ffm11i15 - DistributionstoShareholders:Dividendsand...

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Chapter 15 Distributions to Shareholders:  Dividends and  Share Repurchases Learning Objectives After reading this chapter, students should be able to: Define target payout ratio and optimal dividend policy. Discuss the dividend irrelevance theory and the “bird-in-the-hand” theory, and discuss the reasons why  some investors prefer dividends, while others may prefer capital gains. Explain the information content, or signaling, hypothesis and the clientele effect. Explain the logic of the residual dividend policy, and state why firms are more likely to use this policy in  setting a long-run target than as a strict determination of dividends in a given year; explain dividend  payment procedures. Explain the use of dividend reinvestment plans, distinguish between the two types of plans, and discuss  why the plans are popular with certain investors. List a number of factors that influence dividend policy in practice. Briefly explain what a stock split and stock dividend are, and specify why a firm might split its stock or  pay a stock dividend. Discuss stock repurchases, including advantages and disadvantages, and effects on EPS, stock price,  and the firm’s capital structure. Chapter 15:  Distributions to Shareholders Learning Objectives 143
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Lecture Suggestions We like this chapter and generally cover it in its entirety, but it could be omitted in the introductory course  without loss of continuity.  Or, sections such as stock dividends or stock repurchases could be omitted. What we cover, and the way we cover it, can be seen by scanning the slides and Integrated Case  solution for Chapter 15, which appears at the end of this chapter solution.  For other suggestions about the  lecture, please see the “Lecture Suggestions” in Chapter 2, where we describe how we conduct our classes. DAYS ON CHAPTER:  3 OF 58 DAYS (50-minute periods) 144 Lecture Suggestions Chapter 15:  Distributions to Shareholders
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Answers to End-of-Chapter Questions 15-1 The biggest advantage of having an announced dividend policy is that it would reduce investor  uncertainty, and reductions in uncertainty are generally associated with lower capital costs and  higher stock prices, other things being equal. The disadvantage is that such a policy might decrease  corporate flexibility. However, the announced policy would possibly include elements of flexibility.  On balance, it would appear desirable for directors to announce their policies.
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This note was uploaded on 02/08/2012 for the course FINANCE MA 502 taught by Professor Chaudhry during the Spring '11 term at Instituto Balseiro.

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ffm11i15 - DistributionstoShareholders:Dividendsand...

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