Chapter 19, Problem 1CQ

Dividend Policy Irrelevance How is it possible that dividends are so important, but at the same time dividend policy is irrelevant?

Summary Introduction

To determine: The Reasons for Dividend Policy being irrelevant.

Introduction:  The term dividends allude to that portion of proceeds of an organization which is circulated by the organization among its investors. It is the remuneration of the investors for investments made by them in the shares of the organization.

Explanation of Solution

The following are reasons that suggest policy being irrelevant:

The Dividend policy manages the planning of profit instalments, not the sums at last paid. This policy is unessential when the planning of dividend payments does not influence the current value of every future dividend.

A dividend policy is an organization's way to deal with disseminating revenues back to its proprietors or investors. In the event that an organization is in a development stage, it might conclude that it won't pay profits, but instead re-contribute its retained earnings in the business.