Additional materials

Question 1

Why is it that dividends are irrelevant b/c the stock price is the PV of all future dividends?

Answer 1

1. Dividends are irrelevant because a higher dividend today requires you to SELL MORE STOCK to finance the dividend.
   - Therefore, future dividends are lower because they are shared among a greater number of shareholders {DILUTION}
2. Even though the immediate dividend rises, future dividends fall and these effects cancel out.