04 May BRIEFLY DISCUSS TWO ARGUMENTS FOR AND TWO ARGUMENTS AGAINST A HIGH DIVIDEND-PAYOUT POLICY.
On your visit to Litchfield Chemical Corp. (LCC), you learned that the board of directors has periodically debated the companys dividend-payout policy.
a. Briefly discuss two arguments for and two arguments against a high dividend-payout policy. A director of LCC said that the use of dividend discount models by investors is proof that the higher the dividend, the higher the stock price.
b. Using a constant-growth dividend discount model as a basis of reference, evaluate the directors statement.
c. Explain how an increase in dividend payout would affect each of the following (holding all other factors constant):
(1) Internal (implied, normalized, or sustainable) growth rate; and
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