![]() In such case the amount of dividend depends upon the degree of expectations of shareholders.Ħ. In case shareholders desire for dividend then company may go for declaring the same. Preference of shareholders- While deciding about dividend the preference of shareholders is also taken into account. Cash flow positions- Dividends involve an outflow of cash and thus, availability of adequate cash is foremost requirement for declaration of dividends.ĥ. Growth prospects- In case there are growth prospects for the company in the near future then, it will retain its earnings and thus, no or less dividend will be declared.Ĥ. The dividend per share is not altered in case earning changes by small proportion or increase in earnings is temporary in nature.ģ. Stability of dividends- Companies generally follow the policy of stable dividend. Earnings- Company having high and stable earning could declare high rate of dividends as dividends are paid out of current and past earnings.Ģ. The decision regarding dividend should be taken keeping in view the overall objective of maximizing shareholder s wealth.ġ. LOS 19 (e) Describe types of real options relevant to a capital project.A financial decision which is concerned with deciding how much of the profit earned by the company should be distributed among shareholders (dividend) and how much should be retained for the future contingencies (retained earnings) is called dividend decision.ĭividend refers to that part of the profit which is distributed to shareholders. If the NPV is positive, the firm goes ahead with the investment. Using the NPV without considering options.There are four common approaches to evaluating capital projects with real options: Many research and development projects are examples of fundamental options. Fundamental options: Payoffs from a project such as the mining of minerals increase or decrease the value of an investment depending on whether they will find the said mineral.The company can also use production-flexibility options to profit from having additional shifts and working overtime to meet the additional demand. Flexibility options: Price setting option permits the company to increase its prices to take advantage of the excess demand which it cannot meet by increasing its production due to low capacity.On the other hand, a growth option allows the company to make additional investments when future financial results are strong. Sizing options: An abandonment option allows the company to abandon the project when results are discouraging and can be exercised when the cash flow of abandoning a project exceed the present value of continuing the project.Timing options: A company delays investing now with the hopes that improved information in the future could help improve the NPV of the project.Fundamentally, these can alter the value of the investment decisions made today. Likewise, real options are capital budgeting options that allow managers the right, but not the obligation, to undertake certain business initiatives in the future, such as deferring, abandoning, or expanding a project. Options are financial derivatives that give buyers the right, but not the obligation, to buy or sell an underlying asset at an agreed-upon price and date. ![]()
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