CHAPTER 18
Distributions to Shareholders:
Dividends and Repurchases
Bird-in-the-Hand Theory
Theory Implication
Irrelevance Any payout OK
Bird-in-the-hand Set high payout
Tax preference Set low payout
30 Indifference
20
Tax preference
10
15 Indifference
10 Bird-in-Hand
Net
Dividends = income –
[( )( )]
Target
equity
ratio
Total
capital
budget
.
Stock Repurchases
Advantages of Repurchases
Disadvantages of Repurchases