ACC 281 Week 4 DQ2 - 7427

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What are the different types of dividends that corporations may issue? When should a corporation pay dividends? Would you prefer a stock dividend or a cash dividend? Explain why

What are the different types of dividends that corporations may issue?

There are four types of dividends.  They include cash, stock, scrip (promissory note) or property.

When should a corporation pay dividends?

A corporation should pay dividends if they meet all three criteria’s below.

 Payment occurs from retained earnings

 Maintain adequate cash resources for current and future needs

 Declaration of dividend payouts from board of directors

Would you prefer a stock dividend or a cash dividend? Explain why

I would prefer a stock dividend over a cash dividend.  A cash dividend is a cash transfer to the stockholder for a certain amount.  However, once this payout occurs the actual value and price of the company’s stock decreases by that amount.  A stock dividend however actually increases the value of the stock.  For example, if a company issues and pays a 6% dividend to stockholders under the cash dividend, then the value of the stock would decrease by 6%.  Conversely, if a company issues a 6% stock dividend, then the actual value of the stock increases by 6%.  With that in mind, I would prefer a stock dividend to continually add additional value to my stocks. 

 

 

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What are the different types of dividends that corporations may issue? When should a corporation pay dividends? Would you prefer a stock dividend or a cash dividend? Explain why

What are the different types of dividends that corporations may issue?