bus320p.14

bus320p.14 - Chapter 14 I. Distributions to Shareholders...

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Chapter 14     Distributions to Shareholders I. How does dividend policy affect stock price? 3 Basic Views:  1)   Dividend policy is irrelevant; investors can design  their own dividend policy.  If they are not receiving  enough, sell shares.  If receiving too much,  repurchase shares.  Ignores taxes and transaction costs. 2) High dividends increase the stock price. Assumes investors are indifferent regarding income versus  capital gains.  Proponents say dividends now are more  certain – “bird-in-the-hand” theory. 3) Low dividends increase the stock price. Based on the difference in the tax treatment for dividends  versus capital gains.  Proponents say investors want to  maximize after-tax returns, so they prefer capital gains and  deferring payment of taxes. Other Views: Residual Dividend Approach Clientele Effect Constant Payout Ratio Stable dollar dividend per share
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This note was uploaded on 04/21/2008 for the course BUS 320 taught by Professor Sloan during the Spring '08 term at N.C. State.

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bus320p.14 - Chapter 14 I. Distributions to Shareholders...

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