Management and Organizational Studies 1023A/B Lecture Notes - Lecture 17: Net Present Value, Share Repurchase, Cash Flow

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 1023A/B
• Professor: Christina Maco

Document Summary

Chapter 17: there is no simple answer to if dividends should be paid or not, and when, either give as much back to shareholders through dividends, or invest money in company for shareholders. Real-world factors favouring a low payout: capital gains are taxed lightly, so reinvestment of funds rather than dividends may be favourable. Chapter 17: firm may choose these alternatives to paying dividends, selecting additional capital budgeting projects, repurchase shares, acquire other companies, purchase financial assets. Low dividend yield (a lot of reinvestment) and help with long term growth of equity, will have to sell less equity in the future. Investors purchase stock forecasting future dividends, so paying dividends relieves uncertainty: corporate and tax-exempt investors benefit from high-dividend yields, rather than capital gains. A resolution of real-world factors: two concepts related to dividend policy: information content of dividends and the clientele effect.