a. Evaluation of LL’s Current Objectives and Finance Director’s Suggestion

LL’s primary objectives include maintaining steady dividend growth and treating stakeholders with fairness and equality, while the new Finance Director advocates for shareholder wealth maximization. The evaluation of these objectives highlights both advantages and challenges.

1. Dividend Growth Objective:
   • Pros: Encourages shareholder satisfaction through regular returns, aligns with the conservative growth strategy, and reinforces stable performance.
   • Cons: May lead to reduced reinvestment in the business, limiting growth and potentially affecting long-term competitiveness.
2. Stakeholder Fairness Objective:
   • Pros: Supports LL’s reputation, improves relationships with suppliers, customers, and employees, and aligns with broader societal expectations for ethical practices.
   • Cons: May reduce the emphasis on financial performance and impact decisions that could benefit shareholders directly.
3. Shareholder Wealth Maximization (Finance Director’s Suggestion):
   • Pros: Common in public companies, this approach prioritizes increasing shareholder value, aligning management’s focus with the long-term financial success.
   • Cons: LL, as a privately-owned entity, does not have a readily accessible share price, making wealth maximization challenging to measure and implement effectively.
4. Additional Objectives Suggested by Directors:
   • Alternatives like profitability (post-tax profits) and ROI provide broader performance indicators, though they may be backward-looking and subject to accounting manipulation.

Recommendation: LL should retain a balanced approach, emphasizing both steady dividends and stakeholder fairness, while introducing moderate financial goals, such as earnings growth. Incorporating a balanced scorecard approach could aid in establishing measurable, multi-faceted objectives suited to LL’s structure.

b. Factors for Treasury Department in Refinancing Strategy

With low and potentially falling interest rates, LL’s treasury department must consider multiple factors to determine refinancing strategies that align with corporate objectives.

1. Interest Rates and Debt Profile:
   • Current Scenario: With a mix of secured and unsecured bonds at 7-8.5%, there is potential to refinance at lower rates. However, refinancing should evaluate prepayment penalties and the economic outlook.
   • Impact: Lower interest costs could reduce the financial burden and enhance cash flow for dividends, supporting LL’s dividend-focused objective.
2. Debt Structure and Flexibility:
   • Considerations: Floating rate debt could offer flexibility but may carry higher costs if rates rise. Alternatively, fixed-rate debt provides predictability, crucial for LL’s conservative risk approach.
   • Impact: Optimizing debt structure ensures LL’s financial stability, aligning with its low-risk growth strategy.
3. Capital Structure and Shareholder Returns:
   • Opportunity for Gearing: Increased debt could enable special dividends or share buybacks, appealing to major shareholders aiming to consolidate control.
   • Risks: High gearing raises financial risk, which may conflict with stakeholder equity objectives if growth fails to materialize.
4. Alignment with Corporate Objectives:
   • The treasury department should balance financing decisions with LL’s broader objectives. For instance, if prioritizing dividends, debt financing may be preferable over equity to avoid dilution.

Conclusion: In the current economic environment, refinancing LL’s debt to secure lower rates while maintaining a conservative debt-to-equity balance is recommended. This approach supports LL’s goals of stable dividends and stakeholder satisfaction​