Advanced Problems for Spreadsheet Application
These problems are available in MyFinanceLab.
Dividend irrelevancy problem (no taxes). Third Street Music Company has just announced a new dividend policy. It will pay shareholders $1.50 per share this year (it pays dividends annually). The previous policy was not to pay dividends (no-cash-dividend policy). Some members of the board of directors are concerned that some of the shareholders will be upset by the switch. Demonstrate to the board of directors that shareholders view the dividend policy as irrelevant by using the following five shareholders. Show the shareholders’ wealth before and after a no-cash-dividend policy and the new $1.50-cash-dividend policy. The price before the dividend distribution ...
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