1.We examined two very important topics in finance this week; Capital Budgeting and Dividend Policy.Critically reflect on the importance of selecting the right projects in which to invest capital. Do we always select those projects that have the highest return on investment? What other factors play into capital budgeting decisions?We also looked at dividend policy. What incentive is there for a company to pay dividends? What signals does dividend policy provide to investors?(600 Words)2.” I will rank the capital budgeting decisions on the following criteria — first, income inflows. If the project increases the profits, it should be accepted. Secondly, if the project has minimal cases of risks, it should be considered. The payback period is very crucial. The period that will be taken to recover the initial cost incurred during the implementation stage. The lower the payback period, the better.”Additional thoughtsAccording to Pamela Peterson Drake; “ if the capital budget is limited, we can use either the NPV or the PI. We must be careful, however, not to select projects simply on the basis of their NPV or PI (that is, ranking on NPV and selecting the highest NPV projects), but rather how we can maximize the NPV of the total capital budget. In other words, which set of capital projects will maximize owners’ wealth?”ROI encourages reduced asset levels, some managers may be reluctant to make the investment s in plant assets necessary to ensure superior quality and reliable product delivery. Question – What are some the primary considerations in choosing a financing method? (150 words)3.Some additional thoughts:“The dividend policy of a firm becomes the choice of financial strategy when investment decisions are taken as given. It is also imperative to know whether the firm will go for internal or external source of financing for its investment project. There are a number of factors affecting the dividend policy decisions of a firm such as investor’s preference, earnings, investment opportunities; annual vs. target capital structure, flotation costs, signaling, stability & Government policies and taxation.”Question: Would it ever be rational for your organization to borrow money in order to pay dividend. Explain.(150 words)
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