h们 Dividend p|l andIntermal fiancing LIS)1 o 2002. Prentice Hall. nc
© 2002, Prentice Hall, Inc
Stock returns Return Pi-Po + Di Po
Stock Returns: P1 - Po + D1 Po Return =
Stock returns Return Pi-Po + Di Po P1-0 DI Po Po
P1 - Po + D1 Po P1 - Po D1 Po Po + Return = = Stock Returns:
Stock returns Return Pi-Po + Di Po PI-Po Di Po Po Capital gain
Return = Capital Gain P1 - Po + D1 Po P1 - Po D1 Po Po = + Stock Returns:
Stock returns Return Pi-Po + Di Po P1- po+ DI Po Po Capital Gain Dividend Yield
Return = Capital Gain Dividend Yield = + Stock Returns: P1 - Po + D1 Po P1 - Po D1 Po Po
Dilemma: Should the firm use retained earnings for a) Financing profitable capital investments? b)paying dividends to stockholders?
Dilemma: Should the firm use retained earnings for: a) Financing profitable capital investments? b) Paying dividends to stockholders?
P1 DI Return Po If we retain earnings for profitable investments
• If we retain earnings for profitable investments, P1 - Po D1 Po Po Return = +
P1 DI Return Po If we retain earnings for profitable investments, dividend yield will be zero
• If we retain earnings for profitable investments, dividend yield will be zero, P1 - Po D1 Po Po Return = +
P1 DI Return Po If we retain earnings for profitable investments, dividend yield will be zero, but the stock price will increase, resulting in a higher capital gain
• If we retain earnings for profitable investments, dividend yield will be zero, but the stock price will increase, resulting in a higher capital gain. P1 - Po D1 Po Po Return = +
P1 DI Return Po If we pay dividends
• If we pay dividends, P1 - Po D1 Po Po Return = +