Chapter 11:
Payout Policy
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Business Finance 10e by Peirson
Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-1
Learning Objectives
• Understand the significance of cash payment to
shareholders and some institutional features of
dividends and share repurchases.
• Explain why dividend policy is irrelevant to
shareholders’ wealth in a perfect capital market with
no taxes.
• Define full payout policy and its importance to
companies.
• Explain cost and factors that may affect payout policy.
• Outline the imputation and capital gains tax
systems and explain their effects on returns to
investors.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Business Finance 10e by Peirson
Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-2
Learning Objectives (cont.)
• Understand the argument that payout decision
could give signals to investors.
• Explain how agency cost can be related to
payout decision.
• Identify the factors that may cause dividend
policy to be important.
• Be familiar with the nature of share buybacks,
dividend reinvestment plans and dividend
election schemes.
• Explain how payout policy may change as a firm
moves through its life cycle.
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Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-3
The Importance of Payout Policy to
Shareholders
• A company’s business decisions involve investment, financing
and payout policies.
• Directors of companies must decide how much cash, if any, to
pay to shareholders and whether the payment should be in
the form of dividends or repurchase shares.
• The amount of money involved in payment suggests payout
decision is a significant issue in many companies operation.
• It is evident from empirical studies that investors supply
capital to business only because they have the reasonable
expectation of eventually receiving payouts from company in
one form or another. (De Anglo & De Anglo, 2007)
• The decision on the company’s payout policy should be
consistent with the overall financial objective of maximising
shareholders’ wealth.
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Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-4
Is There an Optimal Dividend Policy?
• In practice, companies payout decision should not be
made in isolation. When determining level and form of
payout, company needs to consider whether:
– Dividend decision is related to other financial decisions.
– Effects of changing dividends and whether to adopt a
dividend reinvestment plan.
• Companies that pay dividends usually make two
dividend payments each year.
• It is important for these companies to review their
payout policy regularly.
• Hence, the payout decision can involve several
factors, and the optimal policy may be far from
obvious.
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Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-5
Institutional Features of Dividends
• Dividend declaration procedures
– Interim and final:
 In Australia, if dividends are paid, we typically find two types:
• A final dividend is paid after the end of the accounting or
reporting year.
• An interim dividend can be paid any time before the final
report is released, usually after the half-yearly accounts
are released.
– Cum-dividend period:
 Period during which the share holder is qualified to receive a
previously announced dividend.
– Ex-dividend date:
 Shares purchased on or after the ex-dividend date do not
include a right to the forthcoming dividend payment.
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Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-6
Institutional Features of Dividends (cont.)
• Types of dividends:
– Dividends are normally paid in cash, but many Australian
companies have adopted dividend reinvestment plans — this
gives shareholders the option of reinvesting all or part of their
dividend back in the company.
• Example of cum-dividend and ex-dividend date:
Cum-Dividend
Period
time 0
announcement
date
4 days
Book Closing
Date
Ex-dividend
date
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Payment
date
11-7
Institutional Features of Dividends (cont.)
• Declaration date
– Date Board of Directors pass a resolution to pay a dividend.
• Record (books closing) date
– The date on which shareholders listed in the register of
shareholders are designated to receive a dividend.
– This is 4 days after the ex-dividend date.
– The idea is that if shares are traded cum-dividend, brokers
have time to notify the share register to ensure the new
shareholder receives the dividend.
• Date of payment
– Date dividend cheques are mailed or dividends are paid
electronically.
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Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-8
Institutional Features of Dividends (cont.)
• Legal considerations:
– Dividends can only be paid out of profit and are not to
be paid out of capital.
– A dividend cannot be paid if it would make the company
insolvent.
– Dividend restrictions may exist in covenants, trust
deeds and loan agreements.
– Under imputation, if a company has the capacity to pay
a franked dividend then, as a general rule, it must do so.
– Franked dividend carries credits for tax paid by the
company.
– New Zealand also operates an imputation system for
dividends.
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11-9
Institutional Features of Dividends (cont.)
• Dividend Imputation
– Franked dividend:
 Carries a credit for income tax paid by the company.
– Franking credit:
 Credit for Australian company tax paid which, when
distributed to shareholders, can be offset against their tax
liability.
– Withholding tax:
 Tax deducted by a company from the dividend payable to
a non-resident shareholder.
– Franking account:
 Account that records Australian tax paid on company profits.
This identifies the total amount of franking credits that can be
distributed to shareholders in the form of franked dividends.
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Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-10
Repurchasing Shares
• Over the past decade, the popularity of Australian
companies buying back their own shares has grown
as a means of returning excess capital to
shareholders.
• Types of share buyback:
– Equal access buyback — pro-rata to all shareholders.
– Selective buyback — repurchase from specific, limited
number of shareholders.
– On-market buyback — repurchase through normal
stock exchange trading.
– Employee share scheme buyback.
– Minimum loading buyback — buy back small parcels
of shares (transaction costs).
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Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-11
Is Payout Policy Important to
Shareholders?
• Payout policy involves two fundamental
questions:
– Whether to pay cash to shareholders.
– The form of the payment.
• Three payout policies that might be adopted are:
(1) Residual dividend policy:
– Pay out as dividends any profit that management does not believe
can be invested profitably.
(2) Smoothed dividend policy:
– Target proportion of annual profits to be paid out as dividend. Aim
for dividends to equal the long-run difference between expected
profits and expected investment needs.
(3) Constant payout policy:
– Where the dividend payout ratio stays the same every year.
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11-12
Managers and Payout Decisions
• Dividends are an active decision variable
(Lintner). In a much larger study, some of the
findings by Bray et. al. (2005) were consistent
with those of Lintner:
– Maintaining current level of dividend per share is a high
priority and is of similar importance to investment
decisions.
– Managers see little reward for increasing dividends.
– Dividends are inflexible and smoothed relative to profits.
– Share repurchases are very flexible with no need for
smoothing — repurchases are made using the residual
cash flow after investment spending.
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11-13
Irrelevance Theory — Modigliani
and Miller (1961)
• Value of firm is determined solely by the earning power of the
firm’s assets and the manner in which the earnings stream is
split between dividends; and retained earnings does not affect
shareholders’ wealth.
•
Modigliani and Miller (MM): Given the investment decision of
the firm, the dividend payout ratio is a mere detail. It does not
affect the wealth of shareholders.
• Assumptions
– Company has a fixed investment or capital budgeting
program.
– No taxes, transaction costs, or other market imperfections.
– Investors are rational so always prefer more wealth to less
wealth — investors are indifferent between receiving
dividends or capital gains.
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11-14
MM’s Conclusion
• Dividend policy is a trade-off between higher or
lower dividends, issuing or repurchasing ordinary
shares to replace cash paid out.
• Pay dividend or issue new shares to replace cash:
– Does not change the value of the company; and
– Does not change the wealth of the old shareholders
because the value of their shares falls by an amount equal
to the cash paid to them.
• If a company increases its dividends, it must
replace the cash by making a share issue.
• Old shareholders receive a higher current dividend,
but a proportion of future dividends must be
diverted to the new shareholders.
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11-15
MM’s Conclusion (cont.)
• The present value of these forgone future payments is equal to
the increase in current dividends.
• The MM dividend irrelevance proposition is valid in a perfect
capital market with no taxes.
• Therefore, if the dividend policy is important in practice, the
reasons for its importance must relate to factors that MM
excluded from their analysis.
• Large body of research has examined whether the policies that
companies adopt can be explained by an imperfect market.
• Recent studies by De Angelo & De Angelo (2006) (DD) argued
that concept of full payout is a more logical starting point for
discussion of payout policy — full present value of company’s
free cash flow should be paid out to shareholders. Hence, MM
irrelevance theorem is itself irrelevant but not wrong analysis!
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11-16
The Importance of Full Payout
• MM’s assumption constrains a company to paying out all its
free cash flow (FCF) each year — optimal payout policy.
• DD argue that the MM approach does not prove that payout
policy is irrelevant because company value can be changed if
the company retains part of its FCF.
• DD distinguish between investment value and distribution value.
• In contrast to MM, DD conclude that both investment policy and
payout policy are important. In summary, DD argue that
managers are responsible for two important jobs:
– Selecting good investment projects.
– Ensuring that over the life of the enterprise, investors receive a
distribution stream with the greatest possible present value.
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11-17
Payout policy in Practice
• MM — any payout policy will do for shareholders.
• DD — support full payout policy.
• In a frictionless market — full payout means that the PV
of FCF should be paid out over the life of the enterprise.
• Neither the DD analysis or MM analysis says anything
about the form of payout.
• In a model, it is necessary to consider the effects of the
frictions that may encourage or discourage payout of cash
— therefore, we must consider factors that may influence
the preferred form of payouts.
• Lease et. al. (2000) divide the factors into two groups —
big three imperfections and little three frictions.
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11-18
Transaction Costs and Other
Imperfections
1. Transaction costs
– In practice, shareholders who buy and sell shares will
incur transaction costs, so investors who require income
may prefer to hold onto shares that pay dividends.
– Dividend clienteles effect may develop due to difference
in preference among different classes of investors for
current income.
2. Floatation costs
– If a company pays dividends and its retailed profits are
insufficient to meet its investment needs, then one solution
is to raise funds externally.
3. Behavioural factors and dividends
– Investors are not always rational, and behavioural factors
may result in dividends being valued more highly than
cash generated by selling shares.
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11-19
Dividends and Taxes
• Differential tax treatment of dividend income vs
capital gains arising from retained profits can
either favour or penalise payment of dividends.
• Despite the apparent tax disadvantage of paying
dividends, many Australian companies did pay
out a significant percentage of their profits as
dividends.
• This difference in tax treatment is understood by
comparing a classical tax system with an
imputation tax system.
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11-20
Classical Tax System
• In a classical tax system:
– Company profits are taxed at the corporate tax rate, tc,
leaving (1 – tc) to be distributed as a dividend.
– Dividends received by shareholders are then taxed at
the shareholder’s personal marginal tax rate, tp.
– The consequence is that, from a dollar of company
profit, the shareholder ends up with (1 – tc) x (1 – tp)
dollars of after-tax dividend in a classical tax system.
– The result is that profit paid as a dividend is effectively
taxed twice.
• In Australia, a classical tax system operated until
1 July 1987, when an imputation system was
introduced.
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11-21
Imputation Tax System
• A system under which Australian resident equity
investors can use tax credits associated with franked
dividends to offset their personal tax.
• This eliminates the double taxation inherent under the
classical tax system.
• Company tax is assessed on the corporate profits in the
normal way, at the corporate tax rate (tc). As of 2008, tc
is 30%.
• For each dollar of franked dividends paid by the
company, resident shareholders will be taxed at their
marginal rate (tp) on an imputed dividend of $D / (1 – tc)
— grossed-up dividend.
• The grossed-up dividend is equal to the dividend plus
the franking credit.
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11-22
Imputation Tax System (cont.)
• Franking credit is given by:
Imputation

dividend  tc 
credit 
1  tc 
• The shareholder receives a tax credit equal to the
franking credit.
• The credit can be used to offset tax liabilities
associated with any other form of income.
• The result is that franked dividends are effectively
tax-free to Australian residents — if the investor’s
marginal tax rate is equal to the corporate tax rate.
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11-23
Imputation Tax System (cont.)
•
If the investor’s marginal tax rate is less than the corporate
rate, then the investor will have excess tax credits, which
can be used to reduce tax on other income, or refunded if
they cannot be used.
•
If the investor’s marginal tax rate is greater than the
corporate rate, some tax will be payable by the investor on
the dividend.
•
Investors pay tax, at their marginal rate, on any unfranked
dividends received.
•
Under the imputation system — shareholders are unable to
use tax credits until franked dividends are paid.
•
Since 1 October 2003, Australian and New Zealand
companies have been able to distribute all franking credits
to Australian and New Zealand resident shareholders.
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11-24
Imputation and Capital Gains Tax (CGT)
• If companies retain profits, their share price is likely to rise
relative to companies that distribute profits, giving rise to
capital gains tax liabilities for shareholders if and when the
shares are sold.
• Capital gains receive preferential tax treatment compared to
ordinary income
• Capital gains tax (CGT) applies only to short-term gains and
to long-term real capital gains on assets acquired on or after
20 September 1985, and is payable only when gains have
been realised. As of 21 September 1999, capital gains earned
over 12 months or longer are subject to CGT discounting.
• For individuals, maximum rate of CGT will be half their
marginal tax rate on ‘ordinary’ income. For superannuation
funds, the maximum rate of CGT on long-term gains is 10%
compared with their normal income tax rate of 15%.
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11-25
Dividend Policy with Imputation and CGT
• If all company shares were held by resident investors with
marginal tax rates less than company tax rates, then the optimal
dividend policy for an Australian company is one that at least
pays dividends to the limit of its franking account balance.
• This policy will benefit resident investors in two ways:
– The franking credits attached to franked dividends can be
used to reduce investors’ personal tax liabilities.
– Since the alternative to dividends is capital gains, which are
subject to company tax and CGT, higher dividends will mean
that less CGT is payable by investors.
• If all franking credits are not paid out, the credits that are retained
are potentially wasted as they have no value except when
accompanying dividend payments. (At best, their value is
discounted if they are used to offer franking credits on future
dividends.)
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11-26
Dividend Policy with Imputation and
CGT (cont.)
• Complicating factors for optimal dividend
policy:
– Shares are held by both resident and non-resident
individuals.
– Many individuals have personal marginal tax rates that
are greater than the company tax rate and may have a
tax-based preference for retention of profits.
– Since July 2000, resident investors that are tax-exempt
have excess franking credits refunded.
• Overall, the interaction of CGT and the imputation
system means that shareholders with low (high)
marginal tax rates prefer profits to be paid out as
dividends (retained, leading to capital gains).
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11-27
Value of Franking Credits
• The argument that investors will prefer tax credits to be
distributed rather than retained assumes that tax credits
are valuable to investors.
• Supporting evidence from the dividend drop-off ratio:
– Drop-off ratio: ratio of the decline in the share price
on the ex-dividend day to the dividend per share.
• Walker and Partington (1999) study drop-off ratios:
– 1 January 1995 to 1 March 1997, when ASX allowed
trading in cum-dividend shares after the ex-dividend date.
– Find a drop-off ratio of 1.23, implying that $1 of
fully-franked dividends is worth more than $1.
– Some variability because of different individual marginal
tax rates.
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11-28
Value of Franking Credits (cont.)
• Cannavan, Finn and Gray (2004) also study
drop-off ratios:
– Use futures contracts on dividend paying shares to
compare with actual shares.
– Futures contracts do not entitle holder to dividends so
difference should reflect market value of dividend and
associated franking credit.
– Tax rules change requiring shares to be held 45 days in
order to claim franking credits.
 Prior to introduction of this rule, franking credits had some
value — franking credits were easily transferable from
those that could not use them to those that could.
 After this rule, franking credits appear to be worthless.
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11-29
Information Effects and Signalling
to Investors
• Evidence suggests share price changes around the time of the
announcement of dividend changes are positively related to the
change in the dividend.
• MM claim that this does not invalidate irrelevance theory.
• DD argue this approach and instead support the importance of
payout policy — investors value securities only for the payouts
they are expected to provide. Therefore, it is logical that higher
share price follows the announcement of higher payouts.
• There has been a large body of empirical evidence on the
information signalling arguments. (p. 337–40)
• Many studies holds the view of Grullon et. al. (2002) approach
known as maturity hypothesis — i.e. companies typically
increase dividends when they are more mature and less risky.
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11-30
Agency Costs and Corporate
Governance
– Agency costs can be reduced by paying higher dividends.
– Increased capital-raising required:
 Accountability to market.
 Increases provision of information.
 Increases monitoring of managers.
 Managers more likely to act in interests of shareholders.
– Lie (2000) and Grullon, Michaely and Swaminathan (2002)
provide empirical evidence that increased payouts — either
as special dividends, increased ordinary dividends, or a share
repurchase program — signal reduced opportunity to over
invest, free cash flow hypothesis.
– Firms with limited investment opportunities exhibit a bigger
abnormal return to the announcement of such initiatives.
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11-31
Agency Costs and Corporate
Governance (cont.)
– In Australia, Telstra’s announcement in June 2004 that
they intend to focus on a higher dividend payout rate of
80% and to initiate $1.5b worth of capital management
programs (special dividends and/or repurchases) was
greeted with a 4.6% increase in share price.
– La Porta, Lopez-De-Silanes, Shleifer and Vishny (2000)
provide empirical evidence that in countries where
investors’ interests are relatively well protected, dividends
are less likely to be a mechanism to reduce agency costs.
– Well-protected investors are willing to forgo dividends now
in return for growth.
– High-growth companies pay lower dividends in economies
where investors are relatively well-protected legally.
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11-32
Agency Costs and Corporate
Governance (cont.)
– Correia Da Silva, Goeregen and Renneboog
(2004) argue that dividend policy may be influenced
by corporate governance regimes.
– Market-based and block-holder based regimes of
corporate governance.
– The presence of large (block) shareholders reduces
the impetus to pay out dividends (consider News
Corp. in Australia, large block holder, low dividends).
– Controlling interest is a substitute for dividends as a
monitoring mechanism, while agency costs are less
of an issue as shareholder is potentially an insider or
even a manager.
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11-33
Share Buy-Backs
• A share buy-back is when a company purchases its
own shares on the stock market and then proceeds to
either cancel them (Australia) or retain them as
treasury stock (US).
• There are legal requirements associated with
buybacks, but generally companies can repurchase up
to 10% of their ordinary shares in a 12-month period.
• Rapid growth in repurchases in Australia, $770m in the
1995 financial year, up to $9.4b in the 12 months to
June 2007.
• In 1999 and 2000, US industrial companies distributed
more cash to shareholders through share repurchases
than dividends.
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11-34
Why Companies Repurchase Shares?
• Dividend substitution
– If capital gains are taxed more favourably than dividends.
– Some supporting evidence from the US, where dividend
payout ratios have been falling in the 1980s and 1990s.
• Improved performance measures
– EPS may rise, but if cash is returned rather than used to
retire debt, financial risk is increased and P/E ratio along
with share price may fall.
– Return of funds that cannot be profitably used will raise
share price.
• Signalling and undervaluation
– Managers buying back company stock indicates that
they believe the stock is undervalued by the market.
– Alternatively, a buy-back announcement could be
accompanied by some new information, e.g. sale of
unprofitable asset/division.
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11-35
Why Companies Repurchase Shares?
(cont.)
• Resource allocation and agency costs
– Share repurchase returns capital to shareholders, who can
reallocate funds into profitable activities through the capital market.
– Reduces the potential for managers to inefficiently use free cash
(i.e. reduces agency costs).
• Financial flexibility
– Payment of dividends is a long-term commitment, and sudden major
changes (especially decreases) in dividend policy are unappreciated
by market.
– Buy-backs offer an alternative way to make distributions that may
not be permanent.
•
Employee share options
– Unlike paying dividends, share repurchases do not lead to the exdividend price drop-off.
– Option holders (typically management) prefer a share repurchase to
a dividend payout as a means of distributing profits to shareholders.
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11-36
Share Repurchases in Australia
• Off-market buy-backs can be structured to provide
significant tax advantages with a large dividend and
franking component. (see Finance in Action: CBA’s
2004 Off-market Share Buy-back.)
• Key point is that receipt of such a dividend is at the
discretion of the shareholder who sells the shares back
to the company.
• ASX requires companies to justify buy-back — many
on-market buy-backs are justified on the basis that the
market undervalues the company’s shares.
• Otchere and Ross (2002) find positive abnormal
returns for companies, citing undervaluation as
justification of a buy-back.
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11-37
Dividend Reinvestment Plans (DRPs)
and Dividend Election Schemes
• Definition
– DRPs offer shareholders the option to apply all or part of
their cash dividends to the purchase of additional shares
in the company (in some cases at a discount price).
– The number of listed companies that operate dividend
reinvestment plans increased from just five in late 1982 to
14% of all listed companies by 1999.
– In 2005–06, $7.3b of total $38.7b of dividends declared by
listed companies were reinvested through DRPs.
– The imputation system has played a large part in this
increased popularity, providing an incentive to increase
payouts.
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11-38
DRPs and Dividend Election Schemes
(cont.)
• Benefits to the company:
– Cheap/effective means of raising capital and conserving
cash.
– Promotes good shareholder relations and stability of
ownership.
• Disadvantages to the company:
– Administration costs.
– Promotion of the plan.
– Excessive capital raising.
– Dilution of EPS.
• Benefits to investors:
– Taxation benefits.
– Flexibility and Savings program.
– Shares are generally issued at a discount to market
price and are free from brokerage and stamp duty.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Business Finance 10e by Peirson
Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
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DRPs and Dividend Election Schemes
(cont.)
• Disadvantages to investors:
– Need to keep substantive and comprehensive records
throughout the period of ownership of assets affected by capital
gains tax.
– Familiarisation with plan and its tax consequences.
– No control over the reinvestment price.
– Discount disadvantages shareholders who do not participate in
the DRP.
• Dividend Election Schemes allow shareholders the option of
receiving their dividends in one or more of a number of forms.
• For example, as bonus shares (deferring tax), or as dividends
from overseas subsidiaries (foreign tax credits).
• Tax effectiveness of dividend streaming via such schemes
has been restricted.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Business Finance 10e by Peirson
Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-40
Payout Policy and Firm Life Cycle
• Payout decision can be influenced by many factors;
therefore, if a model is to be used it should be able to
explain important empirical findings, including the
following:
– Aggregate payouts are massive and have increased steadily
over the years.
– Dividends tend to be paid by mature firms.
– Firms pay dividends on an ongoing basis and avoid
accumulating large cash balances.
– Individuals with large dividends pay huge taxes on dividends.
– Market reacts positively to announcements of repurchase and
dividends increase.
– Unexpected dividend changes are of little help in forecasting
future earnings surprise.
– Once regular dividends are initiated — managers are reluctant
to cut or omit them.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Business Finance 10e by Peirson
Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-41
Payout Policy and Firm Life Cycle
• DD argue that their full payout approach is a more
promising foundation for a model of payout policy than
MM dividend irrelevance theorem.
• In reality, dividends are mostly paid by mature and
profitable companies that have less information
asymmetry than smaller growth companies.
• DD propose that:
– A theory of payout policy should be based on the
principles that shares have value only for the payout to
their holders.
– Time profile of a company will depend on trade-off
between the advantages of internal capital and
disadvantage of retaining cash.
• In summary, DD’s full payout approach leads naturally
to a life-cycle theory of payout policy.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Business Finance 10e by Peirson
Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-42
Summary
• Dividend policy is about the trade-off between
retaining profit and paying out dividends.
• Does not affect shareholders’ wealth in a perfect
capital market (MM).
• Dividend policy becomes important when we
consider taxes and agency costs (DD).
• Imputation system does eliminate double taxing of
dividend income and encourages higher dividend
payout ratios.
• Dividend policy environment has been changed by
recent alteration to capital gains tax laws, favouring
capital gains over dividends.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Business Finance 10e by Peirson
Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-43
Summary (cont.)
• Share buybacks have become an increasingly popular
way to distribute cash to shareholders.
• Profits earned overseas can be distributed more taxeffectively to shareholders through share buybacks.
• Dividends and share repurchases have a role in
reducing agency costs.
• Share repurchase and dividend announcements have
significant effects on share prices.
• The full payout approach leads to a life-cycle theory of
payout policy, which proposes that payouts will be
determined by a trade-off between the benefits and
costs of retaining cash. This trade-off will evolve as a
firm moves through its life cycle.
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Business Finance 10e by Peirson
Slides prepared by Farida Akhtar and Barry Oliver, Australian National University
11-44