Dividend: The amount that shareholders receive in return of their investment is called as a dividend. The dividend is paid according to the number of share of each shareholder. Preference shareholder receives a fixed rate of dividend but equity shareholders receive dividend only when there is a profit in the company. Share repurchase: In order to reduce the number of outstanding shares, Company decides to purchase its own shares from the open market. This is called as share repurchase. Tax Shield: Tax shield refers to a reduction in the taxable income of either the firm or the individual. To determine: The dividend per share of if the managers decide to distribute the tax shield as a special dividend instead of repurchasing share.

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Chapter 17, Problem 6CQ

Summary Introduction

Dividend: The amount that shareholders receive in return of their investment is called as a dividend. The dividend is paid according to the number of share of each shareholder. Preference shareholder receives a fixed rate of dividend but equity shareholders receive dividend only when there is a profit in the company.

Share repurchase: In order to reduce the number of outstanding shares, Company decides to purchase its own shares from the open market. This is called as share repurchase.

Tax Shield: Tax shield refers to a reduction in the taxable income of either the firm or the individual.

To determine:

The dividend per share of if the managers decide to distribute the tax shield as a special dividend instead of repurchasing share.

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