Oxford brookes university Corporate Finance Concepts Critical literature review and discussion of dividend policy Prepared by: Quang Vinh Pham INTRODUCTION Dividend policy‚ according to Baker et al. (2001)‚ refers to the payout strategy that corporate directors have to comply with when settling the size and type of cash allotments to their shareholders over time. Therefore‚ the decision of dividend can influence the amount of earnings distributed against the amount retained and used for reinvestment
Premium Dividend Corporate finance
Jensen (1986)) and security valuation problems (as in Myers and Majluf (1984)) does a good job of explaining the main features of observed payout policies — i.e.‚ the massive size of corporate payouts‚ their timing and‚ to a lesser degree‚ their (dividend versus stock repurchase) form. We also conclude that managerial signaling motives‚ clientele demands‚ tax deferral benefits‚ investors’ behavioral heuristics‚ and investor sentiment have at best minor influences on payout policy‚ but that behavioral
Premium Dividend
Objectives 1. Describe how dividends are paid out and how corporations decide how much to pay. 2. Explain how stock repurchases are used to distribute cash to investors. 3. Explain why dividend increases and repurchases are good news for investors and why dividend cuts are bad news. 4. Explain why payout policy would not affect shareholder value in perfect and efficient financial markets. 5. Show how market imperfections‚ especially the different tax treatment of dividends and capital gains‚ can
Premium Dividend Stock market Corporate finance
Haveloche is constantly faced with the predicament of deciding what dividend policy is best for the organization and the investors. The company’s CEO listed the stock prices and dividends for us to look at. There are 3 theories of investor preference for dividend versus capital gains: (1) Dividend Irrelevance Theory or Modigliani Miller (2) “Bird-in-the-hand” Theory (3) Tax Preference Theory. According to Modigliani Miller (MM)‚ the dividend policy has not effect on the stock price of the firm or the cost
Premium Finance Cash flow statement Decision making
to sell the stock in one year. You somehow know that the stock will be worth $70 at that time. You predict that the stock will also pay a $10 per share dividend at the end of the year. If you require a 25 percent return on your investment‚ what is the most you would pay for the stock? In other words‚ what is the present value of the $10 dividend along with the $70 ending value at 25 percent? If you buy the stock today and sell it at the end of the year‚ you will have a total of $80 in cash.
Premium Stock Stock market Preferred stock
No Cash Dividends‚ No Stock Dividends or Split. In the case of Georgia Atlantic‚ this strategy is not recommendable because of several factors. First of all‚ the most recent Market-toBook value is well below 1‚ meaning that the company has not invested in any profitable projects anymore. The retained earnings would have generated a higher shareholder value if they would have been paid out to the shareholder. Furthermore the share price of the firm would stay rather constant and would not
Premium Stock market Dividend Stock
ACC 112 Solutions to CHAPTER 13 HANDOUT Corporations: Organization‚ Capital Stock Transactions and Dividends Copyright protected: Janice Stoudemire‚ CPA Certain material used with permission of South-Western Publishing HOW DO YOU ACCOUNT FOR ORGANIZATION COSTS? Example: A company incorporates on 9/1/08 and incurs organization expenses of $4‚000 attorney fees‚ $3‚000 accounting fees‚ and $3‚000 stock printing costs. •Journal entry
Premium Stock market Stock Dividend
Ratio Analysis: Liquidity(Times): | 2008 | 2007 | 2006 | Current Ratio | 4.11 | 3.65 | 2.95 | Quick Ratio | 3.92 | 3.44 | 2.73 | NWC to Asset Ratio | 0.17 | 0.15 | 0.13 | Cash Ratio | 3.23 | 2.70 | 2.03 | NWC to Sales Ratio | 1.71 | 1.43 | 1.04 | NWC($) | 9215702577.00 | 7220848206.00 | 5205523576.00 | Average Daily Cash Expenses | 7537175.82 | 7160555.21 | 6768509.99 | Interval Measure(in days) | 1270.94 | 1029.86 | 798.11 | Interpretation: * According to current ratio
Premium Financial ratios Stock market Stock
FIN-516 WEEK 1 – HOMEWORK ASSIGNMENT Problem Based on Chapter 14‚ Residual Dividends Middlesex Plastics Manufacturing had 2011 Net Income of $15.0 Million. Its 2012 Net Income is forecast to increase by 8%. The company’s capital structure has been 35% Debt and 65% Equity since 2010‚ and the company plans to maintain this capital structure in 2012. The company paid $3.0 Million cash dividends in 2011. The company is planning to invest in a major capital project in 2012. The capital budget
Premium Dividend Finance Stock
Gainesboro Machine Tool Company A Case Study By: Wayne Parker 3/17/2009 Introduction Gainesboro Machine Tool Company (Gainesboro) is an enterprise in transition. Ashley Swenson is the Chief Financial Officer (CFO) of Gainesboro‚ who has to make a difficult recommendation to a divided board about the company’s shareholder distribution strategy as the company begins to emerge from that transition. The following analysis will provide a brief history of the company‚ a discussion of the underlying
Premium Stock market Dividend Finance