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Chapter 16
OU
expect the
f. Look U estimates of Apples EPS for the next year. What is the dividend payout ratio?
does Apple plan to spend on repurchases in the next year? What is the overall
g. How much
(dividends plus repurchases)?
ratio
payout
policy Investors and financial managers focus more on changes in cash dividends
13 pividend
than on the level of cash dividends. Why?
ce sheet Now
talization riOwhat happ(
re repurch
nce sheet One
$1 million ii
re. Whatm
16. PayoUt policy MM insisted that payout policy should be analyzed holding debt and invest
ment policy constant. Why? Explain.
17. DividendS and value Little Oil has outstanding one million shares with a total market value
of $20 million. The firm is expected to pay $1 million of dividends next year, and thereaf
ter the amount paid out is expected to grow by 5% a year in perpetuity. Thus the expected
dividend is $1.05 million in year 2, $1.105 million in year 3, and so on. However, the com
pany has heard that the value of a share depends on the flow of dividends, and therefore it
announces that next years dividend will be increased to $2 million and that the extra cash
will be raised immediately by an issue of shares. After that, the total amount paid out each
year will be as previously forecasted, that is, $1.05 million in year 2 and increasing by 5% in
each subsequent year.
F model from
cash dividend.
.t the company i1
s will come as
c price? Why?
tocks because
:hese investors
jthat pay no
prefer compa
not care?
slowing down.
stockholdel
1
ce like Yaho
Payout Policy
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