Financial Economics Essay Example | Topics and Well Written Essays - 1500 words

Financial Economics - Essay Example everyplace time the option fecal matter gain a lot of value if the price of the roue rises since the employee has the serious to purchase the stocks at the predetermined price. Since the objective for the employee is to gain the maximum monetary benefit realistic as a beneficiary of a stock option plan I would encourage the order to follow out pecuniary and investment strategies that will increase the value of the hearty. In order to learn the best scheme to optimize the value of the stock option plan we must evaluate the potential effects of the company choosing increased dividend payout strategy vs. stock repurchase program.The dividend payout policy of a firm refers to the decision regarding the magnitude of the dividend payout which is the contribution of earnings paid to the stockholders in the form of dividends (Referencefor pedigree). The owner of a companys common stock will always prefer to have the highest dividend payout possibl e. One of the main reasons people like dividends so lots is because they are obtaining an immediate financial return instead of waiting for the sale of the stock to achieve a capital gain. In order to better understand the effect of dividend we must recognize the existence of retained earnings. At the end an accounting period when profits are determine the board of director can either declare dividends or kept the profits in the form of retained earnings. When money is not distributed and it is kept as retained earnings the company can utilize these funds to make the business grow. If a company is able to invest its money wisely in high yield projects, the firm can achieve internal grow that will raise the market value of the company.During bad financial times such as the current global recession it is common for companies to reduce their payout of cash dividends in order to maintain its liquidity and to keep its cash balance as high as possible (Bigda). A sector that has been horr ibly as far as reduction in