Required: a. What will total fees be for Fund (A)? For Fund (B)? b. Would one of the fee structures cause the manager to want to hold the properties longer before selling than the other fee structure? if so, which one
Dividend Policy
A dividend is a part of the profit paid to the shareholder in an organization. The management of the organization has the right to decide the policy for giving a dividend from the earnings to the shareholder. However, an organization is not in the obligation to declare a dividend for the investor. Dividend policy differs from organization to organization. As the management has the only authority to decide dividend rate, dividend amount, and time of dividend payout by considering all other elements that create an impact on the payment of a dividend.
Stocks And Dividends
Stock or equities are generally sold and bought in the Stock Exchange or which is popularly known as the stock market. Stocks are issued in the Stock Exchange for the sole purpose of raising funds for the Corporation or the company itself. Now since an individual has purchased a portion of the Corporation or company, he or she may claim to be a part of the earnings or profit of the company.
An institutional investor is comparing management fees for two competing real estate investment funds. Both funds expect to begin operations and are accepting capital commitments. When the funds begin acquiring properties, capital calls will be made for capital contributions during the investment period. Fund A will charge a fee of 45 BP on capital committed and 60 BP on capital invested after the investment period ends. Fund B will charge a fee of 50 BP on capital committed and 55 BP on capital invested after the investment period ends. Both funds expect to have $502,000,000 in capital commitments when the fund commences operations and both project a five-year cycle for startup and acquisitions. Capital flows are expected as follows:
Fund A
| Contributed |
Capital Returned | Invested Capital | |
|---|---|---|---|
| Year 1 | $ 200,800,000 | $ 0 | $ 200,800,000 |
| Year 2 | 301,200,000 | 0 | 502,000,000 |
| Year 3 | 0 | 502,000,000 | |
| Year 4 | 100,400,000 | 401,600,000 | |
| Year 5 | 50,200,000 | 351,400,000 |
Fund B
| Contributed Capital | Capital Returned | Invested Capital | |
|---|---|---|---|
| Year 1 | $ 301,200,000 | $ 0 | $ 301,200,000 |
| Year 2 | 200,800,000 | 0 | 502,000,000 |
| Year 3 | 0 | 502,000,000 | |
| Year 4 | 50,200,000 | 451,800,000 | |
| Year 5 | 100,400,000 | 351,400,000 |
Required:
a. What will total fees be for Fund (A)? For Fund (B)?
b. Would one of the fee structures cause the manager to want to hold the properties longer before selling than the other fee structure? if so, which one?
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