Haveloche corporation Essay Example for Free

Haveloche corporation EssayHaveloche Corporation is a search and development association, which translates into sporadic cash flows over time. There argon times when genius ideas bring in lots of cash flow for the company. However, there be also times where those genius ideas are shelved because no one has an interest in that patent. The ever changing cash flows prove to be difficult for conclusion making, especially when it comes to whether the company should give back to its investors or not. Haveloche is constantly faced with the predicament of deciding what dividend constitution is best for the organization and the investors. The companys CEO listed the stock charges and dividends for us to look at. There are 3 theories of investor preference for dividend versus capital gains (1) Dividend Irrelevance Theory or Modigliani Miller (2) Bird-in-the-hand Theory (3) Tax mouthful Theory. According to Modigliani Miller (MM), the dividend policy has not effect on the stock price of the firm or the cost of capital. This theory states that investors reinvest the dividends back into the firm and the firms value is only based on the income produced from its assets, and not the dividends and retained earnings.According to the second theory, the Bird-in-the-hand theory, dividends are known and stable and capital gains are mysterious and uncertain. The dividend is less risky than capital gains. The risk of the firms cash flows in the long plump is determined by the dividend payout policy according to this theory. According to the third theory, Tax Preference Theory, capital gains are preferred over dividends. Due to time value of money, a dollar paid in the hereafter on taxes has a lower cost than a dollar paid on taxes in the present. heavy(p) gains typically have better tax advantages than dividends, which is why some investors prefer to invest in companies that background dividends. Based on the scatter plot, I would have to say that Haveloche has chosen a variety of these polar theories over the yrs since they have been paying dividends. When the company needed to reinvest the money back into the company, they dividend was lowered. When the company had good deal of extra cash lying around, the dividend payout increased. Haveloche has been paying a dividend since its initial IPO, but those dividends vary from year to year. whizz could argue that the dividend is guaranteed each year based on history, but the investor does not have a tip as to how what that dividend will be based off. Moreover, if you take a look at the stock price from year to year, it widely fluctuate up and down. Investors in this do not know from year to year if the companys patents are vent to strike it rich or if they are just going to be shelved. It being an RD company, it is a risky company, which investors know prior to taking the plunge with investing their onerous earned money. Haveloches business is based on the unknown of whether the patents will be useful to electronics companies.The company may come up with something that it deems the next big thing, but it may not find a company that wants to use it. Investors in Haveloche are not in it specifically for the dividends. Investors are hoping for heavy payouts if Haveloche makes it big. The company call for to do more than research and look into which dividend policies are working for the other small RD companies that work on patent projects. With more information and results, Haveloche would be able to make a more intelligent business decision about which dividend policy it should choose.