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

Finance and Growth Strategies - Assignment ExampleThe paper tells that dividends are go alongs which are paid to the shareholders from the steadfasts lolly for their investment funds in the company regardless of whether the wampum are generated in previous period or the current period. Dividends will influence the capital coordinate of the firm since retained earnings emergence the value of the public stock than debt capital. A firm cannot assume the dividend polity to be strange. In determining the totality to be paid as dividends, the firm should analyze the effect of the dividend insurance on the operations of the. However, some financial analysts are of the opinion that dividend policy is irrelevant since it does not change the value of the firm. Investors can adjust the investment portfolios when if their preference is a steady source of income hence they can invest in bonds where the by-line payments are certain rather than investing in common stocks where the dividen d payments fluctuate. Another argument of the opponents of dividend payment is that taxation of dividends is higher hence capital gains are much 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 engage its earnings in undertaking more investment projects, repurchasing the common stock and acquiring more profitable companies thus increasing the market value of the common stock... The firm is also supposed to make a decision 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 decision on the amount to pay where a constant 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 acc ount several practical considerations which include the following (Khan 2004). Long 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 ample funds have 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. pay of cash 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 the 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