By Tony Graham
CIMA examination perform Kits consolidate studying by way of supplying an intensive financial institution of perform questions. every one resolution offers a detailed research of the right kind resolution and highlights why the choices are wrong. CIMA examination perform Kits are perfect for scholars learning independently or attending a tutored revision path. It supplementations the legitimate CIMA examine structures and CIMA Revision playing cards with a wealth of extra questions and fabric centred basically on employing what has been learnt to passing the examination. CIMA examination perform Kits support scholars organize with self assurance for examination day, and to move the recent syllabus first time. * is helping CIMA scholars to organize and cross the recent syllabus first time * perform using and showing wisdom so CIMA examiners can award you marks * offers labored solutions to completely clarify the right kind solution, and research of fallacious solutions - aiding CIMA scholars keep away from universal pitfalls
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Extra resources for CIMA Exam Practice Kit: Financial Strategy (CIMA Exam Practice Kit) (Cima Exam Practice Kit)
Sample text
75) ϭ £250 Ex-rights wealth ϭ £1,500 Ex-rights wealth ϭ £1,500 Change No change in wealth No change Loss of £250 As can be seen, the worst thing the shareholder can do is do nothing, as the market value of the existing shares fall. 27 Taxation @ 30% Profit after tax Dividends Retained earnings EPS ϭ Profits avail to shareholders No. of shares Gearing ϭ BV debt/BV equity Sources of Finance 47 Question 4 – Lease or buy Investment decision: t0 Cost savings Tax savings Invt. 2%, say 4%. Therefore, it is cheaper to lease the asset at a cost of £996k, than buy at a cost of £1,000,000.
This is sometimes known as a residual dividend policy. Empirical research Empirical research seems to suggest that dividend policy does affect the market value, and so in the context of dividends the assumption of a perfect capital market seems less appropriate. In particular: • The dividend is taken as an important signal of how the company is doing. A low or nil dividend will tend to suggest a struggling company as investors will not have full information about the projects the company has decided to undertake instead.
Loan covenants may restrict the level of dividends that can be paid. Alternatives to dividends Instead of paying a dividend, surplus cash could be used to repurchase some of the shares. It has the advantage that a large cash dividend one year may mislead investors into thinking that this is the start of a much higher dividend stream for the foreseeable future. A share buy back is clearly a one-off and is unlikely to be misinterpreted. Alternatively, a scrip dividend gives shareholders the choice between a cash dividend and more shares (which would increase the capital value of their holding).