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Dividend Decitions

Dividend Decitions

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Published by Sudist Jha
Details about Dividend policies.
Details about Dividend policies.

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Published by: Sudist Jha on Jun 02, 2012
Copyright:Attribution Non-commercial

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01/10/2013

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Issues in Dividend Policy
Earnings to be Distributed
 –
High Vs. Low
Payout.Objective
 –
Maximize Shareholders Return.Effects
 –
Taxes, Investment and FinancingDecision.
6/2/2012 1
 
( )
 D E DP
Walter’s formula to determine the market price is as follows
 P= Price per equity shareD = is the dividend per shareE = is the earnings per share(E-D) is the retained earnings per shareR = is the rate of return on investments andK= is cost of capital
Price per share is a sum of two components:
( )
 E D DK
6/2/2012 2
 
Dividends are that portion of a firm‟s net earnings
which are paid to the shareholders.Preference shareholders are entitled to a fixed rate of
dividend irrespective of the firm‟s earnings.
 
Equity holders‟ dividends fluctuate year after year.
Dividend decisions depend on what portion ofearnings is to be retained by the firm and whatportion is to be paid off.
6/2/2012 3

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