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    Dividend Policy

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    Just looking for a second opinion ~ want to see if your logic is close to mine!

    For each of the following four groups of companies, state whether you would expect them to distribute a relatively high or low proportion of current earnings and whether your 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.

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    Solution Preview

    1. High risk company will distribute low proportion of current earning as they can require cash any time, they will have relatively high p-e ratio as high risk means high return. Therefore high return will lead to high P/E ratio.

    2. Companies that have recently experienced a temporary ...

    Solution Summary

    This explains the Dividend Policy under various conditions