1. What are the different types of dividend policies? Provide examples of situations in which each of these dividend policies could be used.
2. Describe the difference between cash dividends, stock dividends, stock splits, and share repurchases. Provide examples when each of these forms of dividends can be used.
3. Discuss the theory of dividend irrelevance. How do taxes affect the dividend irrelevance theory?
4. How do managers use dividend policy to convey information to the marketplace? Why is dividend policy, instead of a press release, used to communicate information?
After working for the past four years as a financial analyst for Nevada Power Corporation, you receive a well-deserved promotion. You have been appointed to work on special projects for Mr. Watkins, the chief financial officer (CFO). Your first assignment is to gather information on dividend theory and policy, because the CFO wants to reassess the firm's current dividend policy.