Essay about Business Finance DDM model

George C. Philippatos and William W. Sihler, 'Models of Dividend Policy', Financial Management (Allyn and Bacon), 228-229

Identify two ways in which a shareholder can realize a return on a share investment. Describe the relationship between them.

When a company decides to pay dividends, it has to be careful on how much it will be given to the shareholders. It is of no use to pay shareholders dividends

I am requesting that Respondent’s possession and access to the children be limited to standard possession. The current possession and access schedule is no longer in the best interest of the children because of the reasons listed here. I am concerned that Respondent may be abusing alcohol and controlled substances in and out of the presence of the children. On July 25, 2016, Respondent was convicted of a DWI that resulted in the suspension of her license. On July 20, 2016, during the kids extended summer possession, Respondent was in a car accident.

If the cash is kept in the firm, there are chances that these capitals will be reinvested and bring the Linear Technology potential benefit from tax shield and interest earnings. Thus, a part of the opportunity costs of paying dividend will be a deduction of tax by the nature of debt

The fact that shareholders are taxed twice through this repayment methodology infers that dividends are not their repayment technique of choice. Furthermore, paying out cash reserves through dividends also has the effect of both reducing the company’s assets and also inhibited the company’s ability to fund future growth as Dividends reduce the company’s retained earnings.

Dividend Discount Models 1. The intrinsic value, denoted V0, of a share of stock is defined as the present value of all cash payments to the investor in the stock, including dividends as well as the proceeds from the ultimate sale of the stock, discounted at the appropriate risk-adjusted interest rate, k. Whenever the intrinsic value, or the investor’s own estimate of what the stock is really worth, exceeds the market

Based on the financing needs, as above dividends would be additional stretch on company finances

iii. Disadvantages First, without enough consideration of risk cost, DDM may underestimate the equity cost. Second, all of the data is based on historical record, so the result is not reliable considering of the future situations. Third, with the predetermined growth rate, it is obviously practical for the stock investors to estimate the possible profit, but may mislead the stock issuing firm from a better budgeting decision to a comparatively unsubstantial investment.

Dividend policy theory is closely tied to the work of Miller and Modigliani (1961, hereafter M&M) and their dividend policy irrelevance thesis. M&M demonstrate that under certain assumptions including rational investors and a perfect capital market, the market value of a firm is independent of its dividend policy. In actual market practices however, it has been found that dividend policy does seem to matter, and relaxing one or more of M&M’s perfect capital market assumptions has often formed the basis for the emergence of rival theories of dividend policy. Because of uncertainty of future cash flow, investors will often tend to prefer dividends to retained earnings. As a result, a higher payout ratio will reduce the required rate of return and hence increase the value of the firm (Gordon, 1959).

Financial Management is a critical aspect of any business in order to achieve a sustainable and efficient cash flow. It is essential in maintaining the link between a business’s future financial goals (profit maximization) and the resources that it has in order to achieve its objectives. Businesses demand certain common goals that increase a bussiness's all around achievement, Some of which involve; growth amongst assests, An increase in efficiency in all areas of the business whether it be management or not. And the ability to meet short term and long term debts. Finacial management undertakes the responsibility to implement and acheive these goals for the business using a range of strategies shaped to meet the needs of the business and

Paying dividends will reduce the available funds of the company but is a way to increase shareholder value. Increasing or decreasing of DPR spells out the standing of the company to its shareholders. Reduction or not giving dividends for a period will reduce AFN but will mean that the company is struggling to provide enough profit. Shareholders may see this as a signal that further investments for the company are riskier.

c. How should FPL choose between dividends and share repurchases as alternative modes of payment?

The dividend policy has grown over the years. This may be so that the company projects itself as a less risky share and thus also gaining investors faith. The investors buy its shares and thus increase its demand. This helps to gives positive signals to the investors signalling that the company is stable and can generate earnings steadily. This hypothesis is gains standing from the dividend hypothesis theory.

The first objection is related to the fact that this is a totally new approach concerning dividend policy, and nobody can predict what is going to happen. We consider that this may have positive effects on share prices, especially taking in consideration that it will stabilise the market price of the company.