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.
Definitions:
Two-part Tariff
A pricing strategy that includes a fixed fee plus a variable charge based on usage or consumption of a product or service.
Marginal Cost
The expense associated with manufacturing an extra unit of a product.
Parking Fee
A charge imposed for the use of parking facilities, often varying based on location, time duration, and parking amenities.
Basketball Games
Competitive sports events involving two teams whose goal is to score points by throwing a ball through the opposing team's basketball hoop.
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