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Dividend payment methods, capital and operating expenditures

Identify and describe at least two methods that a company can use to provide a dividend to stockholders. Under what circumstances would each of these methods most likely be used?

Explain the differences between the US and other countries with respect how firms are structured (capital structure)? Why do these differences exist?

Explain the difference between a capital expenditure and an operating expenditure. Provide an example of each.

Define the following terms:

Sunk Cost
Opportunity Cost
Net Present Value
Internal Rate of Return
Payback Period
Capital Rationing

Explain the difference between independent and mutually exclusive projects and provide an example of each.

Explain the difference between an Operating Lease and a Financial Lease.

Please identify at least 3 advantages and 3 disadvantages to leasing.

Explain the difference between common and preferred stock.

Explain the difference between a stock split and a stock repurchase.

Solution Preview

Identify and describe at least two methods that a company can use to provide a dividend to stockholders. Under what circumstances would each of these methods most likely be used?

The methods of sharing profits are as follows:
1. Cash dividends (most common) are those paid out in form of "real cash". It is a form of investment interest/income and are taxable in the year they are paid. It is the most common method of sharing corporate profits and used when the company has enough retained earnings to pay.
2. Stock dividends are those paid out in form of additional stock shares of the issuing corporation. They are usually issued in proportion to shares owned (eg for every 100 shares of stock owned, 5% stock dividend will yield 5 extra shares). This is very similar to a stock split in that it increases the total number of shares while lowering the price of each share and does not change the market capitalization. This method is likely be used when the company management and the board believe that it is important for the company to take advantage of opportunities before it, and reinvest its recent profits in order to grow, which will ultimately benefit investors more than a dividend payout at present.
Explain the differences between the US and other countries with respect how firms are structured (capital structure)? Why do these differences exist?

The differences between the US and other countries with respect how firms are structured are the minimum number of shareholders required and the citizenship of the shareholders. These differences exist in order to be in compliance with the regulations and requirements of the company set up of each countries.

Explain the difference between a capital expenditure and an operating expenditure. Provide an example of each.

In general, capital expenditures are amounts the company pays to acquire new property or fixed assets. Capital expenditures also include amounts the company pays to improve property the company already own. The concept of capital expenditures may best be explained through examples. One classic example is the start-up expenses incurred to acquire or create a new trade or business. These expenses are considered capital expenditures because the owner incurs them to acquire property that she or he intends to keep. Some of these costs such as equipments will be depreciated over their useful life-span. While start-up expenses may not be fully deducted in the year in which they are incurred, they can be amortized (deducted in installments) over a five-year period.
Operating expenditures are monies actually spent during the course of a fiscal year. The most common types of expenditures include salary expenses and operating expenses (supplies, copying, etc.).

Define the following terms:

Sunk Cost : A cost that has been incurred and cannot be reversed.
Opportunity Cost : A cost of passing up the next best choice when ...

Solution Summary

This solution is comprised of a detailed explanation to identify methods of dividends payment, difference between capital expenditure and an operating expenditure, and different capital budgeting terms of more than 1,500 words of text.

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