The Theory And Arguments Of Dividend Policy Finance Essay

The Theory And Arguments Of Dividend Policy Finance Essay Dividend is a cash payment made by a company to its shareholders. A companys dividend decision has important implications for both its investment and financing decisions which would what money should be give to the shareholder and how much money should be kept in the firm which may be used in the later years. The dividend decision, which consider the amount of funds retained by the company and the amounts to be distributed to the shareholders, is closely linked to both investment and financing decisions. For example the company with few projects should return the unused funds to shareholder by the way of paying more dividends. A company with several suitable projects that maintains high dividends will have to fund from external sources. In the recent years, the decision what amount to retain and what amount to pay has become an important corporate decision. The Management should take into account the expectation of the shareholders and the capital market when making dividend decision. Theory of Dividend Policy Waston and Head ( 2007) state that there are two main theories of dividend policy which are as follows: Dividend Relevance Theory: Lintner (1956) and Gordon (1959) claim that dividend policy affects the value of a firm, because of shareholder prefer dividend to capital gain. The logic of their preference regarding dividend is that divided is certain but not capital gain. So, dividend policy affects the value of a company. The assumptions of Gordon findings are investors are risk averse and uncertainty augments with regard to whether dividend payments would take place in future. Dividend Irrelevance Theory: Miller and Modigliani (1961) claim that value of a firm is not influenced by its dividend policy in perfect capital market with some assumptions. The assumptions which are needed for the perfect market are as follows: There is no tax effect on dividend and capital gain There is no transaction cost All the investors are behaving rationally There is a perfect market Arguments for and against that a Higher Cash Dividend Payout Increases the Share Price Arguments in favor of the statement: Information content: Waston and Head (2007) mention that a higher cash dividend payment plays an important role to provide favorable information to the investors. Higher cash dividend indicates that the companys financial condition is strength. Reduce Conflict of Interest: Waston and Head ( 2007) states that management tries to ensure their personal benefits, whereas owners are concerned about their own interest which cause agency problem. Higher dividend payment rate decreases conflict of interest, because it indicates that agent (management) is doing all things for the wellbeing of the shareholders. Risk free: Gitman (1997) argues that higher cash dividend reduces the uncertainty of shareholders income, so it leads to increase the share price of a company. Arguments against the statement: Shortage of Cash: High cash dividend payments cause shortage of cash which lead to forgo of making investments in profitable projects and it will act as a fuel to reduce the share price rather than increase. Increase the Cost of Capital: The given company has to manage fund from the external source which is comparative expensive than retained earnings, because of paying higher cash dividend, the capability of the given firm decreases to collect fund from internal source i.e. retained earnings. Therefore, a higher payment of cash dividend increases the cost of capital and decreases the share price. Hindrance of Growth: A higher payment of cash dividend hinders growth of the firm through squeezing the investment capacity. Arguments for and against that Divided Payment is Irrelevant to Maximize the Shareholders Wealth Argument in favour of the statement Homemade Dividend: Dividend is irrelevant to the maximization of shareholders wealth, because of if the company does not pay dividend, shareholders can continue their regular income through selling some holding shares which is called homemade dividend. Profitability: The market price of share depends upon the earnings or profitability of the firm and not the dividend policy of the given firm. Arguments against the statement The Clientele Effect: There are some differences for the different types of investors which invested in the given stock of the firm. Normally, the investors such as Pensioners and Institutional investors expect regular income in order to meet their liabilities. But in case of wealthy investors, they expect capital gain rather than small regular income in the form of dividend. So, dividend payment ratio is relevant to change the share price. Information Content: Waston and Head ( 2007 ) mention that a higher cash dividend payment plays an important role to provide favorable information to the investors . Higher cash dividend indicates that the companys financial condition is strength. Reduce Conflict of Interest: Waston and Head ( 2007 ) say that management tries to ensure their personal benefits, whereas owners are concerned about their own interest which cause agency problem. Higher dividend payment rate decreases conflict of interest, because it indicates that agent (management) is doing all things for the wellbeing of the shareholders. Risk free: Gitman (2009 ) argues that higher cash dividend reduces the uncertainty of shareholders income, so it leads to increase the share price of a company. Argument for and against that Dividend payment should be avoided since it reduces Shareholders Wealth Arguments in favour of the statement Tax effect: Shareholders need to pay tax on the dividend received on the shares which decreases their net income as a result it will decrease wealth. Reduction of investment in profitable projects: Payment of dividend to the shareholders will reduce the opportunity of the firm to invest in the profitable projects. So, the firm should try to avoid the dividend payment to its shareholders and try to concentrate on its investment opportunities. Argument against the Statement Information content: Waston and Head ( 2007) mention that a higher cash dividend payment plays an important role to provide favorable information to the investors . Higher cash dividend indicates that the companys financial condition is strength. Reduce Conflict of Interest: ( 2007) mention that management tries to ensure their personal benefits, whereas owners are concerned about their own interest which cause agency problem. Higher dividend payment rate decreases conflict of interest, because it indicates that agent (management) is doing all things for the wellbeing of the shareholders. Risk free: Gitman (2009 ) argues that higher cash dividend reduces the uncertainty of shareholders income, so it leads to increase the share price of a company. Determinants of Dividend Policy: Samuels and Brayshaw (1995) and Weston, Beasely and Brigham (1996) mention that the following factors affect the dividend policy: Constraints on dividend payments : There are some constraints in the dividend payments which includes Debt contract imposes some restrictions because the interest on debt is to be paid before the dividend and it is the obligatory payment. The face that the dividend payment should not exceed the retaining earning which was mentioned in the balance sheet It is subject to the availability of the cash , because the dividend is paid only with cash. Investment Opportunities: Company which pays more dividends it will postpones the opportunity to invest in the new acceptable projects which might be selected on the basis of Net present value of the project. Alternative source of capital: When a firm want to raise a capital though either debt or equity it have to incur some cost which is known as Cost of capital. Generally, a firm which want to raise money should try to make the cost of capital low. Normally, the Equity cost of capital and cost of debt capital should be referred as external cost and the retained earnings should be mentioned as internal cost. If have retained earning almost, its cost is less when compared to the cost of external cost. If the firms has strong Retained earning it should not depend upon the profit of firm which is not predictable, and you could not restrict your investment opportunities in new projects. Ownership dilution: If the management of the company think that they should not allow any further shares by raising through equity capital or they are reluctant to dilute the ownership it should hold large amount of retaining earning or reserves. If the firm has large number amount of reserves then it need to raise capital for any future projects. Hence, the company which dont like dilution of control should hold sufficient amount of reserves or retaining earning and whenever they need they can use for the Business. Effect of dividend policy: The effect of dividend policy depend on 4 factors this includes :Shareholder desire for current future income; the perceived riskiness of dividends versus capital gains; the tax affect on the capital gain or divided which may depend upon the relevant statues and the information content of dividend. Distributable profits: The companies act stipulated that the dividend should be paid out accumulated net realized profit which includes the current profit and the previous accumulated profit. Because there is no concise definition of the word accumulated profit in the act the Committee of Accounting Bodies issued guidelines on the determination of the realized and the distributable profits and the mentioned that the profit is as per the Accounting standards and Generally accepted accounting principles i.e., Profit available for distribution should be calculated after providing accumulated loosed from the previous year. Liquidity: When the firm announces the dividend it should have sufficient cash to pay the dividend otherwise there liquidity position should be strong. Because, the company may generate more profit its does not mean that it should have it have all the profit realised in terms of cash. It may invest some funds in Projects or investment for returns. So the management should consider the liquidity before announcement of dividend. CONCLUSION The dividend policy is the crucial part of the management decision that need to be handled carefully . If they handled properly they need not to worry about the investment decision and financial decision. According to the dividend relevance theory, the dividend policy plays a vital role in hands of the investors because the wrong decision might affect the capital structure of the firm. We got from the theory that dividend give the signal effect to the investores and it has a clientele effect so we cant avoid the payment of dividend. On the other hand if we pay dividend regularly year by year it will affect the growth of the company and it will create liquidity problems. Big company like Mcdonals they avoid the dividend in the intial year and they will create a Brand name across the world and later they pay the dividend.

Case Studies in Finance Company G & H Essay

Company G deals mostly in selling books in a large retail setting, however they implement a concept that is more community-based. Company H deals in a variety of media, including books, music, and video along with electronics and other varieties of merchandise. Not only does Company H differ in merchandise variety, but it also differs from Company G in that it is internet-based only and is highly interested in further corporate acquisitions—very different from Company G’s â€Å"community store concept†. Bruner, Eades, & Schill, 2010, pp. 96-97). Since Company H has a variety of merchandise to sell, along with its interest in acquisitions; it has a significantly higher level of net fixed assets than that of Company G. Acquisitions will always increase the level of net fixed assets. Since Company G tends to implement a strategy that does not favor large acquisitions, its level is lower at a level of 7. 6 versus 24. 4 in Company H. Company H also exceeds Company G in most of the liabilities section, which automatically gives Company H a leg up in being able to take on more liabilities such as credits and loans. However, Company G comes out winning in terms of income and expenses, with a net income of 8. 5%. Company H’s net income ended at 2. 9%. This also relates to lowered percentage of SG&A expenses on Company G’s side, higher interest income, special items income, and its lower percentage of income taxes. Company G is also considered to be more liquid than Company G, with a current ratio of 1. 57 versus Company H’s 1. 49. This indicates that while Company G has more liabilities, it is better-able to pay its short-term liabilities than Company H. It is understandable why Company H keeps its liabilities slightly lower so that they do not become overwhelmed with short-terms loans and notes that it will not be able to pay back on time.

The purpose of the annual review is to reflect

The purpose of the annual review is to reflect on the past year’s endeavors, as well as to discuss and set attainable, mutually beneficial goals for the future. It should be viewed as a vehicle to share ideas and insights based on your work in the firm this past year. In your review please address the following: 1. Project Contributions: Design, Management, Client Relations, Technical, Teamwork and Profitability. I had been requested to work on a project in New Jersey, which required the renovation of the Korea Telecom office building.However, we could not accept their request due to our firm’s workload at that time. I have been making efforts at being a reliable team member by contributing my skills and knowledge in Auto CAD and other 3d program techniques to the current project and developing rapport among the team members. 2. Firm-wide Contributions: Leadership within firm, promoting firm to others, and business development. I have promoted the firm to potential inte rnational project partners and clients by giving out the firm’s brochures and my business cards to well-known and distinguished architectural firms in Korea.3. Growth: State how these contributions demonstrate growth from previous years’ performance. Even though I’ve had architecture practical experience for over 6 years in Korea, I started all over again in this firm in New York after finishing Graduate School last May 2006. 4. Improvements: How might improvements have been made – either in your performance or by the firm? When I first started working for the firm, I was confused with architectural unit and architectural drawings in terms of architectural drawing standard differentiations, which are different from the methods I was used to back in Korea.However, I got rid of those difficulties by understanding practical knowledge and learning U. S. standard architectural drawing. Now, I’m working on a construction document for the Chapin school pr oject team. 5. Goals: State your goals for next year. I definitely would like to become a more reliable and dynamic member of the architecture staff for this firm by improving my skills in practical drawing and creative drawing. I also hope to contribute to the success of this firm in becoming an internationally well-known design firm through my efforts in procuring international projects and/or partnership.

Vectors, Biology And Transmission Cycles - 1499 Words

Vectors, Biology and Transmission Cycles The dengue virus is transmitted from human to human with a few members of Aedes Stegomyia subgenus serving as vectors, the most important one being the Aedes aegypti mosquito as this mosquito represents the bulk of the vector transmissions of the virus. Ae. aegypti mosquitos originate from Africa but due to human transport, they can now be found mostly in many tropical areas around the world. These mosquitos thrive in dark, damp areas in a tropical climate as their growth is slowed in cooler climates. Ae. aegypti have a lifespan of 10 days to 3 weeks. The following is a simple chart of the life cycle of Ae. aegypti: http://www.denguevirusnet.com/life-cycle-of-aedes-aegypti.html Female Ae. aegypti†¦show more content†¦Eggs can hatch within 2 days in tropical climates or up to a week in cooler climates. Larvae are very tolerant to low nutrient sources, mainly feeding of organic particulate matter in the water. They go through 4 instars after which they turn into pupae. They do not eat during this stage and take 2 days to develop into adult mosquitos. Pathogenesis and Immunopathophysiology Once infected for the first time, the host innate defences begin to work on the dengue virus by first initiating the complement system. However, even though the complement system can inhibit the infection from many a virus, it may have either protective or pathogenic roles against the virus depending on the stage of infection and the host. Activation of the complement system initiates several antiviral mechanisms including pathogen opsonisation and/or lysis, and activation of adaptive B and T cell responses. Complement is activated through the classical, lectin and alternative pathways, depending on specific recognition molecules. The complement cascade activates mainly to prime B and T cells to get to work on damage control within the host. However, the pathological effects which come from the complement system can vary in a dengue virus infection. Later during primary infection, IgM antibodies will be produced initially in an attempt to slow down the infection and much later on IgG antibodies specific to the specific dengue virus serotype will be deployed.