Finance

Every company must assess and evaluates its cash position before the declaration of cash dividend to their share holders. The main reason behind this evaluation is to make sure that company should have indispensable cash to continue the operating activities and also ample cash is available for daily expenses. At this particular juncture, it is very important to understand that dividend is a reward for stockholder in response to their investments and also it creates trusts on their investments. Generally, there are two most common types of dividends that company declares against the investment of shareholders. One is cash dividend and the other is stock dividend. When company declared cash dividend to their stockholders it means that company runs its business and operation in an efficient and smooth way and it also suggest that enough cash is available to cope up with day to day cash transactions. The first priority of the stockholder is to get a reward in the form of cash dividend.

One thing should take into consideration that if the companys sales growth is 20 year by year then it doesnt mean that in the end of the fiscal year companys management declares the cash dividend. Because there is no significant clue that either companys sales is on account or on cash and more importantly more sales means higher amount of cost of sales is incurred mainly in the form of purchasing of raw material on account or on cash. As a result, the cash inflow generated during the year automatically used for the payment purpose to the creditors and suppliers. In this situation every thing was looked well but at the end of the year company may be not declared cash dividends after examine the cash position of the company. The other reason might be the high finance cost which is in the form of interest on debt which the company pays with the principal amount of debt. Other situation might be the working capital position and the companys internal restructuring in the form of capital expenditures can also disturb the companys cash position.

One of the expert concluded that company must do analyze cash management before establishing the dividend policy for the shareholders and it is better to pay dividend in the form of cash dividend and if the cash position of the company is worst other dividend options are surely available. All in all, keep all disclosed points into consideration the companys management designed and formulate its dividend policy.

The computation of Net Cost of the Call Premium is stated below
Real Rate 9 (1-35)
Real Rate 5.85
Debt Refunding 12 million x  of debt
Debt 12,000,000 x 10
Debt 1,200,000
Interest 12,000,000 x 09
Interest 108,000
Now, costs of call premium is
Costs of Call Premium 108,000 (1-35)
Costs of Call Premium 70,200