What policies and payments comprise a firm’s dividend policy? Why is determining dividend policy more difficult today than in decades past?
Answer to relevant QuestionsManagers 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? According to the residual theory of dividends, how does a firm set its dividend? With which dividend policy is this theory most compatible? Does it appear to be empirically validated? What is the basis of the argument that transactions costs provide a reason for firms to pay dividends, and how has the steep decline in transactions costs in recent years affected this argument? Describe and evaluate the use of return on investment (ROI) and economic value added (EVA) as growth targets in financial planning. Why do firms often use annual growth in sales or assets as a target growth rate? What does the firm’s cash conversion cycle represent? What is the financial manager’s goal with regard to it? Why?
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