Bird in hand means preferable dividend payout senior

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What categories of shareholders are likely to prefer nearer-in-time dividends? Bird in hand means preferable dividend payout. Senior shareholder that prefers regular dividends payout 5. What are the arguments for a stable dividend policy? Dividends resolve uncertainty in the minds of investors. It can be hypothesized that stockholders might: Apply a higher discount rate (Ke), and Assign a lower valuation of funds that are retained in the business Payment of dividends viewed more favorably than retained earnings to the stockholders because of the information content of dividends.
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Stockholders’ needs and preference go beyond the marginal principle of retained funds 6. Does it make sense for a corporation to repurchase its own stock? Explain. EPS= Net profit / No of shares = 1million / 1million repurchase = 1 million / 500000 shares = $2 A corporation can make a rational case for purchasing its own stock as an alternative to a cash dividend policy. Earnings per share will go up as the shares decline and if the price- earnings ratio remains the same, the stock holder will receive the same dollar benefit as if a cash dividend was paid because the benefits are in the format of capital gains the tax may be deferred until the stock is sold. A corporation also, may justify the repurchase of its own stock because it is at a very low prices, or to maintain constant demand for the shares. Required shares may be used for employee options or as a part of a tender offer in a merger or acquisition. Firms may also reacquire part of their stock as protection against a hostile takeover. 7. Discuss the difference between a passive and an active dividend policy. A passive dividend policy suggests that dividends should be paid out if the corporation cannot make better use of the funds. We are looking more at alternate investment opportunities than at preferences for dividends. If dividends are considered as an active decision variable the firm would retain the earnings for future investments (retained earnings)
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  • Fall '14
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