rgued that dividend policy is irrelevant for shareholder value and cash flow. With a no-dividend policy, the current price is and will remain $100.00 per share. With a high-dividend policy, the current price is $100.00 per share and the value falls to $95 per share upon payment of the dividend.
rgued that dividend policy is irrelevant for shareholder value and cash flow. With a no-dividend policy, the current price is and will remain $100.00 per share. With a high-dividend policy, the current price is $100.00 per share and the value falls to $95 per share upon payment of the dividend.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
In a world without taxes or transaction costs, it can be argued that dividend policy is irrelevant for shareholder value and
Use the following example to demonstrate dividend policy irrelevance.
|
No-dividend Policy |
High-dividend Policy |
|
5,000 shares owned |
5,000 shares owned |
|
$100.00 current price per share |
$100.00 current price per share |
|
$0.00 dividends per share |
$5.00 dividends per share |
|
$25,000 desired cash flow per year |
$25,000 desired cash flow per year |
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