Chapter 15

All page numbers are references to Corporate Finance: A Focused Approach 3rd edition by  Ehrhardt and Brigham (South-Western, 2008)

Need to know – Everything, although this chapter typically gets light coverage on the Final Exam.  Focus on terms (e.g., ex-dividend, DRIPS, clientele, etc.), five theories of dividends, and the mechanics of distributions to shareholders (i.e. payment date follows record date follows ex-dividend date follows declaration date).  Have a basic understanding of stock splits versus stock dividends.

This chapter examines the theory and practice of distributions to shareholders.  The simple method to consider dividend theories is that payment of a cash dividend (since if reduces retained earnings) is equivalent to a small increase in leverage, thus most of the capital structure theories (irrelevance, asymmetric information, clienteles) have similarly named dividend theories.  Most of the calculations in this chapter relate to changes in the balance sheet as dividends are paid and to the expected level of dividends under different assumptions.

Questions and Problems that you should be able to answer-Self-test 1; Questions 1, 3, 4, and 5; Problems 1, 2, 3, 9, and 10 (very good problem) and Self-Test 1. 

1.  Read the mini-case at the end of the chapter.  In WEBCT is a link to the script with a solution to the mini-case as well as the powerpoints slides for the chapter.

2. Read the chapter.

3.  Complete the problems and questions listed above.

4.  The quiz is combined with Chapter 14.  There are less than 10 questions and problems from Chapter 15.  These questions should take you less than 30 minutes.  Be sure to bring have your financial calculator available.