Is dividend policy important? Shareholders look into the capability of companies to initiate a dividend. Dividends are payments made by a company to a shareholder usually after a company earns a profit. Since dividends are money divided to shareholders after a profit, it is not considered a business expense but a sharing of recognized assets among shareholders. Dividends are either paid regularly or can be called out anytime. Consequently, a dividend policy is a set of company rules and guidelines
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9. a. After the repurchase, the market value of equity falls to $990,000, and the number of shares outstanding falls by: $10,000/$50 = 200 shares There are 19,800 shares outstanding, so price per share is: $990,000/19,800 = $50 Price per share is unchanged. An investor who starts with 100 shares and sells one share to the company ends up with $4,950 in stock and $50 in cash, for a total of $5,000. b. If the firm pays a dividend, the investor would have 100 shares worth $49.50 each
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. Tom believes the company should use the extra cash to pay a special one-time dividend. How will this proposal affect the stock price? How will it affect the value of the company? Electronic Timing, Inc. (ETI) needs to be careful on how it dispenses the extra cash as a dividend. Issuing the extra cash as a dividend would mean that the shareholders collectively will probably drop by the same amount because of the transfer of wealth from the company to the shareholders individually. Hence, the economic
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earning since 1996 had been considerably less than the previous five years in which the firm enjoyed high earnings and stable dividend growth. Jennifer Campbell, CEO of Eastboro Machine Tools Corporation, faced the important question of whether to use the company’s funds to pay dividends or use the funds to repurchase shares? We would recommend the company to pursue a zero-dividend payout policy since the company is a growth firm. The only method of generating funds Eastboro’s management would be willing
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pay-out that they would prefer. 2. Share Advantage: For example if we take an investor has 100 shares in the company, if he would prefer to receive extra shares instead of a cash pay-out he would now have 174.8 shares in place of the 100 he initially had, an increase of almost 75% of shares owned by him. With the increase in the number of shares an investor owns, even though the share price will fall it gives the investor the advantage of selling a part of their shares for a more profitable investment
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Decision of Repurchase- The dilemmaBlaine Kitchenware Inc. is faced with a dilemma as to not go for the suggested buyback or to payheed to the investment banker and repurchase its own shares. And also if BKI does repurchase itsshares, should it only partially repurchase the market float or should it go for complete buyback ( inwhich the Blaine family becomes the owner of all the remaining shares).Also they have to think of the effect of repurchase on the various factors like the risks involved inraising
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in stockholder's meeting • Dividends - receive a proportional share of earnings • Residual Claim - receive a share of remaining assets upon liquidation of company 3. Common Stock vs. Preferred Stock Common Stock Preferred Stock Type The basic voting stock issued by corporation The different type of stock with right over common stock, not really different from buying bond Voting right Holders (“owners”)have voting rights No voting rights Dividends At discretion of board of directors
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Dividend Policy at FPL Group, Inc. FPL Group, Inc., the Florida's largest electric utility company, after 47 years of uninterrupted increase in dividends, was considering cut dividends in 1994. How would this unusual move affect FPL and the investors? Meanwhile, what would Kate Stark, the analyst at the Equity Securities Corporation, recommend regarding investment in FPL's stock - buy, sell, or hold? 1. Current Dividend Policy at FPL • FPL’s current payout ratio = Dividend per Share/Earning
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pay an equivalent dividend or repurchase an equivalent value of shares. This could increase the value of the firm by shielding the cash flows from taxes. An additional assumption is the debt rating for Wrigley, after they assume the debt would they be able to manage the interest payments. How does Chandler know that a rating of BB/B would be likely. Additionally, Chandler knew that the maximum value of the firm would be achieved when the WACC was minimized. Repurchasing of shares would alter the
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additional new common shares or a combination of cash and new share. Based on the following analysis, Ford should go ahead with Value Enhancement Plan. Characteristic of VEP The Value Enhancement Plan has the feature of stock split and share repurchase. Exchanging existing shares for new shares on a one-for-one basis, shareholders are also offered the option to reinvest $20 to receive additional new Ford common shares. In this sense, share price would decrease while the number of shares outstanding is
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