Skip to content
Solved Assignments

FIN 571 Corporate Finance Week 1 - Long-Term Financing

A solved assignment on corporate finance and long-term financing strategies.

Preview 3 of 7 pages

See the first 3 pages exactly as they appear in the document.

  1. Page 1
    Read page 1 as text

    FIN 571 Corporate Finance Week 1 - Long - Term Financing This course applies corporate finance concepts to make management decisions. Students learn methods to evaluate financial alternatives and create financial plans. Other topics include cash flows, business valuation, working capital, capital budgets, and long - term financing. This graduate - level course is 6 weeks. Week 1 - Long - Term Financing Q1 - Evaluate the effect of dividend policy on stock price. Answer – Dividend is that part of net profit which is paid in cash by the company to its shareholders after exclusion of the retained profit. Dividend may also be defined as divisible profits which are distributed amongst the members of a company in proportion to their shares in a manner as is prescribed by law. Dividend policy can be defined as the plan of action adopted by the company’s board of directors whenever the dividend decision is to be made. Dividend policy determines what percentage of earnings the company should be paid out to shareholders and what portion will be retained in the business to finance long - term growth. The main objective of financial management is to maximize the wealth of the shareholders. Therefore, while taking dividend decision, the management should keep in view the effect of this decision on the wealth of the shareholders. If the payment of dividend is helpful in achieving this objectives, it should be paid otherwise the profits should be retained in the business for financing investment programmes. Thus, dividend decision is based on the fact that how far it is effective in increasing the wealth of the shareholders i.e. value of the firm or shares. Financial expert have not been unanimous on this issue. Still various models have been involved to evaluate the

  2. Page 2
  3. Page 3
    Read page 3 as text

    dividend policy decisions in relation to value of the firm. One school of thought associated with Walter,Gorden etc. holds that the dividend payment affects the market value of the shares and as a result the dividend policy is relevant for the overall value of the company. On the other hand, the other thought associated with Modigliani and Miller holds that dividend decision is irrelevant and it does not affect the market value of the shares as investors are basically indifferent to returns in the form of dividends or capital gains. Q2 - Explain the types and main features of long - term debt. Answer – “ Debenture includes bonds, debenture stock, or any other securities of a company whether constituting a charge on the assets of the company or not.” In fact debenture is an acknowledgement of debt by a company. It is an instrument in writing under which a company agrees to pay a fixed rate of interest at a periodical interval and repay the loan at expiry of the stipulated time. Features of debentures 1. Written Acknowledgement of debt – A debenture is a written acknowledgement of debt taken by a company. It contains the name of debenture holder and the number of debenture held by him. 2. Refund of debt – It is obligatory to repay the amount of the debenture by the company at certain specified date. If the debt is not repaid at the specified date, the debenture holder may take recourse to law for the same. 3. Claims on Income – The fixed rate of interest is payable on debenture at fixed dates i.e. half yearly or yearly irrespective of its level of earnings. Even if a company makes no profit or incurs loss, it is under an obligation to pay interest to its debenture holders.

4 more pages in the full document

Unlock it once and it stays in your library, ready to chat with or turn into flashcards.

Unlock the full document

More Finance study materials

See all

Study this document with CramX

Once it is in your library, every tool can work from it.