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1 of 24 ©2012 McGraw-Hill Ryerson Limited Learning Objectives 3.Outline the many factors to be considered in dividend policy. Calculate aftertax income from dividends and calculate share prices based on earnings multiples. (LO3) 4.Outline the life cycle and growth of dividends. (LO4) 5.Outline dividend payment procedures. (LO5)
2 of 24 ©2012 McGraw-Hill Ryerson Limited Other Factors Influencing Dividend Policy Legal and lender restrictions Cash position of the firm Access to capital markets Desire for control Tax position of shareholders LO3
3 of 24 ©2012 McGraw-Hill Ryerson Limited Sample Calculation of Tax* on Individual Dividend Receipt LO3 Sample Calculation of Tax on Individual Dividend Receipt (2011) Dividend received$1,000 Gross-up (41%) 410 Taxable amount 1,410 Federal tax (at 29%) 409 Less: Federal tax credit (16.44% of $1,410) 232 Federal tax payable 177 Provincial tax payable (10% of $1,410) 141 Provincial tax credit (10% of $1,410) 141 Provincial tax payable 0 Total taxes payable 177 Net dividend ($1,000 - $177) $ 823
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