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Learning Objectives

3. Outline the many factors to be considered in dividend policy. Calculate aftertax income from dividends and calculate share prices based on earnings multiples. (LO3)

4. Outline the life cycle and growth of dividends. (LO4)

5. Outline dividend payment procedures. (LO5)

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Other Factors Influencing Dividend Policy

• Legal and lender restrictions

• Cash position of the firm

• Access to capital markets

• Desire for control

• Tax position of shareholders

LO3

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Sample Calculation of Tax* on Individual Dividend Receipt

LO3

Sample Calculation of Tax on Individual Dividend Receipt (2011)

Dividend received $1,000

Gross-up (41%) 410

Taxable amount 1,410

Federal tax (at 29%) 409

Less: Federal tax credit (16.44% of $1,410) 232

Federal tax payable 177

Provincial tax payable (10% of $1,410) 141

Provincial tax credit (10% of $1,410) 141

Provincial tax payable 0

Total taxes payable 177

Net dividend ($1,000 - $177) $ 823