1. Using book value to measure profitability and to value a company's stock has limitations. Discuss five such limitations from an accounting perspective. Be specific.
2. On your visit to Alessandra Chemical Corp. (ACC), you learned that the board of directors has periodically debated the company's dividend-payout policy.
a. Briefly discuss two arguments for and two arguments against a high dividend payout policy
A director of ACC said that the use of dividend discount models by investors is "proof that "the higher the dividend, the higher the stock price."
b. Using a constant-growth dividend discount model as a basis of reference, evaluate the director's statement.
c. Explain how an increase in dividend payout would affect each of the following (hold- ing all other factors constant):
(1) Internal (implied, normalized, or sustainable) growth rate.
(2) Growth in book value.