FIN 550 Milestone 2 Write up

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Southern New Hampshire University *

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550

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Finance

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Jan 9, 2024

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FIN 550 Milestone 2 write up Samantha Harty SNHU FIN 550 Corporate financial Management

What effect would you expect each of the calculations you performed to have in terms of shareholder value? When calculating the stock value, we see that increasing the dividend per share by 1.75 has a drastic effect on the dividend yield for each year. This includes a 0.68 increase in 2021, 0.87 increase in 2022, and a 0.84 increase in 2023. Additionally, we could see that splitting their stock doubled the number of available stocks, while reducing stock price and cash dividend per share. To determine what effects these calculations will have, we must first understand what shareholder value actually is. Share Holder value can be described as the “value delivered to the equity owners of a corporation, thanks to management’s ability to increase sales, earnings, and free cash flow, which leads to an increase in dividends and capital gains for shareholders (Hayes, 2023).” Therefore, to increase shareholder value, the company would want to increase their dividends. Due to this, we can determine how the calculated changes have affected the stockholder values. The increase in Dividends per share would have positively affected the shareholders' value. The stock being double would have no effect on the shareholders' value if the owners simply received 2 in place of their one. However, if the owner's stocks were simply halved with no increase in the number of shares, this would have a drastic decrease in shareholder value. To what extent do you feel the company’s dividend policies support or hinder their strategies? The company’s current dividend policies could potentially be harming the company’s strategies. This is because the company is paying a larger dividend, with no money being utilized for research and Development (Macrotrends, 2023). While the company is a retail giant, there are still areas of the business in which they could utilize research and development. These areas include market research, display research and developments. The company’s choice to not fund any money into research and development, and instead offer dividends may be lucrative in the short term but may be hindering their strategies in the long term. That said, it is possible that the company is choosing not to focus on the

future, instead on improving their shareholder values. According to the Lowes website, the company is currently focusing on increasing their “Pro penetration and deliver everyday value for our DIY customers with our Total Home Strategy, we are positioning Lowe’s as the one-stop shop for DIY and Pro customers to get everything they need for their home improvement projects (Elison, 2023). They focus on achieving these goals by focusing on driving Pro penetration, accelerating their online business, expanding their installation services, driving localization, and elevating assortments (Lowes, 2023). Given these goals, I feel that their current dividends policies may be negatively impacting their ability to reach these goals. What effect would you expect each of the calculations you performed to have in terms of the company’s decision to raise capital in this manner? Given that companies choose to issue bonds to raise short-term revenue and capital, it makes sense that they would want to use an interest rate that would result in the largest initial payment. That said, the interest rate would play the largest part in determining how much cash inflow the company would receive. In this case, the company should opt to decrease the interest rate by 2%. This reduction takes the Present value of the investment from the initial $3000 up to $5000. This option would be less inviting to the customer but would result in the largest initial influx of cash for the business. Inversely, the opposite could be said for raising the interest rate. The initial cost of the bond is decreased to $2142.86 and has a greater incentive to the customer rather than the business. To what extent do you feel the company’s bond issuance policies support or hinder their strategies? Given the company is focusing on driving Pro penetration, accelerating their online business, expanding their installation services, driving localization, and elevating assortments, their current bond issuance policies seem to be in support of their strategies (Lowes, 2023). A short-term influx of cash could be utilized to help achieve their goals of increasing their advertisements for online sales, and/or

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opening and localizing accounts. Given that these operations usually include a large up-front cost that is then recuperated later, issuing bonds could be a reasonable option to pay for these items.

References Hayes, A. (March 29, 2023.). Shareholder value: Definition, calculation, and how to maximize it . Investopedia. https://www.investopedia.com/terms/s/shareholder-value.asp Lowes Research and Development expenses 2010-2023: L . Macrotrends. (n.d.). https://www.macrotrends.net/stocks/charts/L/loews/research-development-expenses Why are companies issuing corporate bonds to raise funds? . Yubi. (2022, December 5). https://www.go- yubi.com/blog/companies-corporate-bonds-raise-funds/