Resource: Principles of Managerial Finance, Ch. 14
Complete the Integrative Case 6 O’Grady Apparel Company.
Please after reading the chapter, I have highlighted the questions that you need to answer. ONLY THE HIGHLIGHTED SECTION IS MINE TO ANSWER THIS IS A TEAM ASSIGNMENT.
- (1) Assuming that the specific financing costs do not change, what effect would a shift to a more highly leveraged capital structure consisting of 50% long-term debt, 10% preferred stock, and 40% common stock have on your previous findings? (Note: Rework parts b and c using these capital structure weights.)
- (2) Which capital structure–the original one or this one–seems better? Why?
Below is Chapter 14
14 Payout Policy
- LG 1 Understand cash payout procedures, their tax treatment, and the role of dividend reinvestment plans.
- LG 2 Describe the residual theory of dividends and the key arguments with regard to dividend irrelevance and relevance.
- LG 3 Discuss the key factors involved in establishing a dividend policy.
- LG 4 Review and evaluate the three basic types of dividend policies.
- LG 5 Evaluate stock dividends from accounting, shareholder, and company points of view.
- LG 6 Explain stock splits and the firm’s motivation for undertaking them.
Why This Chapter Matters to You
In your professional life
ACCOUNTING You need to understand the types of dividends and payment procedures for them because you will need to record and report the declaration and payment of dividends; you also will provide the financial data that management must have to make dividend decisions.
INFORMATION SYSTEMS You need to understand types of dividends, payment procedures, and the financial data that the firm must have to make and implement dividend decisions.
MANAGEMENT To make appropriate dividend decisions for the firm, you need to understand types of dividends, arguments about the relevance of dividends, the factors that affect dividend policy, and types of dividend policies.
MARKETING You need to understand factors affecting dividend policy because you may want to argue that the firm would be better off retaining funds for use in new marketing programs or products, rather than paying them out as dividends.
OPERATIONS You need to understand factors affecting dividend policy because you may find that the firm’s dividend policy imposes limitations on planned expansion, replacement, or renewal projects.
In your personal life
Many individual investors buy common stock for the anticipated cash dividends. From a personal finance perspective, you should understand why and how firms pay dividends and the informational and financial implications of receiving them. Such understanding will help you select common stocks that have dividend-paying patterns consistent with your long-term financial goals.