Exam 17: Payout Policy

Use the following information to answer the question(s)below. -In which years were dividends NOT tax disadvantaged?

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. -If Wyatt Oil distributes the $70 million as a share repurchase,then its debt-to-equity ratio after the share repurchase will be closest to:

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 price per share of Iota if they use the $200 million to expand is closest to:

Consider the following equation: Pretain = Pcum × The term τc in this equation represents:

Which of the following statements is FALSE?

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. -Using the available tax information for 2002,calculate the effective dividend tax rate for a: (1)one-year individual investor (2)buy and hold individual investor (3)pension fund

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 to repurchase shares.The amount of the regular yearly dividends in the future is closest to:

A firm can repurchase shares through a(n)________ in which it offers to buy shares at a prespecified price during a short time period-generally within 20 days.

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 to repurchase shares.The number of shares that Omicron will have outstanding following the repurchase 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 special dividend is 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. -If Wyatt Oil distributes the $70 million as a share repurchase,then its stock price after the share repurchase will be closest to:

Use the information for the question(s)below. Consider the following tax rates: -The effective tax disadvantage for retaining cash in 2006 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. -If Wyatt Oil distributes the $70 million as a share repurchase,then the number of shares outstanding after the repurchase will be 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 pay a special dividend.Suppose you are unhappy with Omicron's decision and would prefer that Omicron used the excess cash to repurchase shares.The number of shares that you would have to buy in order to undo the special cash dividend that Omicron paid is closest to:

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 price per share of Iota if they decide not to use the $200 million to expand and hold the cash instead is closest to:

Wyatt Oil pays a regular dividend of $2.50 per share.Typically,the stock price drops by $2.00 per share when the stock goes ex-dividend.Suppose the capital gains tax rate is 20%,but investors pay different tax rates on dividends.Absent transactions cost,the highest dividend tax rate of an investor who could gain from trading to capture the dividend is closest to: