Managers of slow- growing, but profitable, firms (i. e., tobacco companies) should pay out these high earnings as dividends. What can they choose to do instead?
Answer to relevant QuestionsHow do Miller and Modigliani (M&M) arrive at their conclusion that dividend policy is irrelevant in a world of frictionless capital markets? Why is the assumption of fixed investment policy crucial to this conclusion? What do you think the typical stock market reaction is to the announcement that a firm will increase its dividend payment? Why? What does it mean to say that dividends are irrelevant in a world without taxes or other market frictions? Explain the difference between a firm’s sustainable growth rate and its optimal growth rate. In what circumstances is a firm’s optimal growth rate likely to exceed its sustainable rate, and under what conditions would ...How is credit scoring used in the credit selection process? In what types of situations is it most useful?
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