CapitalBudgetingfortheLeveredFirm幻灯片.pptVIP

18.1 Different Types of Dividends Many companies pay a regular cash dividend. Public companies often pay quarterly. Sometimes firms will throw in an extra cash dividend. The extreme case would be a liquidating dividend. Often companies will declare stock dividends. No cash leaves the firm. The firm increases the number of shares outstanding. Some companies declare a dividend in kind. Wrigley’s Gum sends around a box of chewing gum. Dundee Crematoria offers shareholders discounted cremations. 18.2 Standard Method of Cash Dividend Payment Record Date - Person who owns stock on this date received the dividend. Ex-Dividend Date - Date that determines whether a stockholder is entitled to a dividend payment; anyone holding stock before this date is entitled to a dividend. Cash Dividend - Payment of cash by the firm to its shareholders. Procedure for Cash Dividend Payment 25 Oct. 1 Nov. 2 Nov. 6 Nov. 7 Dec. Declaration Date Cum-dividend Date Ex-dividend Date Record Date Payment Date … Declaration Date: The Board of Directors declares a payment of dividends. Cum-Dividend Date: The last day that the buyer of a stock is entitled to the dividend. Ex-Dividend Date: The first day that the seller of a stock is entitled to the dividend. Record Date: The corporation prepares a list of all individuals believed to be stockholders as of 6 November. Price Behavior around the Ex-Dividend Date In a perfect world, the stock price will fall by the amount of the dividend on the ex-dividend date. $P $P - div Ex-dividend Date The price drops by the amount of the cash dividend -t … -2 -1 0 +1 +2 … Taxes complicate things a bit. Empirically, the price drop is less than the dividend and occurs within the first few minutes of the ex-date. 18.3 The Benchmark Case: An Illustration of the Irrelevance of Dividend Policy A compelling case can be made that dividend policy is irrelevant. Since investors do not need dividends to convert shares to cash they will not pay higher prices for firms w