In a World Without Taxes or Transaction Costs,it Can Be

question 32

Essay

In a world without taxes or transaction costs,it can be argued that dividend policy is irrelevant for shareholder value and cash flow.With a no-dividend policy,the current price is and will remain $100.00 per share.With a high-dividend policy,the current price is $100.00 per share and the value falls to $95 per share upon payment of the dividend.
Use the following example to demonstrate dividend policy irrelevance. $$\begin{array} { | l | l | } \hline \text { No-dividend Policy } & \text { High-dividend Policy } \\\hline 5,000 \text { shares owned } & 5,000 \text { shares owned } \\\hline \$ 100.00 \text { current price per share } & \$ 100.00 \text { current price per share } \\\hline \$ 0.00 \text { dividends per share } & \$ 5.00 \text { dividends per share } \\\hline \$ 25,000 \text { desired cash flow per year } & \$ 25,000 \text { desired cash flow per year } \\\hline\end{array}$$

---

Definitions:

Financial Requirements

The monetary resources needed for initiatives, projects, or the operation of a business, including initial investment, operational costs, and contingencies.

Product Life Cycle

The progression of a product through different stages from launch (introduction) to growth, maturity, and decline, affecting marketing and management strategies.

Product Adopters

Individuals or entities that start using a new product, often categorized by how early or late they adopt the product in comparison to others.

Industry Sales

The aggregate revenue that firms within a specified industry generate over a given time period.