Exam 16: Payout Policy

Dividend policy may affect firm value because I.there is an unsatisfied clientele that prefer dividends to capital gains; II.there are sufficient loopholes in the tax system that wealthy shareholders can avoid taxes on dividends; III.well-managed companies prefer to signal their worth by paying high dividends

Miller and Modigliani's argument for dividend irrelevance assumes an efficient market.

Consider the payout policies of U.S. nonfinancial firms from 2011-2017. Which category had the highest percentage of firms?

Many companies have automatic dividend reinvestment plans (DRIPs).

Company X has 100 shares outstanding. It earns $1,000 per year and expects to pay all of it as dividends. If the firm expects to maintain this dividend forever, calculate the stock price today. (The required rate of return is 10 percent.)

If the corporate tax rate is 21 percent, what is the maximum effective tax rate on dividends received by another corporation?

Which of the following are true? I.Firms have long-run target dividend payout ratios. II.Dividend changes follow shifts in long-term, sustainable earnings. III.Managers are reluctant to make dividend changes that might have to be reversed.

Briefly describe the middle-of-the-roaders' position on dividend policy.

The following statements are true of dividend reinvestment plans (DRIPs): I.They are offered by the companies to their shareholders. II.Generally, new shares are issued at a discount. III.The dividends are taxable as ordinary income.

What information does a share repurchase convey to investors?