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Corporate Finance Authors Note: Five Reasons for Companies to Choose Repurchase Rather Dividends Under a Classical Tax System

   

Added on  2020-05-16

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Running head: CORPORATE FINANCECorporate FinanceName of the Student:Name of the University:Authors Note:Table of Content

CORPORATE FINANCE1a) Discussing these hypotheses related to dividend policy:.......................................................2b) Discussing five reasons for companies to choose repurchase rather dividends under aclassical tax system:...................................................................................................................3c.i) Identifying final dividend for Cardno Limited:...................................................................3c.ii) Calculating three-day return earned by the firm through day before and after theannouncement:...........................................................................................................................4c.iii) Calculating the market return for the corresponding periods:...........................................5c.iv) Calculating excess returns:................................................................................................6c.vi) Discussing relevant theory with the findings:....................................................................7Reference and Bibliography:......................................................................................................8

CORPORATE FINANCE2a) Discussing these hypotheses related to dividend policy:Signalling Hypothesis:The hypothesis mainly revolves around the dividend that is paid by the organisation toits shareholders. In addition., the signalling hypothesis indicates that any increment or declinein the dividend value directly effects the actual share price of the organisation. The investorsvalue share price on the basis of dividend that is provided by the company. Moreover, if themarket infers are any increment or decline in company’s share value the signallinghypotheses take control and changes share value of the organisation (Wright et al. 2015). Free Cash Flow Hypothesis: The free cash flow hypothesis is mainly used by organisation to depict the extra cashavailable after conducting its operations. The investors by detecting the free cash flow afterthe dividend payment are able to understand the actual value of the company and identify itsactual share value. The manager when investing in new projects use low dividend policy,while on occasion to meet investor expectation the management increases the dividend levelto boost its share price and acquire additional funds (Bhandari and Adams 2017). The clientele effect:Clientele or investors mainly needs different dividend policy from organisation, as ithelps in improving their return from investment. Any changes in dividend policy by theorganisation could directly affect its clientele and reduce demand among investors (Bodie,Kane and Marcus 2014).

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