Thursday, May 2, 2019

Accounting decision making Essay Example | Topics and Well Written Essays - 2250 words

Accounting decision making - Essay ExampleIn addition, an explanation to support the variation in the contribution margin of the five services is provided and possible imaginativeness constraints faced by the firm is provided.Firms adopt different dividend policies which atomic number 18 in line with their goals. Dividend defrayal is pet by shareholders since that is their source of reward for contributing equity capital. The article states that dividend payment is simply a air of valuate within the firm. That is, the movement of value already owned by the shareholders to shareholders. Therefore, there is no level of dividend payment that contributes to value creation. The statement is true for the reason that dividend payment does not increment the firms ability to increase the economic benefits. In other words, a firm cannot increase its cash flux generating ability by paying dividends. However, the payment of cash dividends has a positive impact on the value of a firm (mar ket value).The market value of a firm (market capitalization) is determined by multiplying the outstanding shares of a firm with the current share price. It has been observed that the payment of cash dividends by firms increases the market value of companies. The increase is brought about as follows when a firm pays cash dividends, more shareholders, who prefer certain payments, are attracted (Frankfurter, woodwind & Wansley, 2003, pp. 91). The demand of shares of that company increases, thus increasing the share price. Consequently, the market value of the firm increases. There are two theories of dividend payment which supports the influence of cash dividend on the market value of the firm. That is, the bird-in-hand theory and information signalling dividend payment theory (Hunting & Paulsen 2013).The bird-in-hand, dividend payment theory states that stockholders prefer certainty due to their aversion towards risk. Dividend payments are more informed as compared

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