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The study of Florida Power and Light Company (FPL) is to determine if a companys value can be affected by the negative signals of dropping its dividend levels. Our recommendation is to buy FPL stock, even though its stock price fell 6% after the merchandise analysis of its dividend running prediction. It is true that dividends signal companys incoming value and market reacts inversely. But FPL was a special compositors case because it was a healthy company that cut its dividend. It is instinctive to sum up FPLs business environment when it made the dividend announcement. The two reasons that lead FPL to cut its dividend were: the recent speed of deregulation in the utilities industry that oblige FPL to start thinking about the impact of not creation a regulated company, and the fact that the dividend payout had grown to a high than normal level on a historical basis. The modal(a) EPS ontogeny rate from 1984 to 1993 was only 0.9%, but the Dividends Per Sh be growth rate was 3.8%, which was much faster than the companys earnings. (See Exhibit 4b) thither are two theories about dividends usually used to pardon the market response to the companys dividend policy. One is Signaling Hypothesis. This supposition is based off the idea that managers have better reading about a firms prox prospects than public stockholders do.

Since future dividends are paid out of future profits, and given that managers are reluctant to cut dividends, any change in dividends to be paid is often viewed signal of future profits. Thus, increases in dividends more often than not result in stock price increases and cuts in dividends largely result in stock price declines. This is theory that most(prenominal) of the market analyst based on when they issue their opinions on FPL. Comparing to the early 90s, FPL had taken $5.8 billion with child(p) expenditure program and financed through issuance of $3.7 billion long debt and $1.9 billion common stock. From the Cash Flow statement, we can pick up FPL has been issuing nearly as much new... If you want to work a full essay, order it on our website: Ordercustompaper.com

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