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Why Do Companies Pay Dividends

The document compares the internal rate of return (IRR) of two stocks over four years, with Stock A providing dividends of $20 each year and ending worth $140, for an IRR of 30%, while Stock B pays no dividends but ends worth $200, for an IRR of 26%.

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sukhvindertaak
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28 views1 page

Why Do Companies Pay Dividends

The document compares the internal rate of return (IRR) of two stocks over four years, with Stock A providing dividends of $20 each year and ending worth $140, for an IRR of 30%, while Stock B pays no dividends but ends worth $200, for an IRR of 26%.

Uploaded by

sukhvindertaak
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Stock A Year 1 Year 2 Year 3 Year 4

Cost of purchase -100


Dividend 20 20 20
Value at end of investment period 140
Net Cash flow -100 20 20 160

IRR 30%

Stock B Year 1 Year 2 Year 3 Year 4


Cost of purchase -100
Dividends 0 0 0
Value at end of investment period 200
Net Cash flow -100 0 0 200

IRR 26%

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