From the e-Activity, contrast the differences between a stock dividend and a stock split. Imagine that you are a stockholder in a company. Determine whether you would prefer to see the company that you researched declare a 100% stock dividend or declare a 2-for-1 split. Provide support for your answer with one (1) real-world example of your preferred
According to Brigham & Ehrhardt (2010), the main disparity between the stock spilled, and stock dividend lies in the concepts of accounting. In the case of stock dropped case, companies reduce the par value of the shares while it upsurges the number of shares. On the other hand, stock dividends involve the transfer of retaining earnings to capital stock (Brigham & Ehrhardt, 2010). According to Brigham & Ehrhardt (2010), the 100 % dividend of stock in most companies is equal to the 2-for-1 split. Therefore, as an investor, selecting between the two is inconsequential. The main aim of the stock split on shares is to ensure the shares decreases with the hope of attracting many shareholders. Firms hope many shareholders will bring the desired money since high prices of share scare investors. My company will incline towards a 2-for-split because I would acquire more interest from the company.
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For instance, in 2009, Macy company avowed 2-for-1 split based on 100% dividend which will be reimbursed to the shareholders who were recorded as of May 26, 2006. The company planned to give its shareholders an additional share for each common stock each member held (Brigham & Ehrhardt (2010). It impacts the price of the percentage since it dropped by half because there was an increment of the shareholders by half. However, the total stock of investors will remain the same.
From the scenario, examine the dividend rate that TFC is paying to determine if the company should receive a rate adjustment. Suggest whether TFC’s dividends should either (1) stay the same; (2) be increased; (3) or go down. Provide a rationale for your response.
TFC made primary considerations after a dividend of 10 annually were paid. It gave rise to growth in future earnings (Macy, 2014). After the recurring payment of the fair value, this amount is usually considered to be a remnant of the correct dividend amount. Initially, the company had an average of 74% which dipped further by 23% in the 1990s (Macy, 2014). When going through phases while expanding, the company should retain more revenues in the future (Brigham & Ehrhardt, 2010). While considering all these factors, it is essential to review and maintain the $10 payment. And the value can only be increased to maturity after the expansion is complete.
References
Brigham, E. F., & Ehrhardt, M. C. (2010). Brigham, E. Financial Management: Theory and Practice, 13e, 15th Edition. (15 ed.). Retrieved from https://bookshelf.vitalsource.com/#/books/9781337682947/cfi/6/2[;vnd.vst.idref=htmlnav
Macy I. (2014). Stock Split. Retrieved November 17, 2015, from Macy’s, Inc. (2014). Stock Split. Retrieved from https://www.macysinc.com/for-investors/shareholder-services/stock-split/default.aspx
Discussion two
Examine the key reasons why a business may not want to hold too much or too little working capital. Provide two (2) examples that illustrate the consequences of either situation .
Working capital is used by the firm to determine its ability to meet the short term obligations. The issues considered here are the current assets that include the cash receivables, the cash and cash equivalents as well as the inventory to have a picture of the available current asset. Firms hold the working capital for three major reasons
The first is the transaction needs. These are the cost that are payable at regular basis on a routine manner. They include the monies that the firm collects on a routine basis which are usually very predictable. The second reason of holding working capital is the precautionary scenarios. This includes the need to meet unexpected future cash payments or to meet unforeseen fluctuation in the inflows. Thirdly, firms hold working capital for speculative reasons. This is meant to give the firm a bargaining power in situation of bargaining purchases and opportunities (Brigham & Ehrhardt, 2010)
The right amounts to be held as the working capital depends with the industry and the nature of the activities of the firm. If the services are involved and no much cash payments are needed, lower working capital will be needed. If the firm holds too much working capital, the effect is having idle funds that are not earning any returns (Michalski, 2014). Having too low cash on the other hand implies financial difficulties in the meeting the current obligations and may lose out on some bargains
From the scenario, analyze TFC’s cash budget to determine key methods in which the budget may be optimized (e.g., by renegotiating terms and conditions on some of its payables, etc.). If you believe that there is room for improvement, recommend key strategies for TFC to use in order to optimize its cash budget. If you do not believe that this is the case, provide a rationale for your response.
From the scenario, it is important to shorten the day’s sales outstanding as well as changing the schedule for dividend payouts. The firm also needs to take care of the discounts offering to the customers. This is because the large portion of customers, at 45 percent take advantage of the discounts since they are offered a month to pay the dues. Almost half of the customers are paying their dues in the moth that do not match with the month of the expense. TFC therefore need to concentrate on improvement of pay performance and the cash collection enhancement for proper cash budgeting.
References
Brigham, E. F., & Ehrhardt, M. C. (2010). Brigham, E. Financial Management: Theory and Practice, 13e, 13th Edition. (13 ed.).
Michalski, G. (2014, april). value-based working capital management. Retrieved from www.palgraveconnect.com/pc/doifinder.10.1057/9781137391834
