A firm considers initiating an aggressive dividend reinvestment plan (DRIP) in which it allows its investors to

Question:

A firm considers initiating an aggressive dividend reinvestment plan (DRIP) in which it allows its investors to use dividends to buy shares at a discount of 40% from current market value. The firm's financial manager argues that the policy will benefit shareholders by giving them the opportunity to buy additional shares at a deep discount and will benefit the firm by providing a source of cash. Is the manager correct?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...