Financial Concepts
Essay Preview: Financial Concepts
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1. Compare a regular cash dividend with a periodic share repurchase. Which has greater appeal to you? Explain
Regular cash dividends are those paid out of a companys profits to the owners of the business.
Periodic Share repurchase – A program by which a corporation buys back its own shares in the open market.
Regular cash dividend is much more appealing to me because as long as the company is profiting you will receive an annual “bonus”.
2. Explain a stock dividend and further explain if you would prefer it to a cash dividend.
A Stock Dividend is a payment of a corporate dividend in the form of stocks rather than cash. The stock dividend may be additional shares in the company, or it may be shares in a subsidiary being spun off to shareholders. The dividend is usually expressed as a percentage of the shares held by a shareholder. Dividends paid in cash are taxable while a stock dividend is not taxed until it is sold. If I was given a choice, I would choose the stock dividend. Once you are paid cash, your money doesnt have the opportunity to grow unless you invest wisely. The stock dividend is a share of the company and can decrease or increase in value over time. You are in control of when you want to cash in.
3. What are stock splits and how desirable are they?
When a company divides its shares it is said to be a stock split. A stock split usually have two main consequences: The corporation must change the par value (if any) of the stock. The market value per share will change in proportion to the split. When a company declares a stock split, the price of the stock will decrease, but the number of shares will increase. By reducing