FNCE20005 Lecture Notes - Lecture 1: Tax Rate, Dividend Imputation, Indirect Costs
1 Aug 2018
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Payout policy ii: factors affecting dividend policy. Indirect costs: dilution in ownership/value of existing shareholders if new shares are issued or restrictive covenants enforced by new debtholders: the higher the costs associated with raising capital, the lower the expected level of dividends. Investors prefer dividends: procedure, company income tax is assessed at the company income tax rate tc (usually 30%). If the shareholders personal tax rate is 45 cents in the dollar, then their tax liability is 0. 45 x. In general companies are able to repurchase up to 10 per cent of their ordinary shares in a 12-month period (10/12 limit). Improved performance measure: earnings per share (eps) and net assets per share, decreases number of shares increase eps, to repurchase shares a company must use cash that could have been invested elsewhere. Therefore, unless the buyback is financed by borrowing, the company will have fewer assets after the buyback.
