Which of the firms would you encourage to pay less

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Question - (a) You are an institutional investor and have the collected the following information on five firms in order to assess their dividend policies: In millions of dollars (figures in parentheses are negative). Company Free Cash Flow to Equity Dividends Paid Return on Equity Beta A&B $ 55 $ 35 8% 0.80 CDF $ 60 $ 12 14.5% 1.30 L&M ($ 15) $ 5 4.0% 1.25 P&Q $ 20 $ 12 1.5 % 0.90 X&Y ($ 5) $ 8 14% 1.05 The average risk-free rate during the period was 7% and the average return on the market was 12%.

(i) Which of these firms you would pressure to pay more in dividends and why?

(ii) Which of the firms would you encourage to pay less in dividends and why?

(b) What do record date, ex-dividend date, and payment date mean with regard to dividends?

Reference no: EM132621866

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