Question

1. Apple, Inc. has approximately $178 billion dollars in cash. Recently, they paid a quarterly cash dividend of approximately $0.52 per share. Do you think management is justified in keeping that large amount of cash rather than paying out a larger dividend?

2. Think of a business you would like to start, or maybe you already have one. Discuss the best way to finance your working capital and why.

3.  If you were to start a business, what mix of equity to debt would you be comfortable with and why?

please put the number by the answers. Thanks.

Answer 1

Answers are as under :

1) No, management is not justified in keeping that large amount of cash rather than paying out a larger dividend. Management should withheld only that much of cash which is required for its working capital needs which is well forecasted before. Companies should either invest the cash profit in business to growth it or else it should pay some part of it to the shareholders.

The main reason behind it are :

a. It will increase the companies share price

b. Shareholder will be more loyal to the company

c. It shows that company is stable, profit making and cash rich

d. Reduced the market risk

2. I would like to start Import and export business of Goods and services. The main goods in which I am interested to deal with are Composting machine, water desalination plant, LVA, SDS. The main outsourcing services for export are Accounting, finance, block chain and IT related service

For working capital finance , I will consider the 40 - 60 ratio. 60% will be my own fund and 40% will be finance by bank

I will do fixed deposit in a bank and on that basis bank will grant me over draft facility from which I can get fund for daily requiredement . E.g. : I am having FD of Rs. 50 lakhs , bank will grant me OD facility of Rs. 45 lakhs i.e. : 90%

In case I need to import any goods , I will use Letter of credit facility from bank

3. If I was in process of starting a business , I will prefer 60- 40% equity debt ratio respectively.

This is so because , when a business is new , for focus should be on development of a business which can be done by using own fund. Once business get started properly, bank will be able to finance the company on the basis of the company performance for the business growth