The text cites a drawback to the residual theory of dividends, because theory does not take into
Question:
The text cites a drawback to the residual theory of dividends, because theory does not take into account how stockholders feel about receiving dividends. If a stockholder's only concern is achieving the highest potential rate of return, receiving dividends has several downsides. For an instance, a shareholder may want to defer tax on the gain from a security, and receiving a dividend is a taxable event in the year in which it is received. On the other hand, many retired investors live off dividend income from their investments, and hence prefer a high dividend rate.
Given the potentially differing attitudes towards dividends, how would you as a manager develop a corporate philosophy regarding dividends?
Exploring Engineering An Introduction to Engineering and Design
ISBN: 978-0123747235
2nd edition
Authors: Philip Kosky, George Wise, Robert Balmer, William Keat