Dividends paid out to the shareholders: A) may be higher than free cash flow to equity FCFE. B) are always equal to free cash flow to equity (FCFE). C) are always less than free cash flow to equity (FCFE). D) are always higher than free cash flow to equity (FCFE).
A?
mwvt9 Wrote: ------------------------------------------------------- > A? ^
ditto
A
i’d also say a.
Were all going down together. 
exactly. you can tell by the “seemingly simple” title.
hahaha…no that was only for me… ok so it is A ! Bing!! good for ya’ll… what I’m trying to understand is… how is a firm that only has let’s say $100 in FCFE, going to pay out Dividends of $150?? Where does the extra cash come from?? Isn’t the whole point of FCFE to see how much is available for the shareholders???
Remember that FCFE is only for the period in question. It starts out from NI (only for that period…say a year). The company could pay a dividend larger than FCFE from retained earnings if they wanted. Recall that there are also two more types of dividends vs regular. They are special and liquidating. So in the case of a special dividend the company could pay out more than the yearly FCFE, which is probably the case with some of them.
^ This though was exactly that kept me away from answering this question. I don’t know where they get the extra 50$ from, to overpay in dividends. Anybody cares to explain?
see??? …seemingly simple…just need to be whacked on the head with it… thanks mwvt9 …(gosh your nick is hard to type fast!!)
mum they would pay them from retained earnings.
Yep, definitely A)…just read this two days ago. The whole point is that the company’s policies can, and usually do, vary widely from what the FCFF/FCFE dictates they can afford to do.
good question, mumukada. it helps understand limitations of price estimates based on dividends.
we are all assuming cash dividends- they can also be in the form of stock. i think it’s a fair assumption when talking about valuation stuff, but i would keep it in mind.
They can also pay the dividend from debt. It is not normal, but possible.
That would be included in the calculation of FCFE in the net borrowing term.
True, but it could be debt issued the prior period. That would be cash on the books that came from debt.
Excellent point.