QUESTION 5

When determining the financial objectives of an entity, it is necessary to take three types of policy decision into account investment policy, financing policy and dividend policy.

Requirements

(a) Discuss the nature of these three types of policy decision, commenting on how they are interrelated and how they might affect the value of the entity (i.e. the present value of projected cash flows.) (10 marks)

(b) Describe the different function of treasury and financial control departments of an entity and comment on the relative contributions of these two departments to policy determination and the achievement of financial objectives. (5 marks)

(TOTAL MARKS 15)