Essay: Preference for investment
I would prefer to invest the $10,000 inheritance in 500 shares of company A. This provides a guaranteed return via dividends worth 20% of initial investment and a possibility of 30% return if the stock price rises to $22. This is preferable than investing in company B as the latter would provide guaranteed return of 10% on initial investment via dividends and possible return of 30% if stock price rises to $24. Given the upper spectrum on returns is same for both but company B entails greater uncertainty, Company A will be a better investment.
I would prefer to work for Company B. This would allow me to retain part of the excess cash rather than pay off in terms of dividends to shareholders, allowing projects to be undertaken and shareholders to be remunerated via a rise in share price at a later stage. This policy will get mixed responses with more risk-averse investors preferring dividends while those wanting to possibly avoid taxes on dividends may prefer capital appreciation. I would prefer to maintain policy of low dividends as it allows greater opportunities for expansion of firm and new projects to be taken on which would aid long run development of the company and benefit the shareholders as a result.
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