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38 Cards in this Set
- Front
- Back
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DIvidend Policy
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Determines what portion of a corporations net income is distributed to shareholders and what portion is retained for reinvestment.
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High dividend rate
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Slower rate of growth
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High Growth rate
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low dividend rate
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Information content/Signaling Hypothesis
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A change in dividend policy is a signal to the market regarding managements forecast of future earnings.
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DIvidend Policy
Legal Restrictions |
Dividends can only be paid out of retained earnings.
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DIvidend Policy
Stability of earnings |
A company whose earnings fluctuate greatly from year to year will pay a small dividend.
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DIvidend Policy
Rate of growth |
A company with faster growth sill have a greater need to finance that growth with retained earnings. Thus lower dividend payout ratios
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DIvidend Policy:
Cash Position |
Regardless of a firms earnings record cash must be availablle before a dividend can be paid.
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DIvidend Policy:
Restrictions on debt agreements |
Restrictive covenants in bond indentures and other debt agreements often limit the dividends that a firm can declare.
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DIvidend Policy:
Tax position of shareholder |
some owners want to forgo dividends for future capital gains for tax implications.
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DIvidend Policy
Accumilated earnings tax |
Tax on corporation that has accumulated retained earnings beyond its reasonably expected needs.
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DIvidend Policy
Residual theory of dividends |
dividends depends on the
available investment opportunities debt/equity ratio at which cost of capital is minimized. |
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Date of declaration
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the date the directors meet and formally vote to declare a dividend.
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Date of record
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The date as of which the corporation determines shareholders who will receive the declared dividend.
2-6 weeks after date of declaration |
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Date of distribution
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Date on which the dividend is actually paid (check date).
2 to 4 weeks after date of record. |
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Ex-Dividend date
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date established by the stock exchanges, such as 4 business days before the date of record. Unlike the other dates previously mentioned, it is not established by the corporate board of directors.
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Period between the ex-d date and date of record
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give the stock exchange members time to process any transactions so that new shareholders will receive the dividends to which they are entitled.
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Stock dividend
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issuance of stock.
entails the transfer of a sum from the retained earnings account to a paid-in capital account. |
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Stock split
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the existing shares are divided into more pieces (Additional shares)
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Advanatages to stock splits and dividends
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The lower stock price attracts smaller investors. Thus the demand for the stock is greater, the price may increase.
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Share repurchase
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when a corporation buys its own shares on the market
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motives for share repurchase
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Mergers
Share options Stock dividends Tax advantages to the shareholders To increase EPS and other ratios Prevent hostile takeover Eliminate a particular ownership interest |
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Dividend reinvestment plans
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dividends due to shareholders re reinvested in shares of the same corp's common stock.
source of financing |
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Insider trading
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purchase or sale of any security by individual who
has access to material, nonpublic info. Has not disclosed it before trading has a fiduciary obligation to the issuer, shareholders or other source of information. |
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Insiders
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officers
directors consultants lawyers engineers auditors bankers reporters pr advisors tipees personal gov agencies |
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Leases
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Long-term contractual agreement in which the owner of the property (lessor) allows another party (lessee) the right to use the property for a stated period in exchange for a stated payment.
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Capital Lease
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purchase and financing arrangement
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Operating Lease
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long term rental contract
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Sale-Leaseback
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Financing Method, Firm seeking financing sells and asset to an investor and leases the asset back.
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Service or operating leases
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usually include both financing and maintenance services.
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Financial leases
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noncancellable and fully amortize the cost of the leased asset over the term of the basic lease contract.
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Capital Leases
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A purchase of an asset.
An asset and a liability recorded for the PV of the lease payments Interest should be recognized Cost amortized |
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Operating Lease
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Usually shorter term, rental contract.
Lease payment expensed as incurred. |
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Criteria for a capital lease
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Title reverts to lessee at end of lease.
Bargain purchase option 75% or more of useful economic life PV of the min lease payments = 90% or more of the fair value. |
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Sales-Type lease
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Both sales profit and interest revenue for a manufacturer or dealer-lessor and transfers ownership rights and responsibilities to lessee
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Direct financing lease
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transfers ownership rights and responsibilities to lessee and provides interest revenue to the lessor, but it does not provide sales profit.
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leveraged lease
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Similar to a direct financing lease, but there is a substantial leverage, i.e. the lessor finances the leased asset with non recourse debt.
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Types of Mergers
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Horizontal merger
Verticle merger Congeneric merger Conglomerate merger |
