8 page capital budgeting technique paper
The cost of new equity for the firm is $44.50 per share ($50 – 10% flotation cost). This type of financing has the advantage that no fixed payments are required. The company can retain more cash flow or reinvest it elsewhere. Dividends can be used by companies to draw in potential investors seeking steady returns.
There are some drawbacks to this method of financing. Investors could see a decrease in return if the dividend payout is not adjusted each year. This would be in contrast to other investments that are spread over a longer period of time. Investors could lose faith in their business if they don’t receive enough dividends.
Although dividends are a great way to raise funds, it can also be very effective in attracting capital. However, companies must be careful about their implications as they may not be the most efficient option depending on market conditions and specific goals for long-term growth.