Dividend Policy
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The homework problem reads as this. State whether you would expect them to distribute a relatively high or low proportion of current earnings and whether you would expect them to have a relatively high or low price-earnings ratio.
a. High-risk companies.
b. Companies that have recently experienced a temporary decline in profits.
c. Companies that expect to experience a decline in profits.
d. "Growth" companies with valuable future investment opportunities.
Could you please explain if I am correct in my assumptions and if they are not correct, why?:
a. high proportion and high PE
b. low disbursement and high PE
c. low disbursement and high PE
d. low disbursement and high PE
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Solution Summary
The solution explains the dividend policies of various firms.
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The proportion depends on whether the need for cash is high or not and the need for dividend stability and the PE depends whether the growth is high or not
a. High-risk companies
Distribute low proportion of current earnings since these would try to conserve cash and also to have dividend stability. High risk means that ...
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