COMMERCE 3FA3 Lecture Notes - Lecture 13: Dividend Policy, Net Income, Nortel

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 3FA3
• Professor: Anwar Husain

Document Summary

Firm has excess costs of and other assets of . They have 200 shares o/s and net income of . New prices (ex-div price) = original price dividend. Original = equity / # shares = 10,000/2000 = 50. 00/share. Dividend = amount paid / # shares = 1000/200 = 5. 00/share. They have net income of and new projects that require . Benefits: good signal, might shares undervalued, no dilution of ownership, opposite, eps increase, limits cash to managers (like dividends) Negative: eps manipulate, cash to gone from company - value lower, timing is not consistent. Dividend: price at share falls, net income same, # of shares outstanding same. Repurchase: price is unchanged, net income same, fewer shares o/s. Example. company has net income of and 500 shares o/s. They have excess cash of and other assets of . Eps = net income/# shares = 600/500 = 1. 20. Price of share = equity/# of shares = 8000/500.