Fin 501 module 4 session long project

FIN 501 Module 4 Session Long Project

Analyzing the Dividend Policies of Various Companies

Please recall the company that you selected for the Module 1 SLP. Please review the company’s dividends over the past three years. Then, answer the following questions in Word (except for the Excel portion specifically noted):
What has occurred with company’s dividend payout, dividend yield, and dividend per share over the past three years? Do you have any explanations for what has occurred?
How does your selected company’s dividend payout, dividend yield, and dividend per share compare to other companies in its industry? Has the company’s dividend strategy been similar to other companies in its industry?
You are now to use Excel and plot your selected company’s earnings and dividends over the past three years. Do you notice any patterns?
What is your estimate for your company’s dividend per share next year? Please justify why you made that decision.
Now locate a company course. Why did the company reduce or eliminate its dividend? What has happened to the company’s stock price over the year?
SLP Assignment Expectations
You are expected to:
1. Describe the purpose of the report and provide a conclusion. An introduction and a conclusion are important because many busy individuals in the business environment may only read the first and the last paragraph. If those paragraphs are not interesting, they never read the body of the paper.
2. Answer the SLP Assignment question(s) clearly and provide necessary details.
3. Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
4. Provide citations to support your argument and references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references.
5. Type and double-space the paper.

Whenever appropriate, please use Excel to show supporting computations in an appendix, present financial information in tables, and use the data computed to answer follow-up questions. In finance, in addition to being able to write well, it’s important to present information in a professional manner and to analyze financial information. This is part of the assignment expectations and will be considered for grading purposes.

Trident University

Dorothy M. Poles

Module 4-Session Long Project

FIN 501: Strategic Corporate Finance

Dr. Jeffrey Snider

8 Dec 2014

Poles

FIN 501
8 Dec 2014

Amazon Corporation

Module 4 SLP
Analyzing the Dividend Policies of Various Companies
Please recall the company that you selected for the Module 1 SLP. Please review
the companys dividends over the past three years. Then, answer the following
questions in Word (except for the Excel portion specifically noted):
What has occurred with companys dividend payout, dividend yield, and dividend
per share over the past three years? Do you have any explanations for what has
occurred?
How does your selected companys dividend payout, dividend yield, and dividend
per share compare to other companies in its industry? Has the companys
dividend strategy been similar to other companies in its industry?
You are now to use Excel and plot your selected companys earnings and
dividends over the past three years. Do you notice any patterns?
What is your estimate for your companys dividend per share next year? Please
justify why you made that decision.
Now locate a company course. Why did the company reduce or eliminate its
dividend? What has happened to the companys stock price over the year?
SLP Assignment Expectations
You are expected to:
1.

2.
3.
4.

Describe the purpose of the report and provide a conclusion. An introduction and a conclusion
are important because many busy individuals in the business environment may only read the first
and the last paragraph. If those paragraphs are not interesting, they never read the body of the
paper.
Answer the SLP Assignment question(s) clearly and provide necessary details.
Write clearly and correctlythat is, no poor sentence structure, no spelling and grammar
mistakes, and no run-on sentences.
Provide citations to support your argument and references on a separate page. (All the sources
that you listed in the references section must be cited in the paper.) Use APA format to provide
citations and references.

5.

Type and double-space the paper.
Whenever appropriate, please use Excel to show supporting computations in an
appendix, present financial information in tables, and use the data computed to answer
follow-up questions. In finance, in addition to being able to write well, its important to
present information in a professional manner and to analyze financial information. This
is part of the assignment expectations and will be considered for grading purposes.

For the purpose of this assignment I will be using the Amazon Corporation. I will attempt to
generate a report that will help the leaders of this organization determine if embarking on a new

project is not only feasible, but will it be reasonable. Some of areas I will be discussing in
detail, involves various techniques used in capital budgeting. Utilizing the scenario given, let
begin by discovering what the Net Present Value is, in hopes of determining the possibilities of
what this project will yield. With that said, lets first begin by gaining a clear understanding, by
defining the term, of capital budgeting.
Investopedia defines capital budgeting as the process in which a business determines whether
projects such as building a new plant or investing in a long-term venture are worth pursuing.
Oftentimes, a prospective project’s lifetime cash inflows and outflows are assessed in order to
determine whether the returns generated meet a sufficient target benchmark.
Simply put, capital budgeting is a process of long range planning and forecasting
involving investment of funds in long-term activities whose benefits are expected over a series
of years. For example, installing machinery, creating additional capacity to manufacture a part of
the machinery, which is currently being purchased from an outside vendor. Another perfect
example is the golf clubs we talked about in Module 3 Case Assignment. Pretty simple right?
Now that we have clarity on capital budgeting lets begin our calculations of the data provided.
Suppose the company that you selected for the Module 1 SLP is considering a new project
that will have an initial cash outflow of $125,000,000. The project is expected to have the
following cash inflows:
Year

Cash Flow ($)

1

2,000,000

2

3,500,000

3

13,500,000

4

89,750,000

5

115,000,000

6

120,000,000

NPV = Total Present Value of Cash Flows- Initial Investment or Cash Outflow
NPV = 193064426 -125,000,000
NPV = 68,064,426.72
With these findings I would say yes this project should be accepted because it yields a
positive NPV.

If the firm has a requirement that projects are paid back within 3 years,
would the project be accepted based off the regular payback period? Why
or why not? Would the project be accepted based off the discounted
payback period? Why or why not?

Pay Back Period = 4thyr + total cash outflow- Cumulative cash inflow in 4th yr/ Cash Flow 5th yr
Pay Back Period = 4thyr + $125,000,000 – $108,750,00
$115,000,000
Pay Back Period = 4.14 years

We can determine this project should not be accepted, as the payback period requires more
than 3 years.

Discounted payback period = 4 yrs+ PV Total Cash Outflow -(Cumulative PV CFAT in 4th yr)
PV of CFAT in 5th Year
Discounted payback period = 4 yrs + $125,000,000 -$70,055,174.52
56,030,483.16
Discounted payback period = 4 yrs + $ 54,944,825.48
56,030,483.16
Discounted payback period = 4 yrs +0.98
Discounted payback period = 4.98 years
The project should not be accepted on the basis of Discounted payback period, as it is more
than 3 years. Also, the initial amount of the project would take more than 3 years to recover as
well. Therefore it should not be accepted.

What is the projects internal rate of return (IRR)? Based off IRR, should
the project be accepted? Why or why not? Recall the projects cost of
capital is 12.5%. What is the projects modified internal rate of return
(MIRR)? Based off MIRR, should the project be accepted? Why or why
not?

IRR Calculations:

This reveals that our value is somewhere in between 23% and 24%

Yes, this project should be accepted as the IRR and MIRR is more than the cost of
capital.

What are the advantages/disadvantages of NPV, regular payback,
discounted payback, PI, IRR, and MIRR? Present these
advantages/disadvantages in a table.

It can be concluded that different methods have different rules for accepting and rejecting
the projects. The projects cannot be accepted in all the cases .As for example the regular
payback period is 3 years for accepting the project but in this case the regular payback back
period comes out to be more than 3 years. Therefore we will reject the project on the basis of
regular and discounted payback period whereas we will accept the project on the basis of
NPV, IRR and MIRR.

Poles
FIN 501
8 Dec 2014

References
1. Capital Budgeting Cash Flow Estimation – My Investment 101. (n.d.). Retrieved
November 20, 2014, from http://www.myinvestment101.com/capital-budgeting/capitalbudgeting-cash-flow-estimation.html
2. Capital Budgeting Definition | Investopedia. (n.d.). Retrieved November 20, 2014, from
http://www.investopedia.com/terms/c/capitalbudgeting.asp
3. Mejorada, N. (2006). Capital Budgeting. In Business Finance and Philippine Business
Firms (3rd ed., p. 303). Goodwill Trading
4. Net Present Value (NPV). (n.d.). Retrieved November 21, 2014, from
http://accountingexplained.com/managerial/capital-budgeting/npv
5. Net Present Value Calculator | Investopedia. (n.d.). Retrieved November 21, 2014, from
http://www.investopedia.com/calculator/netpresentvalue.aspx
6. Present Value of Cash Flows Calculator. (n.d.). Retrieved November 23, 2014, from
http://www.calculatorsoup.com/calculators/financial/present-value-cash-flows-

calculator.php