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Finding the after-tax cost of retained earnings (rr)
The cost of retained earnings is the same as the cost of new common stock less flotation costs. Therefore, it is cheaper for businesses to use retained earnings compared to issuing new common stock....
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Weighted Marginal Cost of Capital (WMCC) and Investment Opportunities Schedule
By finding all break points, we can construct the weighted marginal cost of capital – WMCC – schedule. (WMCC) schedules show the relationship between the level of total new financing and a company’s...
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Residual theory of dividends
Residual theory of dividends purports that dividends must only be distributed after firm undertakes all acceptable investments. To determine whether any retained earnings are left to be distributed to...
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Dividend irrelevance theory
This theory was proposed by two Noble Laureates, Merton H. Miller and Franco Modigliani, and is also commonly called the M and M theorem. The theory was proposed in their article “Dividend Policy,...
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Establishing a dividend policy
Dividend policy refers to the policy which is used as a guide when a firm makes dividend decisions. It assists the board of directors in establishing how much should be paid to shareholders in...
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