A study on financial_research

May 28th, 2015
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Abraham Lincoln University
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The Larger the RETENTION, the LESSER the dividends The choice between retention and payout would depend on the kind of effect each of these choices would have on the objective of maximizing the wealth of the shareholder Payout, if such a decision would lead to maximizing the Wealth of the shareholders: RETAIN otherwise

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PGP-FM II-97-03#1-Dividend Policy The Larger the RETENTION, the LESSER thedividends The choice between retention and payoutwould depend on the kind of effect each of thesechoices would have on the objective ofmaximizing the wealth of the shareholder Payout, if such a decision would lead tomaximizing the Wealth of the shareholders:RETAIN otherwise#2 Irrelevance theory of Dividends The theory rests on the BASIC premise that;DIVIDEND DECISION IS A RESIDUALDECISION The Dividend decision flows from out of thePRIMARY decision to RAISE CAPITAL or raisefinances in a particular fashion than inanother; funding is the primary decision anddividend decision that reflects SERVICINGCOSTS is only a PASSIVE RESIDUAL#3 If dividend policy is not a passive residual andinstead is an active Financing decision, thedecision to retain or, payout would rests on thepremise --Retain if the firm requires funds for Investmentand CANNOT procure them AT A RATECHEAPER THAN ITS EXISTING COST OFCAPITAL. It is of course assumed that thereturns on the New Investment will be greaterthan the marginal cost of capital#4 Conversely, if Investment Opportunitiesare few and if the returns on the Newinvestments are LESS than the Cost ofCapital, PAY OUT Thus the GROUND RULE for theadequacy of acceptable Investmentopportunities is the comparison of theROI (r) with the Cost of Capital (Ke)#5 Theoretically, the fo

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