A. Tondhlana CUAC 207 Assignment June 2017CUAC 207 ASSIGNMENT GROUP ASSIGNMENT 1Session: June 2017Topic: Capital budgeting and Dividend policyGroup size: 10 studentsDue Date : 24 March 2017 at 1400hrsApproach: You may present your analysis in Excel format and non-numerical responsesin word.Specs: Times new roman 12; justified ; 1.15 spacing. All academic writing skills to beemployed and originalilty of work is imperative and will be rewarded!QuestionThodes Incorporated (Pvt) Ltd has identified several investment opportunities that willbecome 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 theseindependent projects are acceptable. Each of these investments will occur one year apartand the cash flows will start one year after the investment is made.Table-1:
The company currently has 2,000,000 shares outstanding and pays a dividend of $2 pershare.With a high degree of certainty, Thodes has projected their income for the next four yearsas follows, which includes the annual cash flows from the investments selected above:Table-2:
A. Tondhlana CUAC 207 Assignment June 2017
Required:i. Explaining your findings, what is the NPV and IRR for each project at the timethe investment would be made?ii. Using each respective method which investments should be selected and justifyyour conclusions.iii. Discuss how and why the above two methods conflict in their ranking ofinvestment projects and seek how such conflicts are resolved?iv. What will the dividends per share and the external financing required if the current dividend per share is maintained?  if the dividend per share payout ratio of 50% is maintained Justify your conclusions.v. Briefly evaluate the various types of dividend policies that Thodes Incorporatedcan adopt.vi. From your above response, if the dividend policy is considered a residualdecision, what will be the dividends per share and external financing requirementin each year? Explain your answers. vii. Considering the above, under which policy will external financing is minimized?Justify your conclusions. viii. Briefly discuss the factors that would influence Thodes’ dividend policyformulation?[Total marks 100]
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