good enough‚ the company may suffer from a negative growth. Second‚ the CFO assumes that the company will pay dividend of 40% of earnings every year. This is not accurate enough‚ too. The company hasn’t decided which industry to reposition‚ so the dividend payout ratio should be depending on which industry it belongs to. If the company account into the CAD Company‚ the payout
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DIVIDEND DECISION The dividend decision is one of the 3 basic decisions which a financial manager maybe required to take‚ the other two being the investment decisions and the financing decisions. In each period any earnings that remain after satisfying obligations to the creditors‚ the government and the preference sh.hol can either be retained or paid out as dividends or bifurcated between retained earnings and dividends. The retained earnings can be invested in assets which will help
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discussed‚ such as a zero-dividend payout‚ a 40% payout‚ and a residual payout policy. This major issue‚ as well as what direction the firm is going‚ and whether that corresponds to the wishes of current shareholders are the main issues needing to be addressed by Ms. Campbell. FACTS Current dividend policy = 40% Attacks on World Trade Center and Pentagon occurred one week prior Stock has fallen 18% since attacks Firm has committed itself to resuming dividend payout‚ presumably in 2001 Potential
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that balance between current dividends and capital gains that maximizes the firm’s stock price. a. True b. False ANSWER: True 2. Other things held constant‚ the higher a firm’s target payout ratio‚ the higher its expected growth rate should be. a. True b. False ANSWER: False RATIONALE: The higher the payout ratio‚ the less of its earnings the firm reinvests in the business‚ and the lower the reinvestment rate‚ the lower the firm’s growth rate. 3. Miller and Modigliani’s dividend irrelevance
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Bank distributed a $6.30 dividend per share in 2008. If you purchased shares in Hang Seng Bank at $87 per share‚ the company’s dividend yield was 7.2% ($6.30/$87) which is much higher than the bank deposit rate. Dividend payout ratio is another important indicator: Dividend payout ratio = Dividend per share ÷ Earnings per share Dividend policy is the policy used by a company to decide how much it will pay out to shareholders in dividends. In your financial accounting course‚ you learn that after
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shows an alternative payout policy: (1) Retain all earnings and pay out nothing‚ which is the present policy; (2) pay out 50 percent of earnings; and (3) pay out 100 percent of earnings. In the example‚ we assume that the company will have a 15 percent ROE regardless of which payout policy it follows‚ so with a book value per share of $30‚ EPS will be $4.50 under all payout policies.1 Given an EPS of $4.50‚ dividends per 0.15($30) share are shown in Column 3 under each payout policy. Under the assumption
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Problem Review Set – Dividends Policy 1) If a firm adopts a residual distribution policy‚ distributions are determined as a residual after funding the capital budget. Therefore‚ the better the firm’s investment opportunities‚ the lower its payout ratio should be. a. True b. False 2) Even if a stock split has no information content‚ and even if the dividend per share adjusted for the split is not increased‚ there can still be a real benefit (i.e.‚ a higher value for shareholders)
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(Difficulty: E = Easy‚ M = Medium‚ and T = Tough) Multiple Choice: Conceptual Easy: Dividends versus capital gains Answer: d Diff: E [i]. Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is decreased. Their argument is based on the assumption that a. Investors are indifferent between dividends and capital gains. b. Investors require that the dividend yield and capital gains yield equal a constant. c.
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Cases: Cost of Capital Part A: Cost of Debt Mini Case 1: Cost of perpetual/Irredeemable debt Ashok Leyland issued Rs 100 Lakhs 12% debentures of Rs. 100 each. Calculate the cost of debt in each of the following cases. (Assume corporate tax rate being 40%). Case (a) If debentures are issued at par with no floatation cost. Case (b) If debentures are issued at par with 5% floatation cost. Case (c) If debentures are issued at 10% premium with 5% floatation cost. Case (d) If debentures are issued at 10%
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their ownership.xxxix Dividend policy connotes to the payout policy‚ which managers practise in deciding the volume and pattern of cash sharing to shareholders over time. Managements’ principal aim is shareholders’ wealth maximization‚ which renders into maximizing the worth of the company as measured by the price of the company’s common stock. This goal can be achieved by giving the shareholders a “fair” payment on their investments. Payout policy is vital not only because of the quantity of money
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