1. QDai for FEUNL Finanças December 7

2. QDai for FEUNL About the final exam  Theoretical questions: single/multiple choices and/or true or false questions  Calculations (similar to the mid-term exam)  I will be available to answer questions: January 11, 13:00 – 16:00 at my office

3. QDai for FEUNL Topics covered  Types of payouts  Cash payout Important dates in a cash payout Price reaction to payouts Irrelevance theorem Real practice by firms What explains the difference?  Repurchase  Cash dividend vs. repurchase

4. QDai for FEUNL Payout policy of the firms  Types of payouts

5. QDai for FEUNL Cash Dividend 25 Oct.1 Nov.2 Nov.6 Nov.7 Dec. … Declaration Date: Cum-Dividend Date: Ex-Dividend Date: Record Date:

6. QDai for FEUNL Price Behavior around the Ex-Dividend Date  In a perfect world, the stock price will fall by the amount of the dividend on the ex-dividend date. $P$P $P - div Ex- dividend Date -t … -2-10+1+2 …

7. QDai for FEUNL Irrelevance of Dividend Policy  MM:  Assumptions:

8. QDai for FEUNL Homemade Dividends  Bianchi Inc. is a $42 stock about to pay a $2 cash dividend.  You own 80 shares and prefer $3 cash dividend.  Your homemade dividend strategy:

9. QDai for FEUNL Dividend Policy is Irrelevant  Since investors do not need dividends to convert shares to cash, dividend policy will have no impact on the value of the firm.  In the above example, you began with total wealth of $3,360: After a $3 dividend, your total wealth is After a $2 dividend, and sale of 2 ex-dividend shares, your total wealth is

10. QDai for FEUNL Real practice

11. QDai for FEUNL What explains the difference between theory and practice?

12. QDai for FEUNL Repurchase of Stock  Instead of declaring cash dividends, firms can rid itself of excess cash through buying shares of their own stock.  Recently share repurchase has become an important way of distributing earnings to shareholders.

13. QDai for FEUNL Stock Repurchase versus Dividend = Price per share = outstanding Shares Value of Firm EquityassetsOther DebtCash sheet balance Original A. Equity &Liabilities Assets Consider a firm that wishes to distribute $100,000 to its shareholders.

14. QDai for FEUNL Stock Repurchase versus Dividend = shareper Price =goutstanding Shares Firm of ValueFirm of Value EquityassetsOther DebtCash dividendcash shareper $1After B. Equity & sLiabilities Assets If they distribute the $100,000 as cash dividend, the balance sheet will look like this:

15. QDai for FEUNL Stock Repurchase versus Dividend Assets Liabilities& Equity C. After stock repurchase CashDebt Other assetsEquity Value of Firm Shares outstanding= Price pershare= If they distribute the $100,000 through a stock repurchase, the balance sheet will look like this: