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A. tondhlana cuac 207 assignment june 2017
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A. Tondhlana CUAC 207 Assignment June 2017

CUAC 207 ASSIGNMENT GROUP ASSIGNMENT 1

Session: June 2017

Topic: Capital budgeting and Dividend policy

Group size: 10 students

Due Date : 24 March 2017 at 1400hrs

Approach: You may present your analysis in Excel format and non-numerical responses

in word.

Specs: Times new roman 12; justified ; 1.15 spacing. All academic writing skills to be

employed and originalilty of work is imperative and will be rewarded!

Question

Thodes Incorporated (Pvt) Ltd has identified several investment opportunities that will

become available over the next three years and would like you to evaluate these projects.

They have asked that you use the NPV and IRR methods to determine if these

independent projects are acceptable. Each of these investments will occur one year apart

and the cash flows will start one year after the investment is made.

Table-1:

Project | Cash Flows/Year (in thousands) |
Length of Project |
Cost and Date when Cost is incurred |

A | $ 2,300.00 | 5 years | $ 12,000.00 @t=1 |

B | $ 3,000.00 | 5 years | $ 17,000.00 @t=2 |

C | $ 2,800.00 | 5 years | $ 13,000.00 @t=3 |

D | $ 2,100.00 | 5 years | $ 15,000.00 @t=4 |

The company currently has 2,000,000 shares outstanding and pays a dividend of $2 per

share.

With a high degree of certainty, Thodes has projected their income for the next four years

as follows, which includes the annual cash flows from the investments selected above:

Table-2:

Year | Income After Taxes |

1 | $6,000.00 |

2 | $8,000.00 |

A. Tondhlana CUAC 207 Assignment June 2017

Required:

i. Explaining your findings, what is the NPV and IRR for each project at the time

the investment would be made?[10]

ii. Using each respective method which investments should be selected and justify

your conclusions.[10]

iii. Discuss how and why the above two methods conflict in their ranking of

investment projects and seek how such conflicts are resolved?[10]

iv. What will the dividends per share and the external financing required

if the current dividend per share is maintained? [10]

if the dividend per share payout ratio of 50% is maintained [10]

Justify your conclusions.

v. Briefly evaluate the various types of dividend policies that Thodes Incorporated

can adopt.[15]

vi. From your above response, if the dividend policy is considered a residual

decision, what will be the dividends per share and external financing requirement

in each year? Explain your answers. [15]

vii. Considering the above, under which policy will external financing is minimized?

Justify your conclusions. [5]

viii. Briefly discuss the factors that would influence Thodes’ dividend policy

formulation?[15]

[Total marks 100]