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Scotch Mitts Plc Dividend Policy
Introduction
As financial director of the Scottish Mitts PLC you have requested the Board
the decision of 2 key issues and questions raised in the discussion above.
delay in the consumption and use and the risk for their investment funds.
The decision of the Scottish Mitts PLC on dividends are often mixed with
other financial and investment decisions. Some firms pay low dividends because
management is optimistic about the future of Scottish Mitts PLC and aims to
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preserve profits for expansion. In this case, the dividends are a byproduct of the
Scottish Mitts PLC solutions of the capital budget. Another firm might finance
capital expenditures primarily through credit. This releases cash for dividends. In
Fischer Black (1976) wrote: "The more we look at the dividend picture, the
more it seems that mystery. Based on our study, this article will not cover all
Dividend Theories
Scottish Mitts PLC dividend policy, and the total value of shares:
Dividend Irrelevance Theory (Miller & Modigliani, 1961): that in recent years
known as the M & M? This theory claims that in a world with no market
Scottish Mitts PLC dividend policy does not affect its value or cost of capital.
Scottish PLC Mitts of its dividend policy. Investment policy that all the questions,
as well as the values Scottish PLC Mitts are the present value of future cash
flows. As these cash flows are allocated between dividends and retained
Given the investment policy of PLC's Scotch Mitts, dividend policy affects
only the level of external financing required (in addition to retained earnings) to
finance new investments and pay dividends. This means that every dollar of
market value of the company is its investment policy, since it is responsible for
the future profitability of the company. As a result, it does not matter, Scottish
Mitts PLC pays their income or not. The main assertion (and recommendations),
the underlying M & M proposal is that the manager has decided to subject the
Example:
Scottish Mitts PLC paid a third of its value as a dividend and raise money by
selling new shares. Passing a value to new shareholders and the payment of
Before Dividends
After dividend
New shareholders
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believe that the dividend policy that the balance between current dividends and
future growth, to maximize the Scottish Mitts PLC's share price. Address investor
preference for dividends without selling the shares, arguing that capital gains “in
the bushes” are perceived as riskier than dividends "in the hand. Miller &
Modigliani refer to this theory as "a bird in the hand fallacy, assuming that most
investors will reinvest their dividends in the same or a similar company anyway,
and that in the long run is determined by the risk of asset cash flows are not
dividend policy.
than on dividends. What is a "bird in the hand"-theory really say that the
company pays dividends low as a rule, risky investments. For this reason - and
not on the low dividend Perse - investors discount low income dividends (and
therefore risky) company to a greater extent. The market discounts future income
Dividend Relevance Theory (Graham & Dodd, 1988): The value of Scotland
PLC Mitts depends on its dividend policy. The optimal dividend policy is one that
maximizes the Scottish Mitts PLC values. Dividends are taxed at higher rates
than capital gains; investors require higher returns as the increase in dividend
yield.
Scotch Mitts Plc 6
This theory suggests that the low rate of dividend payment will maximize the
Scottish Mitts PLC values. The results of empirical tests of these theories do not
mix and have not led to definitive conclusions. In less than the theoretical "real
world", companies budget for future dividend payments in the same way that the
budget of any other cash outflows such as requirements for debt service, capital
expenditures, or any foreseeable demand for cash. As a result, when the Board
of Directors establishes the general dividend policy, often in the face and always
taking into account the projected cash flows - not earnings. Thus, domestic
politics in Russia can be described as a certain percentage of cash flow, even for
companies that have expressed their public policy in terms of relationships or the
In the real world, the market can not be completely effective or completely
ineffective. Markets mainly a mixture of both, and daily decisions and actions
participants had the view that the market is efficient, no one will look for those
additional revenues, the force that holds the wheel Market turn.
market will not always be either quick or accurate in processing new information.
On the other hand, it is not easy to convert to be able to trade profitably against
significant impact on our net income and cash flow. In this report, we will observe
the relationship between dividend policy and the Scottish Mitts PLC values
* Key assumptions:
the end of each year. We will pay the undistributed profits as dividends or
portfolio decisions.
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because they appreciate the regular cash payments or do not face tax deficiency.
If these shareholders in our PLC Scottish mittens, paying bigger dividends will
we can understand why investors favor firms with established records dividends,
not only to profits earned in accounting people. Investors refuse to believe the
Scottish Mitts PLC reported earnings announcements, if they are not supported
These provisions mean that our dividend policy can be used as a signal to
As we know, the market value of PLC’s Scotch Mitts presents value of all
future dividends. Despite the fact that we have higher and higher pay increases
the confidence of the market, but also leaves less retained earnings to finance
future growth. Thus, we must find a balance between this compromise, the
current income to shareholders (dividends) & the future growth of the company
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(retained earnings). The price of shares allegedly will be the maximum when the
future earnings. It is worth noting that investors do not worry about the level of
dividend PLC Scottish Mitts, they are concerned about the change, which is
sufficient opportunities for profitable investment, but the limited available funds,
excess money paid to them in the form of higher dividends. In such situations,
the signal sent to the market about domestic investment opportunities and future
Cash flow only "real" thing to the best of Scotland PLC Mitts fiscal health.
Cash dividends have an inevitable impact on cash flow, which can be called
Because high dividend policy will be costly if we do not have sufficient cash
flow to support it, dividend increases signal our happiness & confidence in the
We assume that the method used for the distribution of cash flows reflects
the nature of the underlying cash flow process and creates expectations of
investors about the volatility of cash flow shocks. The hypothesis consists of two
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parts. First, share repurchases to distribute cash flow shocks, which are mainly
distribution to update their ideas about the constancy of the past and the present
Typically, there are some legal considerations about the Scottish Mitts PLC
• Dividends may be paid out of profits and should not be paid out of capital.
• Dividends limitations may exist in the covenants in trust deeds and loan
agreements.
• Under the charge, if the company is able to pay the income from
In the previous part of this report, we have already mentioned some factors
that should be taken into account when creating our dividend policy, such as:
• Clients consequences
• Earnings volatility
• Long-term goals
• Investment opportunities
primary motivation of dividends, that if the Scottish Mitts PLC profits paid out as
dividends, corporate managers may divert cash flows for personal use or to
means to reduce the free cash flow that managers can use discretion 15.
Dividend varies with the general volatility of future cash flows, not only
Dividend
Revenues
adamodar/pdfiles/ovhds/ch10.pdf
anticipate the uncertainty of future cash flows, they reduce the payment to avoid
significant event news on markets, when we try to reduce the dividend, it can
also be a significant bad news for the market. The proposal is that the general
trend is a smooth cash dividend over time, and, as a rule, we just declare a
Scotch Mitts Plc 12
dividend when it is sustainable. The reason for smoothing the curve by solving
conventional year dividends for the year. In exceptionally good years, some
expected every year in the future. However, ordinary dividends should rise in
step with earnings. Thus, the board of directors sets the dividend at some target
Conclusion
Decide what percentage of the net profits for dividends is the main policy
what tools are stored in the PLC Scottish Mitts for reinvestment.
We see that dividends and share price are positively correlated; this does
not mean that the former causes the latter. In the long run, higher dividends
Mitts PLC value and shareholder wealth, but it does not follow that an increase in
consequently, the prospects are held fixed-income, higher dividends actually help
Scotch Mitts Plc 13
to reduce stock prices. If you take the higher dividends greater share of future
earnings, the stock price (which is the PV of these future revenues, which
References
Jack Treynor, "What Does It Take to Win the Trading Game?" Financial
http://jfe.rochester.edu/99249.pdf
Resource: http://www.mcgraw-hill.com.au/mhhe/fin/peirson7e/stu/Chap-
12.ppt, slide 6
Jensen, Michael C., 1986, Agency Cost of Free Cash Flow, Corporate
Resource: http://www.umich.edu/~reecon/restate/faculty/div1197.pdf,
http://www.departments.bucknell.edu/management/apfa/Hamburg
Resource: http://www.infotoday.org/business/finance1/class1.pdf
Resource: http://www.peoi.org/Courses/finanal/ch/ch12a2.html
Resource: http://www.st-andrews.ac.uk/~gss2/ec3123/ec4423lecture1.pdf,
Scotch Mitts Plc 16
Bibliography
Hall
Brav A., Graham J.R, Harvey C.R., and Michaely R, (2005) ‘Payout Policy in the
Dong M., Robinson C, and Veld C, (2005) ‘Why individual investors want
Inappropriate sources (eg Wikipedia, Tutor4u etc) may result in marks being lost.
Appendix 1
Current Assets:
Current Liabilities: