Pay Now or Pay Later: An Experiential Learning Exercise in Determining a Firm's Dividend Payout

Abstract

We develop a classroom exercise simulating the cash dividend payout decision. The benefits to business students include (i) a thorough investigation of the complex payout issues managers must consider when determining dividend policy, and (ii) the opportunity to address the long-term trend of declining dividend payouts. The exercise provides business instructors with several options for incorporating the dividend payout decision-making process into their classroom styles; among these are (i) experiential learning through peer group interaction and role-playing, and (ii) the opportunity to conduct a financial analysis of a firm that has recently initiated a regular dividend payout.