Exam 17: Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

A firm has retained earnings of $11 million, a common shares account of $2 million, and additional paid-in-capital of $6 million, and the firm just paid a 15 percent stock dividend. Assume that fair market value is reflected in the relative size of both the common shares account and the additional paid-in-capital account. Which of the following statements is correct?

What will happen to the price of the stock once the stock goes ex-dividend?

As the number of days until the next dividend decreases, what will happen to the present value of the stock?

Which of the following is a reason for a firm to announce a stock split?

JEN Corp. is expected to pay a dividend of $2.00 per year indefinitely. If the appropriate rate of return on this stock is 12 percent per year, and the stock consistently goes ex-dividend 25 days before the dividend payment date, what will be the expected minimum price in light of the dividend payment logistics?

TJ Corp. is expected to pay a dividend of $3.00 per year indefinitely. If the appropriate rate of return on this stock is 10 percent per year, and the stock consistently goes ex-dividend 45 days before the dividend payment date, what will be the expected minimum price in light of the dividend payment logistics?

On the ________, the firm will look on its books to find the registered owners so that they can start addressing payments.

Cole inherited 2,000 shares of JPW, Inc. The stock is selling in the market for $75 per share and the company is contemplating a 1-for-4 stock split. Given this information, which of the following statements is correct?

GBH Inc. is planning on announcing a 2-for-5 stock split. The stock is currently trading at $12 per share. Based on this information, what will be the new stock price?

Suppose a firm pays total dividends of $200,000 out of net income of $2.5 million. What would the firm's payout ratio be?

Suppose that a firm always announces a yearly dividend at the end of the first quarter of the year, but then pays the dividend out as four equal quarterly payments. If the next such "annual" dividend has been announced as $4, it is exactly one quarter until the first quarterly dividend from that $1, the effective annual required rate of return on the company's stock is 14 percent, and all future "annual" dividends are expected to grow at 7 percent per year indefinitely, how much will this stock be worth?

Suppose a firm pays total dividends of $250,000 out of net income of $2 million. What would the firm's payout ratio be?

Which of the following would cause dividends to decrease if the firm was using the residual dividend model?

The theory that argues that dividends that the firm has committed to pay are less risky to risk-averse investors than are potential future capital gains is referred to as:

MMK Cos. normally pays an annual dividend. The last such dividend paid was $2.00, all future dividends are expected to grow at a rate of 6 percent per year, and the firm faces a required rate of return on equity of 13 percent. If the firm just announced that the next dividend will be an extraordinary dividend of $22 per share that is not expected to affect any other future dividends, what should the stock price be?

Suppose a firm pays total dividends of $50,000 out of net income of $500,000. What would the firm's payout ratio be?

ABC Corp. is expected to pay a dividend of $5.00 per year indefinitely. If the appropriate rate of return on this stock is 5 percent per year, and the stock consistently goes ex-dividend 45 days before the dividend payment date, what will be the expected maximum price in light of the dividend payment logistics?

Which of the following is a disadvantage of a stock repurchase?

A firm has retained earnings of $6 million, a common shares account of $3 million, and additional paid-in-capital of $6 million, and the firm just paid a 10 percent stock dividend. Assume that fair market value is reflected in the relative size of both the common shares account and the additional paid-in-capital account. What are the new levels in each account?

Regarding dividend payment procedures, which of the following is the first day that the shares will be traded without the dividend attached?