Finance and Accounting:
Individual Assignment: Payout Decision and Working Capital Management, Capital Budgeting and Net Present Value
Project description:
The Harvard Referencing System must be used. The Wikipedia website must not be referenced in your work.
Question 1 – 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