The Finance Managers' Decisions on Payout and Capital Structure Policies

1)Please be kind to read below my personal requirement for the essay :
- The essay itself ( Without Reference List ) must be NO less than 3000 Words. So reference list is not included in the 3000 word count.
-Please write the essay in a very simple and direct way , so when I will receive it I can understand its content , and if needed I can do some edit. If the assignment is too technical or complex, I cannot understand it and I cannot edit it, as I am not an expert in the field.
-Please make the assignment also argumentative , do not just write symbols or calculation, but please explain with words and try to argument end to explain the calculations that have been done, so I can also understand what are these calculations for and their meaning.
-Please do not use High Technical language otherwise that can make someone suspicious, but please use simple language to describe the topics.
-Please provide my assessment in WORD document and NOT IN PDF.
-Please use reliable references which I can put into the essay and for which I will not be marked down. You can use also a company website, or a reliable and famous financial website as reference, that will make my life easier when I ll need to edit it. ( If you'll put academic references from book, and you do not write then in the way my College wants , then I ll have to edit it, but it will be hard to edit it as I ll probably will not have all information to reference the way they want), so please use company website or financial official website, so I can easily access to them and check them.
-Please write the assignment in the following structure and in the following order : 1) Introduction 2)Body 3) Conclusion 4) References List
- Please be aware that my university portal uses Turnitin for detecting plagiarism so please be very careful when writing things which comes from other sources , as Turnitin will immediately detect them and if it will find some similarity they will make me fail the assignment immediately. That's why I would like the assignment to be quite personal and argumentative.
- Please always use third person for the assignment and never write in the first person
2 ) Now that you have my personal requirements for the assignment , I will write below the assessment question :
The final assessment is worth 50% of your final mark and is 3000 words (plus or minus 10%). The assessment consists of a written report and reflective practice activity. Ensure you read the following brief and instructions thoroughly.
Written report
Two of the most important ongoing activities for any finance manager in any company are investment and financing decisions. Finance managers are generally faced with the following decisions:
1. Payout policy – what proportion of funds generated internally should be retained in the business, and how much should be paid out to shareholders in the form of a dividend or share repurchase?
Because of the financial crisis and global economic slowdown, many companies choose to repurchase stock shares and pay cash dividends to attract investors. In addition, many investors are more willing to invest in firms paying cash dividends. The companies paying cash dividends generally do so due to its higher profitability, market book value, and faster growth rate of assets. Meanwhile, investors may thus believe that this firm will be likely to have a profit. However, the firm’s future profitability information content of share repurchase only exists when the share repurchase is a moderate amount. Meanwhile, cash dividends convey the message of profitability, which echo with information content theory, and have an impact on the company's future earnings.
Required:
a) A poor dividend policy could reduce shareholder wealth. Theoretically what are some of the arguments in favour of paying dividends?
b) Different tax regimes on dividends and capital gains across jurisdictions could affect corporate dividend-payout policy. Comment on this statement, giving special attention to its appropriateness in the Australian tax environment.
c) Evaluate the dividend payout policy of a listed company of your choice. Evaluate the company’s current payout policy and identify the reasons for this decision.
2. Capital structure policy — should the company use debt or equity financing or a portion of both, and if so, how much?
The capital structure of the firm influences its profitability. Debt is a liability on which interest should be paid irrespective of the company’s profits, while equity consists of shareholders (or owners) funds on which payment of dividend depends upon the company’s profits. A high proportion of debt content in the capital structure increases the risk and may lead to financial insolvency in adverse times. However, raising funds through debt is cheaper in comparison to raising funds through shares. This is because interest on debt is allowed as an expense for tax purposes. Dividend is an appropriation of profits; hence, payment of dividend does not result in any tax benefit to the company.
Critically evaluate the following statements:
It is obvious that companies should use as much debt as possible. It is cheaper than equity and the interest rate is tax deductible as well.
The probability of financial distress should be negligible for companies with a low proportion of debt. Therefore, a low proportion of debt should not have any noticeable effect on the cost of equity.
Describe and evaluate the capital structure policy of the listed company chosen for part c) above.
Reflective practice activity
How you manage, spend, and invest your money can have a deep impact on your future financial standing. All the financial concepts you have learned in this subject can also be applied to your personal finances, as the basics are the same and never change.
Personal capital structure is your mixture of debt and equity that is used to finance your own lifestyle. As you build your savings, you'll eventually want to invest some of your money so it grows over time. You can put your savings into some simple, low-risk investments like a bank, but then your return will also be low. Individuals should use debt in moderation and only to help purchase assets with the potential to grow in value, such as a house. Like a firm, use of excessive debt without the ability to make interest payments and to reduce the principal can lead to financial distress.
Required
For this part of the assessment, we ask you to reflect on the ‘Optimal capital structure theory’ introduced in this subject for the firms, and apply the same for your personal capital structure situation. In your view, have you used this theory to decide your own capital structure?