Metropolitan State University Of DenverFIN 3850

1) You are the CFO of a firm that currently has a debt ratio that is above the industry average. You are preparing for an internal management meeting in which the firm's Capital Structure policy is on the agenda. You are of the opinion that the firm should decrease its debt ratio. You would like the company to issue additional equity and use the funds to pay down some bank loans. Write up a memo that outlines your position on this matter, and contains your recommendation backed by appropriate justification.

2). You are the CFO of a relatively young public company that was established 5 years ago. Your firm has not been paying any dividends during this time and instead been using all internally generated funds for reinvestment and growth. You are preparing for a meeting with the CEO and the Board of Directors in which the main item on the agenda is about whether the company should now start paying dividends or whether it should continue to reinvest the funds. You have a strong preference for the latter. That is to say, you do not believe that the company should start paying dividends just yet. Write up a memo that outlines your position on this matter and contains your recommendation backed by appropriate justification?

Answer:

1 Write up a memo that outlines your position on this matter, and contains  your recommendation backed by appropriate justification 

To: All employees

From: Scorpion Shakur , CFO, 630 Textile Industry

Date: June 26, 2021

Subject: Curtailing the debt ratio

It has come to my attention that the company has experienced recurring debt ratio that is hindering our operations. We are taking steps to address the issue and prevent further risks from increased debt ratio.

Recommendations are: 

• We should increase sales revenues and hopefully profits. This can be achieved by raising prices and use the extra cash to pay off existing debt.
• We should increase the amount we pay monthly toward debt. Extra payments can help lower our overall debt more quickly.
• We should encourage the risk principle of capital structure that does not accept high risk .

Also , I welcome comments and suggestions on how to solve this problem.

Thanks for your understanding.

2 Write up a memo that outlines your position on this matter and contains your recommendation backed by appropriate justification. 

To: CEO and Board of Directors

From: Salver Ska , CFO , Bish Fast Food production Co.

Date: June 26 , 2021

Subject: Adhering to Act rule of paying dividends

You are all aware of the company has not been paying dividends in the last 5 years , and instead been using all internally generated funds for reinvestment and growth. We should enhance payment of dividends for growth and expansion profits , thus , reducing the risk and volatility.

The recommendation to this issue is, selecting dividend stocks to fill out our dividend income portfolio  as well as investing in our dividend income portfolio regularly. All suggestions are welcomed.

Thank you for your cooperation.

Step-by-step explanation

1 Write up a memo that outlines your position on this matter, and contains  your recommendation backed by appropriate justification 

It has come to my attention that the company has experienced recurring debt ratio that is hindering our operations. We are taking steps to address the issue and prevent further risks from increased debt ratio.

A reasonable amount of debt can help our company grow , but our increase in debt ratio will overburden us with high interest payments . The higher the debt ratio, the more leveraged our company is, implying greater financial risk.

We shall provide the capital structure to provide an overview of the level of our company's risk. Therefore, being in a better position to reduce the proportion of debt financing to reduce exposure to risk.

Recommendations are: 

• We should increase sales revenues and hopefully profits. This can be achieved by raising prices and use the extra cash to pay off existing debt.
• We should increase the amount we pay monthly toward debt. Extra payments can help lower our overall debt more quickly.
• We should encourage the risk principle of capital structure that does not accept high risk .

Also , I welcome comments and suggestions on how to solve this problem.

2 Write up a memo that outlines your position on this matter and contains your recommendation backed by appropriate justification. 

You are all aware of the company has not been paying dividends in the last 5 years , and instead been using all internally generated funds for reinvestment and growth. We should enhance payment of dividends for growth and expansion profits , thus , reducing the risk and volatility.

Also , the dividends will preserve purchasing power of capital and offer tax advantages as well as equity evaluation to enable our company improve in various sections and make more profits.

The recommendation to this issue is, selecting dividend stocks to fill out our dividend income portfolio  as well as investing in our dividend income portfolio regularly. 

Additionally, we should choose the desired dividend yield that our company will be able raise and still maintain its operations. Through the determination of the amount of investment required will enable our company overcome this issue and adhere to the act rule. All suggestions are welcomed.