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Project Report on Corporate Finance

   

Added on  2020-03-16

6 Pages1356 Words95 Views
Running Head: corporate finance 1Project Report: Corporate Finance

Corporate finance 2Que a)Miler and Modigliani has depicted into their study that a firm must not announce the entire profit as dividend. Firms are required to retain all the profits for further investment. Information content hypothesis depict that the firm’s top level management and board of directors of the firm known various private knowledge about the company which are helpful for the investors and analyst to analyse the market condition of the company1. Information content of dividend is a widely accepted theory of dividend. This theory further depict that the information is confidential and that is why it is better for the firm to announce more dividend so that investors get attracted towards the company. This theory forces over the irrelevant theory of dividend. Further, free cash flow hypothesis of dividend depict that the bigger debt level of a company disciplines the managers and the directors of the company through pushing them to make some fixed payments of the debt service and by reducing the level of the cash flow of the company. This theory forces over the irrelevant theory of dividend. This theory further depict that the investors look over the entire cash flow of the company before investing into the company2. Lastly, Clientele effect theory of dividend depict that the firm’s stock price always move and vary according to the goals and demand of the analyst and investors in context withthe tax, dividend announcement and other changes into the policy. This effect assumes that particular investors are attached with a company’s dividend policy and once it would be changed they will switch. So the firm must make the changes into its dividend policy 1D.J. Denis, and I, Osobov, Why do firms pay dividends? International evidence on the determinants of dividend policy,Journal of Financial economics,89(1), pp,62-82, 2008.2H. A., Nizar Al-Malkawi, Determinants of corporate dividend policy in Jordan: an application of the Tobit model,Journal of Economic and Administrative Sciences,23(2), pp,44-70, 2007.

Corporate finance 3accordingly3. And firm must pay the dividend amount on regular basis to the investor to makethem motivate. Que b)Why should company chose repurchase:Potential tax advantages:If a company repurchase its stock than company becomes eligible for getting the tax advantage and this is the biggest reason due to which companies prefer to repurchase their shares. Signalling:The repurchase of the shares give a signal in the market about the position of the company and due to which more investors get attracted towards the company4. Managerial flexibility:Managerial flexibility is the main reason due to which company prefers to repurchase the share as the buyback manages and make the managerial activities of the company more attractive to manage entire process of the company. Increase financial leverage:If a company repurchase its stock than company the financial leverage position of the company is enhanced by a great level and this is the biggest reason dueto which companies prefer to repurchase their shares5. Offset dilution:3D. Al-Kuwari, Determinants of the Dividend Policy of Companies Listed on Emerging Stock Exchanges: The Case of the Gulf Cooperation Council (GCC) Countries, 2009.4D,Y, Chung, D, Isakov, and C, Pérignon, Repurchasing shares on a second trading line,Review of Finance,11(2), pp,253-285, 20075J., Wiemer, and S., Diel, Strategies for share buybacks,Journal of Corporate Treasury Management,1(4), 2008.

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