1. Compare a regular cash dividend with a periodic share repurchase. Which has greater appeal to you? Explain.
2. Explain a stock dividend and further explain if you would prefer it to a cash dividend.
3. What are stock splits and how desirable are they?
Compare a regular cash dividend with a periodic share repurchase. Which has greater appeal to you? Explain.
Periodic share repurchase are becoming now more popular because it is increasing the earnings per share post repurchase. This is because the number of shares outstanding gets reduced and its cost of capital is also reduced. This also increase the ownership percentage of the remaining shareholders. Moreover share repurchase does not attract any dividend taxes.
Moreover once a dividend is put in place, it will be negative if it is decreased or ceased in the future but that is not the case with buyback. Thus buyback has more appeal.
Explain a stock dividend and further explain if you would prefer it to a cash dividend.
As a part of the financing decision the dividend policy of the firm is a residual decision and the dividends are a passive residual. So long firm is able to earn more than the equity capitalization rate than the investors would be content with the firm retaining the earning. In contrast if the firm were able to earn less than the equity capitalization rate investors would prefer to ...
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