What do you suggest as an optimal dividend policy

Assignment Help Financial Management

Reference no: EM13927255

Phoenix Tool Company and Denver Tool Company have had a very similar record of earnings performance over the past 8 years. Both firms are in the same industry and, in fact, compete directly with each other. The two firms have nearly identical capital structures. Phoenix has a policy of paying a constant 50 percent of each year's earnings as dividends, whereas Denver has sought to maintain a stable dollar dividend policy, with changes in the dollar dividend payment occurring infrequently. The record of the two companies follows:

		Phoenix			Denver
			Average			Average
Year	EPS	Dividend	Market Price	EPS	Dividend	Market Price
2003	$2.00	$1.00	$20	$2.10	$0.75	$18
2004	2.50	1.25	24	2.40	0.75	22
2005	1.50	1.25	15	1.60	0.75	17
2006	1.00	0.50	10	0.90	0.75	14
2007	0.50	0.25	8	0.50	0.50	10
2008	-1.25	nil	8	-1.10	0.50	10
2009	1.00	0.50	10	1.10	0.75	14
2010	1.50	0.75	14	1.45	0.75	17

The president of Phoenix wonders what accounts for Denver's current (2010) higher stock price, in spite of the fact that Phoenix currently earns more per share than Denver and frequently has paid a higher dividend.

a. What factors can you cite that might account for this phenomenon?

b. What do you suggest as an optimal dividend policy for both Phoenix and Denver that might lead to increases in both of their share prices? What are the limitations of your suggestions?

Reference no: EM13927255

Questions Cloud

Managements process for choosing project selection model : Compare and contrast the advantages and disadvantages of non-numeric and numeric selection models - Describe how selection criteria are developed and used for the selection and prioritization of projects.

Financial performance and condition of the organization : Assess the financial performance and condition of the organization. Then, conduct a SWOT analysis detailing the strengths, weaknesses, opportunities, and threats that may affect the organization. Finally, assess the quality of the decisions made b..

Quickbooks student trial edition : QuickBooks Student Trial Edition will operate for how many days after registration?

What total amount of dividends should lenberg pay : If Lenberg has $12 million of investment projects having expected returns greater than 14 percent, what total amount of dividends should Lenberg pay?

What do you suggest as an optimal dividend policy : What do you suggest as an optimal dividend policy for both Phoenix and Denver that might lead to increases in both of their share prices? What are the limitations of your suggestions?

Are they essential skills for project managers : Describe the skills listed below in the context of the organizational structure. Are they essential skills for project managers?

Problem regarding the perpetual inventory system : During January 2014, the following transactions occurred. (Morgan Company uses the perpetual inventory system.) 1. Morgan paid $250 interest on the note payable on January 1, 2014. The note is due December 31, 2015.

Motherboard components identification : The motherboard is the main printed circuit board in a computer containing the computer's basic circuitry and components. The motherboard carries the central processing unit and system buses and is equipped with sockets that connect to the compute..

Replacing a motherboard : The motherboard is the center or the heart of the computer system, and once we find some issues relevant to motherboard efficiency, we must replace the old motherboard with a new motherboard.

User Account

All Pages