рефераты конспекты курсовые дипломные лекции шпоры

Реферат Курсовая Конспект

Dividends as a Residual Profit Decision

Работа сделанна в 2001 году

Dividends as a Residual Profit Decision - раздел Лингвистика, - 2001 год - Going public and the dividend policy of the company Dividends As A Residual Profit Decision. It Would Seem Sensible For A Company...

Dividends as a Residual Profit Decision. It would seem sensible for a company to continue to reinvest profit as long as projects can be found that yield returns higher than its cost of capital. In this way, the company can earn a higher return for shareholders than they can earn for themselves by reinvesting dividends.

Such a policy can be optimal, however, only if the company maintains its target-gearing ratio by adding an appropriate proportion of borrowed funds to the retained earnings. If not, the company s coast of capital would increase because of its disproportionate volume of higher-cost equity capital this would be reflected share price. Activity The LTD Company has the chance to invest in the five projects listed below ProjectsCapital outlay, Yield rate, A70.00018B100.00017C130.00016D50.00015E1 00.00014The company cost of capital is 16 its optimal debt to net assets ratio is 30 and the current year s profit available to equity shareholders is 350.000. Required State which projects would be accepted, and what is the total finance requires for those projects.

Assuming that the company wishes to maintain its gearing ratio, how much of the required finance will be borrowed How much of this year s profit can be distributed The answers A, B and C, with yield greater than or equal to the company s cost of capital total finance required 300.000. Amount to be borrowed 30 of 300.00090.000. This year s profit 350.000 less amount to be reinvested 300.000-90.000 210.000 Profit for distribution 140.000 Company s shareholders obtain the best of both words. They can invest the 140.000 received as dividends to earn a higher rate of return than the company could earn for them and the 210.000 retained by the company is reinvested to shareholders advantage.

Shareholders wealth is optimized, and the dividend paid is simply the residual profit after investment policy has been approved.

If companies look upon dividend policy as what remains after investments are decided then the search for an optimum dividend policy is pointless. Shareholders wanting dividends can always make them for themselves by selling some of their shares.

Further support for the residual theory of dividends, and the argument that the change in dividend policy does not affect share values, was advanced by Modigliani and Miller in 1961. They contended that in a perfect market the increase in total value of a company after it has accepted an investment projects is the same, whether internal or external finance is used. One deficiency in the Modigliani and Miller hypothesis, however, is that they ignore costs associated with an issue of shares, which can be quite considerable. 2.

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Going public and the dividend policy of the company

We consider the institutional design of capital market, Stock Market Exchange and Alternative Investment Market fundamental theories of paying… The main objective of this report is to develop a better understanding of the… One solution to this financial problem is to retain the services of a financial intermediary usually a merchant bank…

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Все темы данного раздела:

Types of Shares
Types of Shares. There are two main classes of shares are ordinary and preference Ordinary shares sometimes called equity shares Those are the highest risk-takers shares in the company. This

The Stock Exchange and the Capital Market
The Stock Exchange and the Capital Market. The Capital Market embraces all the activities of financial institution engaged in the raising of finance for private and public bodies whether situated i

Issue of Securities
Issue of Securities. All arrangements made by an Issuing House, which specialized in this work. The procedure would be probably as follows an evaluation by the Issuing House of the company s financ

Costs Associated with Dividend Policy
Costs Associated with Dividend Policy. Capital floatation costs are a deterrent substituting external finance for retained earnings but there are other costs affected by the dividend decision.

Other Arguments Supporting the Relevance of Dividend Policy
Other Arguments Supporting the Relevance of Dividend Policy. Activity As a potential investor, how would you react to the following questions a. Would you prefer cash dividends now, against

Practical Factors Affecting Dividend Policy
Practical Factors Affecting Dividend Policy. Whatever dividend policy is thought to be best for a company in theory, certain practical factors influence the decision. Availability of profit

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