Chapter14 - Chapter 14 Distributions to Shareholders:...

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Unformatted text preview: Chapter 14 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 14: Distributions to Shareholders Learning Objectives 121 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 14, 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) 122 Lecture Suggestions Chapter 14: Distributions to Shareholders Answers to End-of-Chapter Questions 14-1 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 homework help was uploaded on 04/07/2008 for the course FIN 201 taught by Professor Geottle during the Spring '08 term at Northeastern.

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Chapter14 - Chapter 14 Distributions to Shareholders:...

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