Thecompany similar to any investor would then be

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Unformatted text preview: ay issue a stock dividend for several reasons. These reasons could include wanting to give the appearance of paying a dividend when there is limited cash on hand, wanting to decrease the market price of the shares outstanding, or wanting to expand the number of shares outstanding without selling new stock. ID12–2 There are two general situations that would lead a company to cut its dividend. The first scenario is when a company is no longer able to generate enough cash to pay the dividend that it has been paying in the past. This usually reflects a downturn in the company’s business and the stock price does not act well after this announcement. The second scenario is when a company has been paying a dividend and is still generating enough cash to pay the dividend but decides not to. This is usually because the company feels that it has very good investment opportunities and wants to use the money to pursue them. This is usually a positive sign and the stock price may rise. ID12–3 Since the stock price of a company...
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