Professional Documents
Culture Documents
Introduction
Taxation of capital distributions
Different treatments for capital gains versus
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dividends lowered
Dividends now more attractive relative to
capital gains
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dividends
Assumes that cash flow, beyond that
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Extraordinary Dividends
Firms divide dividends into two classes to
manage
1) Ordinary dividends (relatively low)
2) Extraordinary dividends (periodic, extra)
Firms forego extraordinary when needed
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dividend
Firm records the liability on its books
Ex-dividend date
The first day that shares trade without dividend
attached
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addressing payments
Record date is set several business days after
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approaches
Stock prices fall by the present value of the
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Stock Dividends
Pro-rata distribution of new shares to
current stockholders
Example: A 20 percent stock dividend would
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Stock Splits
Company exchanges new shares for old
shares
Each old share usually converts into more
than one new share
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Stock Splits
Alter par value of firms stock on companys
books
Do not cause shift in owners equity
accounts
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range
Investors like to trade in 100 share round
lots
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Stock Repurchases
Firm buys shares of own stock on stock
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Advantages of Repurchases
Can offer an efficient way to return money
to shareholders
Reduction or cessation of repurchases not
seen as a negative
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Disadvantages of Repurchases
Can make firm vulnerable to litigation from selling
shareholders
Management may have undisclosed information about
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