New Chapter 14 Class Notes

New Chapter 14 Class Notes - st to receive this dividend....

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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 II. Dividend payment procedures Declaration Date Ex-Dividend Date Record Date Payment Date Aug. 10 Sept. 22 Sept. 24 Oct. 10 Buyer of stock would need to purchase on or before Sept. 21
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Unformatted text preview: st to receive this dividend. III. Dividend Reinvestment Plans (DRIPS) Stockholders can automatically reinvest their dividends in the stock of the dividend paying corporation. 2 Types: 1) Old Stock Plan: outstanding shares are repurchased on the open market. 2) New Stock Plan: new shares are issued, therefore new capital is raised. IV. Stock Repurchases Why do firms repurchase stock? A. Have the cash and distribute it by buying stock instead of paying dividends. B. Capital structure may be too heavily weighted with equity; firm sells debt and uses proceeds to repurchase stock. C. Firm has issued options and may repurchase stock when options are exercised. Repurchases may be: Open market purchases Negotiated purchases Tender Offers V. Stock Splits Ex: With a 2:1 split, prior to the split you own 100 shares @ $100 per share = $10,000 After split, you own 200 shares @ $50 per share = $10,000...
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New Chapter 14 Class Notes - st to receive this dividend....

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