Assume that you were recently hired by a national consulting firm, which has been asked to help Adams, Stores, Inc. prepare for its public offering. Prepare a presentation in which you review the theory of dividend policy and discuss the following:
A. The terms “irrelevance,” “bird-in-the-hand,” and “tax preference” have been used to describe three major theories regarding the way dividend payouts affect a firm’s value. Explain what these terms mean, and briefly describe each theory.
B. What do the three theories indicate regarding the actions management should take with respect to dividend payout?
C. What are stock repurchases? Discuss the advantages and disadvantages of a firm’s repurchasing its own shares.
D. What are stock dividends and stock splits? What are the advantages and disadvantages of stock dividends and stock splits?
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