Finance and Growth Strategies Assignment Example | Topics and Well Written Essays - 2750 words

Finance and harvest-home Strategies - Assignment ExampleThe paper tells that dividends atomic number 18 returns which atomic number 18 paid to the shargonholders from the unwaverings pay for their enthronement funds in the company regardless of whether the wampum are generated in previous period or the authorized period. Dividends get out influence the capital structure of the firm since retained earnings increase the value of the commonplace stock than debt capital. A firm cannot assume the dividend policy to be irrelevant. In determining the amount to be paid as dividends, the firm should analyze the effect of the dividend policy on the operations of the. However, some pecuniary analysts are of the opinion that dividend policy is irrelevant since it does not change the value of the firm. Investors can adjust the placement portfolios when if their preference is a steady kickoff of income hence they can invest in bonds where the interest payments are certain rather than investing in common stocks where the dividend payments fluctuate. Another argument of the opponents of dividend payment is that taxation of dividends is higher(prenominal) hence capital gains are more preferable by investors. They propose that the firm should reinvest the earnings which will ultimately increase the value of the firm hence increasing the share value. The firm should utilize its earnings in undertaking more investment projects, repurchasing the common stock and acquiring more profitable companies hence increasing the market value of the common stock... The firm is also supposed to make a conclusion on the timing of the payment of the dividends whereby interim and final dividends can be paid from the earnings of the firm (Khan 2004). The board of directors is supposed to make a conclusiveness on the amount to pay where a eternal dividend pay out ratio or fluctuating dividend pay out ratio may be implemented by the firm. The firm may also adopt a residual policy on the payment of dividends. The dividend policy has to take in to account several practical considerations which include the following (Khan 2004). colossal term financing decision The dividend policy can be termed as a financing decision when retained earnings are considered as cheap source of finance. The dividend policy should consider the investment opportunities which are available (Khan 2004). If the firm ahs viable investment opportunities which exist, the dividend policy which is adopted should be residual dividend decision where dividends are paid only after enough funds retain been allocated to the viable investment opportunities (Khan 2004). Retained earnings are a cheaper source of funds since they do not involve the floatation costs. Payment of bullion dividends would reduce the funds available for the long term financing decisions when the firm may not have other sources of finance (Harold 2009). In this case, the firm may decide to pay bonus shares as dividends to th e stockholders and invest the retained earnings in other profitable opportunities since the share value of the stocks increase with the increase in the value of the firm (Harold 2009). Financial needs of the firm Retained earnings of the firm are cheaper source of finance for reinvestment purposes. If the internal rate of return of the firm