This website uses cookies to ensure you have the best experience. Learn more

Dividend Decisions Essay

577 words - 3 pages

Techsol Software Company

Case is intended to be a part of instruction material developed for teaching at a Marketing class in Business Schools. Techsol is not a real company – any resemblance to a real corporation is co-incidental. Case facts are for discussion only and are not intended to be a demonstrator of correct or incorrect handling of management situation.

Techsol Software is a relatively successful software company providing custom solutions development to clients in the Middle East. They have successfully delivered projects for various departments of the Telecom Ministries in Bahrain, Qatar and Oman.

As project leader for Techsol you have visited Bahrain a few times in the last year. You have noticed that most people use prepaid cards for their Internet access and users ...view middle of the document...

The local ISP realizes the need in the market and is also aware that they will be unable to provide a solution in the near future. However, they would like a share of the pie and wish to be the distributor for the software. They are willing to distribute the product if they can earn USD 1.5 per unit sold.

You have done some quick marketing research and you believe that the Market size is likely to be normally distributed with a mean of 60,000 units and a standard deviation of 6000 units. You also realize that it is unreasonable to expect to be the monopoly player because other people will replicate your product as soon as they see your success. You are expecting to garner a market share of between 20% and 30% - uniformly distributed.

On the cost side – there are a couple of uncertainties. Your application will need to interface with the database of the Internet Service Provider and the technical people there have not been too thrilled with the prospect of another application touching their database. If you manage to get the senior management of the client to back this project – they will agree and then you can develop the application at a cost of USD 10,000. However – there appears to be only a 50-50% chance that their top management will give this project their backing. In case they don’t back this project, you will have to invest more in building secure middleware layers that will satisfy the techs at the client. The development cost for these security measures can be either USD 20,000 or USD 40,000 in addition to the USD 10,000 for the basic application. You believe there is a 60% chance that you can do it in USD20,000 and a 40% chance that it will need USD 40,000.

You wish to present this project to your top management for their approval. You have bounced it off your Vice President and he has requested you to assess the profitability and the risks in the project.

Other Papers Like Dividend Decisions

Are dividend payouts linked to equity ownership pattern – a case of the drugs and pharmaceutical industry

1474 words - 6 pages INTRODUCTION Dividend payouts are on of the most comprehensively researched areas in Finance . Dividends are used in signalling the future prospects. It’s the manager duty to increase the shareholder wealth , but with separation of management and ownership many conflict of interest arise leading to the Agency Problem. Maximizing the dividend in a in-perfect market , a sentiment is shared that is laced with positive outlook. The signal is for

Avon Products1 Essay

1526 words - 7 pages Avon Products 1. Why was Avon restructuring its business in 1988? Did the changes make sense? In the early 1980s, Avon made several major decisions to diversify its business, first to enter the health care field by acquiring a chemical company, Mallinckrodt, Inc. for $710 million in 1982. Before the acquisition happened, Avon’s beauty products sales and margin had already started to decline due to the decreasing number of housewives

Dividend Policy at Linear Technology

1402 words - 6 pages our company that surrounds this issue. To be more specific, I am referring to the past decisions on our dividend policy and our financing needs. Even if you are already aware of the specifics, please bear with me as this has played a crucial role in my decision. Our company has generally had two different payout policies: the dividend payout and the stock repurchase. Our company has first started paying out dividends in 1992, when we had good

Accounting

1281 words - 6 pages issue of new shares in FWPL. Review concept of a share and ordinary shares. A share in a limited company is a claim against the company to which the rights set out in the Corporations Act and the company’s constitution Preference shares: Preference shares have the following rights: * to receive a fixed dividend * to be repaid the principal on a winding up in priority to ordinary shareholders * No voting rights unless dividends are

Corporate Finance Assignment

2073 words - 9 pages financing pattern. Thus, firms would prefer internal funds (retained earnings) to external funds because: * External capital would result in higher cost of capital, due to direct costs such as underwriters’ fees and indirect costs such as under-pricing. * Using internal capital is much easier for managers because the cost of capital is lower and investment decisions do not need to be scrutinised by investors. * Reliance on

Pioneer Petroleum

686 words - 3 pages ability to make appropriate investment decisions. This has also led PPC to accepting investment decisions that should not have been included within their acceptable range. Second, PPC has been using a single company-wide rate for their multi-divisional company. In either instance the company is not maximizing wealth.  Statement of Facts and Assumptions:  PPC has been calculating their after tax cost of debt using the coupon rate of 12% instead of

Star Appliance

1747 words - 7 pages should begin to add debt to the company. However, no matter what debt and equity proportions are chosen for each project, the discount rate of 11.58% should be used, as the capital budgeting decisions should be independent of the financing decisions.  Cost of Capital: Current Capital Structure  Gordon Growth Model: (Re = Div Yield + g)  I first solved for the dividend yield by using the equation of next year's dividend divided by this year's

Intel Case Study

3226 words - 13 pages ESPEL Pierre MATHIEU Jean-Charles PIQUEMAL Brice Investment analysis & Financing Decisions Intel Corporation, 1992 A. Guembel What factors in general do you think should determine a firm’s payout policy? Explain briefly for each factor how and why you think it should affect payout policy? - Payout Policy Net income has only two possible assignments: either reinvestment in the company in the form of cash flow or

Final Project

2576 words - 11 pages As a financial manager three major decisions are to be made which are investment, financing, and dividend decisions (Pujari, S 2015). When decisions are made in investments financial managers carefully select fixed assets also known as capital budgeting decision or current assets in which funds will be invested by the company (Pujari, S 2015). There are factors that affect the investment and capital budgeting decisions such as cash flow of the

Warm Up Excercise

782 words - 4 pages are they mortgages were most customers have a good credit rating? How will the interest rate be affecting the market? E2–5 Reston, Inc., has asked your corporation, Pruro, Inc., for financial assistance. As a long-time customer of Reston, your firm has decided to give that assistance. The question you are debating is whether Pruro should take Reston stock with a 5% annual dividend or a promissory note paying 5% annual interest. Assuming

Annual Report

3560 words - 15 pages holders and debenture holders – Minute books – records actions/decisions in meetings – Financial records – to enable statements to be prepared and audited • Required to be kept at the company’s registered office, the principal place of business or at another Australian location approved by ASIC. Research School of Accounting and Business Information Systems 17 5. Need for accounting regulation Free-market perspective on regulation • There

Related Essays

Audit Risk Essay

970 words - 4 pages current payout toward the ratio. (…..) 7. Modigliani and Miller (MM) have argued that, under perfect market conditions and a no-tax world, dividend policy does not affect the value of a firm. What is your view on this statement? Rate these possible explanations. (1=strongly disagree; 2=disagree; 3=no opinion; 4=agree; 5=strongly agree) • The value of a firm depends on the latter’s earnings which results from its investment decisions, so

Dividend Policy Essay

2097 words - 9 pages conflicting. Dividend decisions refer to the decisions regarding the division of net earnings to the dividend and retained earnings. A firm can distribute all of its earnings to the shareholders as dividends or can retain all of its earnings for reinvestment as retained earnings or can distribute a part of earnings as dividend and retain the balance for re-investment purpose. Dividend decision is a major financial decision in the sense that a

Corporate Governance Essay

1233 words - 5 pages between corporate governance on dividends payout in Canada to better understand "why companies pay dividends". In the light of agency theory, Adjaoud and Ben-Amar tested two competing hypothesis, which are outcome and substitution hypothesis. They chose Canada to examine the relationship between corporate governance and corporate dividend payments for two reasons; first, the comparability between Canada and USA from the perspective of stock

Gainesboro Machine Tools Corporation Executive Summary

1408 words - 6 pages does well, the profits are distributed to the shareholders rather than being invested in other projects in order to grow further. Also, if the company distributes dividends one year and stops distributing them another year it is a clear signal that managers are making bad investment decisions which would severely impact the share price. IV. Funding dividend payout To fund a dividend payout, Gainesboro would have the option to borrow more