Week 3 dq's Essay Example | Topics and Well Written Essays - 750 words

Week 3 dq's - Essay Example Even though the number of shares increase, the total value of these shares remains the same thus resulting in no direct benefit. The benefit of stock splits is said to only lie in the future. A lower share value can bring the market share price to â€Å"an acceptable trading range† (Stickney, 2004, p. 545). The resulting higher trading volumes, more investors and continuing good performance of the company can potentially result in a higher stock price. Dividend Policy: The dividend policy varies from company to company. A company can give dividends in form of cash or more stock for each share owned, have a stock repurchase offer, a combination of both, or to retain earnings and not announce any distribution of profits. Each has its merits and demerits. Cash dividends incur higher tax rates and usually appeal to investors who are low-end taxpayers. Stock dividends, in which additional company shares are offered at a proportion of existing shares dilute the shares and bring no immediate benefit to the shareholder. They only allow the investor to merely have a potential of future higher net value. Purely from the shareholder’s perspective, stock repurchase can offer higher value to a large percentage of investors as the stock price increases after repurchase and if the investor sells, the money they gain by selling stocks falls in the lower capital gains tax bracket (Bierman, 2001, p. 112). Finally, companies that retain their earnings offer value by gaining shareholder confidence in its growth and thus a higher stock price. Sources of Venture Capital: Venture capital is offered by investors looking for unusually higher returns. They are willing to work with higher risks and invest in companies with perceived profits or growth. The money can come directly from these investors, specialized venture capital firms, investment banks or other financial or brokerage institutions with similar investment policies. VC’s Due Diligence: Venture capitalists,