Firms can either pay dividends or retain the earnings in the firm. If you review the Cash Flow Statement you can determine if a firm is paying dividends or not (hint: if the firm has retained earnings equal to the profit, then they are not paying dividends). If a firm pays dividends, it can either take the form of a cash dividend or a share repurchase. Every firm has a dividend policy which determines how much cash will be distributed to shareholders.

-Research the topic of Dividends and Dividend Policy.

1. Discuss the method which firms distribute dividends to their shareholders.

2. What is a dividend policy? Why is this important to investors?

3. Does a firms dividend policy change? What factors can affect a firms dividend policy?

4. If shareholder wealth maximization is a goal for most firms, how does the dividend policy fit that goal?

5. What are the differences between dividends and interest expense? In what ways are they similar? To the firm and to the investor?