Wk 4 discussion question answer PDF

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“Shareholders will always prefer cash dividend to share dividend while the company prefers the reverse”. Why might this be the case? Cash dividend is a distribution of cash to shareholders and a share dividend is a distribution of a company’s ordinary shares to existing shareholders. Shareholders prefer cash dividend over share dividend as they can receive cash on the payment date. Capital appreciation can also be gained as the value of the shares which are trading at could be high. With this additional regular income, shareholders have the flexibility to either reinvest that cash into the same company or another. Share dividends only have a return of more shares in the company and no cash. This can be risky for shareholders as the share value that is trading could be lower than what the shareholder purchased, and if so, there will be no return and result in a loss. Or the value could be higher than what they purchased for, which the shareholder can receive more shares or sell for additional income. It is up to the shareholder to decide whether to keep the shares or sell them based on the share value. Companies tend to prefer share dividend as with cash dividend they have the liability of paying their shareholders a part of their profit. Companies find the share dividend option to be more flexible as no cash payment is necessary, enabling the company to invest their profit into further operations. Since it is less restricting for companies issuing more shares allows the company to keep their profit and also raise capital at the same time without issuing payments and shareholders can decide what their want to do with shares. Companies also have control over on whether to distribute the shares or not, which gives them another advantage over cash dividend as repayment to the shareholders is optional. Thus shareholders prefer cash dividends due to them being able to receive cash as it is out of the company’s control and the company wont be able to substitute the payment of cash....