5.0 Introduction 5.1 Unit Objectives 5.2 Concept of Cost of Capital 5.3 Importance of Cost of Capital 5.4 Classification of Cost
More informationDividend irrelevance in a world without taxes. The effect of taxes. The information contents of dividends. Dividend policy in practice.
Dividends - lecture Dividend irrelevance in a world without taxes. The effect of taxes. Tax disadvantage of dividends. The information contents of dividends. Dividend policy in practice. Factors influencing
More informationMGT Financial Management Mega Quiz file solved by Muhammad Afaaq
MGT 201 - Financial Management Mega Quiz file solved by Muhammad Afaaq Afaaq_tariq@yahoo.com Afaaqtariq233@gmail.com Asslam O Alikum MGT 201 Mega Quiz file solved by Muhammad Afaaq Remember Me in Your
More informationDeterminants of the Op0mal Debt Ra0o: 1. The marginal tax rate
78 Determinants of the Op0mal Debt Ra0o: 1. The marginal tax rate The primary benefit of debt is a tax benefit. The higher the marginal tax rate, the greater the benefit to borrowing: 78 2. Pre- tax Cash
More informationDIVIDEND ASSESSMENT: THE CASH- TRUST NEXUS. Dividend policy rests on management trust.
DIVIDEND ASSESSMENT: THE CASH- TRUST NEXUS Dividend policy rests on management trust. Set Up and Objective 1: What is corporate finance 2: The Objective: Utopia and Let Down 3: The Objective: Reality and
More informationtax basis for the assets and can affect depreciation in subsequent periods.
42 Accounting Considerations There is one final decision that, in our view, seems to play a disproportionate role in the way in which acquisitions are structured and in setting their terms, and that is
More informationValuation: Closing Thoughts
Valuation: Closing Thoughts Spring 2012 It ain t over till its over Aswath Damodaran! 1! Back to the very beginning: Approaches to Valuation Discounted cashflow valuation, where we try (sometimes desperately)
More informationHow to Fix Corporate Governance and Executive Compensation
How to Fix Corporate Governance and Executive Compensation Boards of directors need to reconsider their approach to corporate governance. This means measuring corporate performance, allocating capital
More informationFirm valuation (1) Class 6 Financial Management,
Firm valuation (1) Class 6 Financial Management, 15.414 Today Firm valuation Dividend discount model Cashflows, profitability, and growth Reading Brealey and Myers, Chapter 4 Firm valuation The WSJ reports
More informationEVA and Valuation EVA Financial Management, 2018 Konan Chan Evidence on EVA (BBW, 1999) Evidence on EVA
EVA and Valuation EVA Financial Management, 2018 Konan Chan Does EVA better explain stock returns? Does EVA better motivate managers? Does EVA lead to a better performance? Evidence on EVA Regress stock
More informationAFM 371 Practice Problem Set #2 Winter Suggested Solutions
AFM 371 Practice Problem Set #2 Winter 2008 Suggested Solutions 1. Text Problems: 16.2 (a) The debt-equity ratio is the market value of debt divided by the market value of equity. In this case we have
More information