Exam 17: Payout Policy

Use the information for the question(s)below. The JRN Corporation will pay a constant dividend of $3 per share,per year,in perpetuity.Assume that all investors pay a 20% tax on dividends and that there is no capital gains tax.The cost of capital for investing in JRN stock is 12%. -The price of a share of JRN's stock is closest to:

Use the information for the question(s)below. Luther Industries currently has 5 million shares outstanding and its stock is currently trading at $40 per share. -Assuming Luther issues a 5:2 stock split,then the number of shares Luther will have outstanding following the split is closest to:

Use the information for the question(s)below. Omicron Technologies has $50 million in excess cash and no debt.The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends.Omicron's unlevered cost of capital is 10% and there are 10 million shares outstanding.Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock. -Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.The amount of the regular yearly dividends in the future is closest to:

Use the following information to answer the question(s)below. d'Anconia Copper has $200 million in cash that it can use for a share repurchase.Suppose instead that d'Anconia Copper invests the funds in an account paying 5% interest for one year.Assume that the corporate tax rate is 21%,the individual capital gains rate is 15% and the individual rate on ordinary income is 32%. -Net of ordinary income taxes,the amount that investors would have if they invested the $200 million on their own is closest to:

Use the information for the question(s)below. Omicron Technologies has $50 million in excess cash and no debt.The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends.Omicron's unlevered cost of capital is 10% and there are 10 million shares outstanding.Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock. -Assume that you own 2500 shares of Omicron stock and that Omicron uses the entire $50 million to repurchase shares.Suppose you are unhappy with Omicron's decision and would prefer that Omicron used the excess cash to pay a special dividend.The number of shares that you would have to sell in order to receive the same amount of cash as if Omicron paid the special dividend is closest to:

Use the information for the question(s)below. Luther Industries has $5 million in excess cash and 1 million shares outstanding.Luther is considering investing the cash in one-year treasury bills that are currently paying 5% interest,and then using the cash to pay a dividend next year.Alternatively,Luther can pay the cash out as a dividend immediately and the shareholders can invest in the treasury bills themselves.Assume that capital markets are perfect. -If Luther decides to pay the dividend immediately the dividend per share will be closest to:

Use the following information to answer the question(s)below. -In which years were dividends tax disadvantaged?

Use the information for the question(s)below. Omicron Technologies has $50 million in excess cash and no debt.The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends.Omicron's unlevered cost of capital is 10% and there are 10 million shares outstanding.Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock. -Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.Omicron's cum-dividend price is closest to:

Use the following information to answer the question(s)below. -The effective dividend tax rate in 1989 is closest to:

Use the information for the question(s)below. Consider the following tax rates: *The current tax rates are set to expire after 2025 unless Congress extends them.The tax rates shown are for financial assets held for one year.For assets held less than one year,capital gains are taxed at the ordinary income tax rate (currently 37% for the highest bracket);the same is true for dividends if the assets are held for less than 61 days. -The effective dividend tax rate for a buy and hold individual investor in 2006 was closest to:

Use the information for the question(s)below. Consider the following tax rates: *The current tax rates are set to expire after 2025 unless Congress extends them.The tax rates shown are for financial assets held for one year.For assets held less than one year,capital gains are taxed at the ordinary income tax rate (currently 37% for the highest bracket);the same is true for dividends if the assets are held for less than 61 days. -The effective dividend tax rate for a one-year individual investor in 2006 was closest to:

Use the information for the question(s)below. Consider the following tax rates: *The current tax rates are set to expire after 2025 unless Congress extends them.The tax rates shown are for financial assets held for one year.For assets held less than one year,capital gains are taxed at the ordinary income tax rate (currently 37% for the highest bracket);the same is true for dividends if the assets are held for less than 61 days. -The effective dividend tax rate for a one-year individual investor in 1999 was closest to:

Use the following information to answer the question(s)below. Wyatt Oil has assets with a market value of $600 million,$70 million of which are cash.It has debt of $250 million,and 20 million shares outstanding.Assume perfect capital markets. -Wyatt Oil's current stock price is closest to:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Use the information for the question(s)below. Iota Industries is an all-equity firm with 50 million shares outstanding.Iota has $200 million in cash and expects future free cash flows of $75 million per year.Management plans to use the cash to expand the firm's operations,which in turn will increase future free cash flows by 12%.Iota's cost of capital is 10% and assume that capital markets are perfect. -The value of Iota if they do not use the $200 million to expand and hold the cash instead is closest to:

Use the information for the question(s)below. Consider the following tax rates: -The effective tax disadvantage for retaining cash in 2000 was closest to:

Use the following information to answer the question(s)below. Suppose that all capital gains are taxed at a 20% rate,and that the dividend tax rate is 40%.Rearden Metal is currently trading for $40 per share,and is about to pay a $5 special dividend. -Absent any other trading frictions or news,Rearden's share price just after the dividend is paid will be closest to:

One method of repurchasing shares is the ________,in which the firm lists different prices at which it is prepared to buy shares,and shareholders in turn indicate how many shares they are willing to sell at each price.

Consider the following equation: Pcum - Pex = Div × The term Pex is: