Haveloche corporation Essay

Haveloche Corporation is a research and development company, which translates into discontinuous cash flows over quantify. There are times when genius ideas hold in lots of cash flow for the company. However, there are likewise times where those genius ideas are 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 non. Haveloche is constantly set about with the predicament of deciding what dividend 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 slap-up gains (1) Dividend Irrelevance opening or Modigliani Miller (2) Bird-in-the-hand Theory (3) assess Preference Theory. According to Modigliani Miller (MM), the dividend policy has non subject on the stock price of the fi rm or the cost of capital. This system states that investors reinvest the dividends back into the firm and the firms value is only establish 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 cognise and stable and capital gains are un bedn and uncertain. The dividend is less risky than capital gains. The risk of the firms cash flows in the long point 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 future on taxes has a lower cost than a dollar paid on taxes in the present.Capital gains typically have better tax advantages than dividends, which is why some investors prefer to invest in companies that minimize dividends. Based on the scatter plot, I would have to say that Haveloche has chosen a compartmental isation of these different theories over the classs since they have been paying dividends. When the company postulate to reinvest the money back into the company, they dividend was lowered. When the company had plenty of extra cash lie around, the dividend payout increased. Haveloche has been paying a dividend since its initial IPO, but those dividends vary from year to year. one and only(a) could argue that the dividend is guaranteed each year found on history, but the investor does not have a clue as to how what that dividend will be base 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 going to go 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 pickings the plunge with investing their hard earned money. Haveloches duty 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 other lowly RD companies that work on patent projects. With more nurture and results, Haveloche would be able to make a more intelligent business decision about which dividend policy it should choose.