Wednesday

Question 1

Scrip Dividends

Define, 3 Pros, 2 Cons

Answer 1

A dividend where investors receive shares instead of cash

Advantages
1. No change in ownership, relative stake remains the same
1. Preserves the cash flow positions
1. Reduces gearing to the increase in equity (from retained earnings)

Disadvantages
1. Results in higher future dividend payments as there are more shares in issue (if dividend per share ratio is maintained)
1. Possible indication that the company has cash flow issues
1. Reduces EPS, which could reduce attractiveness for potential investors, which reduces demand and share price. This could upset our existing shareholders

Question 2

Acquisition Risks

8 Risks

Answer 2

1. Cost
2. Customers
3. Incompatibility
4. Asymmetric Information - existing management know more than purchaser, who may end up paying more than it’s worth
5. Driven by personal goals of the purchaser
6. Firms rarely take into account non-financial factors (cultural issues)
7. Poor success record of acquisitions for investors
8. Corporate financiers and banks have a stake as they can charge for advice

Question 3

Resource Audit Checklist - for assessing the strengths and weaknesses of an organisation (valuations for acquisitions)

9 Ms

Answer 3

1. Manpower
2. Money
3. Machinery
4. Materials
5. Markets
6. Management
7. Methods
8. Make Up
9. Management Information Systems

Question 4

What are the four types of change and how would we analyse stakeholder attitudes to change?

Answer 4

Types are driven by Nature and Scope
1. Adaptation - Incremental (nature), Realignment (scope)
1. Evolution - Incremental, transformative
1. Reconstruction - Big bang, realignment
1. Revolution - Big bang, transformative

Force Field Analysis
1. Stakeholders are either driving forces or restraining forces
1. Management need to categorise them and convert neutral and restraining forces

McKinsey 7s - how change impacts elements of the organisation
Cultural Web - evaluates existing cultural assumptions and practices

Question 5

What are the contextual features of change?

Eight

Answer 5

1. Time available
2. Preservation - of characteristics like quality
3. Diversity - in an organisation helps with change
4. Capability - skills to change
5. Capacity - resources to change
6. Readiness - are staff ready for change
7. Power - of change leader
8. Scope - of change required