AFIN253 Financial management
Is the company worth nothing when no dividends？
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The dividend discount model is the way of valuing a firm according to the theory that a stock is value the discount sum of all of its future dividends payments. It is a equation for using the discounting them back to present value and predicted dividends to calculate the value of stock. This equation can not working without the dividend growth rate. if the company do not paid the dividends and have no intention of doing so because of they do not have dividend growth rate, the dividend discount will be not applicable. But it does not means the companies are worth nothing. But also have other model can ge instead of the dividend discount model if without the dividend growth rate, like the discount cash flow (Bayraktar and Egami, 2010).
There are relationship between the dividend payment and the value of the company are not strongly. Not the all of the companies which are do not paid dividends are worth nothing. Like the ‘Apple’, they do not paid the dividends. When the shareholder asked Job the reason of the Apple did not pay dividend, Job say when they need to acquire something the way of the write a check for it batter than borrow much money and make the whole company at risk(DeWitt, 2010). Therefore, the companies do not paid the dividends and have no intention of doing so does not means the companies worth nothing.
Frequent dividend payment may be a good sign for the company because it has a positive relationship between the payment frequencies and firm value (Ferris et al, 2010). But it is not all of the time. And sometime the dividend payment is increasing not means the value of the company is increasing. When company face to the financial difficulties, they will increasing the dividend. Therefore, they can cover the problem toward the shareholder, and it also can free the...
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