Haveloche corporation Essay

Haveloche Corporation is a look into and development company, which translates into sporadic cash flows over time. There atomic number 18 times when genius ideas bring in lots of cash flow for the company. However, there be also times where those genius ideas be shelved because no one has an interest in that patent. The ever changing cash flows prove to be difficult for conclusiveness 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 insurance policy is best for the organization and the investors.The companys CEO listed the stock prices 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 penchant 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 st up to(p) and capital gains are stranger and uncertain. The dividend is less risky than capital gains. The risk of the firms cash flows in the long gallop 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 next on taxes has a lower cost than a dollar paid on taxes in the present. enceinte gains typically have better tax advantages than dividends, which is why some investors prefer to invest in companies that diminish dividends. Based on the scatter plot, I would have to say that Haveloche has chosen a variety of these polar theories over the course of instructions 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 pile 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. cardinal could argue that the dividend is guaranteed each year based on history, but the investor does not have a cue stick 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 passing play to strike it rich or if they are just going to be shelved. It being an R&D company, it is a risky company, which investors know prior to taking the douse with investing their hard 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 needs to do more research and look into which dividend policies are working for the another(prenominal) 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.