For (1), Maybe I’m not understanding what ‘stable dividend policy’ means, but (B) does not seem very stable to me as we are assuming that the company’s projection of its long term growth rate will not be revised, which does not seem like a plausible assumption. (A) seems like a better choice as this policy is not suspectible to sudden change. Also, given the solution explanation given, it seems (D) would also not be an unreasonable choice as with this policy our dividends are protected against inflation (since oil price is highly correlated with general price level increases), and if the company has a specific formula for determining dividends using oil prices, then this would be a very stable policy.
cfaboston28 Wrote: ------------------------------------------------------- > mwvt9 Wrote: > -------------------------------------------------- > ----- > > Ha! Not for 30 more days. I am going to bed > > around 1am these days. > > > AND WHAT WAKING UP AT 4? No way. Dinesh is though because he is that hardcore.
doubled Wrote: ------------------------------------------------------- > For (1), > > Maybe I’m not understanding what ‘stable dividend > policy’ means, but (B) does not seem very stable > to me as we are assuming that the company’s > projection of its long term growth rate will not > be revised, which does not seem like a plausible > assumption. Any revisions would be minor as your long run growth rate is most likely to be close to long run GDP. (A) seems like a better choice as > this policy is not suspectible to sudden change. > Also, given the solution explanation given, it > seems If short-run earnings are fluctuating then your dividend will be all over the place. (D) would also not be an unreasonable choice > as with this policy our dividends are protected > against inflation (since oil price is highly > correlated with general price level increases), > and if the company has a specific formula for > determining dividends using oil prices, then this > would be a very stable policy. Can’t speak to this, but recent events would seem to contridict.
‘Stable Dividend’ policy doesn’t mean a constant return year-in year-out…It has to do with the divys increasing at some rate. I remember reading that in Schweser’s Dividend Policy reading…dont remember the page though…