Ch14 Show - CHAPTER 14 Distributions to Shareholders...

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1 CHAPTER 14 Distributions to  Shareholders: Dividends  and Repurchases
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2 Topics in Chapter n Theories of investor preferences n Signaling effects n Residual model n Stock repurchases n Stock dividends and stock splits n Dividend reinvestment plans
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3 Free cash  flow (FCF) Interest payment s (after tax) Stock repurchases Principal repayments Dividends Sales revenues Operating costs and taxes Required investments in operating capital = Free Cash Flow: Distributions to Shareholders Purchase of short-term investments Sources Uses
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4 What is “distribution policy”? n The distribution policy defines: n The level of cash distributions to  shareholders n The form of the distribution (dividend vs.  stock repurchase) n The stability of the distribution
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5 Do investors prefer high or low  payouts? n There are three dividend theories: n Dividends are irrelevant: Investors don’t  care about payout. n Dividend preference, or bird-in-the-hand:  Investors prefer a high payout. n Tax effect: Investors prefer a low payout.
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6 What’s the “residual  distribution model”? n Find the reinvested earnings needed for  the capital budget. n
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This note was uploaded on 02/27/2012 for the course BUS 510 taught by Professor Mehdi during the Spring '11 term at University of La Verne.

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Ch14 Show - CHAPTER 14 Distributions to Shareholders...

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