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

LMNOP Cos. normally pays an annual dividend. The last such dividend paid was $5.00, all future dividends are expected to grow at a rate of 5 percent per year, and the firm faces a required rate of return on equity of 15 percent. If the firm just announced that the next dividend will be an extraordinary dividend of $10 per share that is not expected to affect any other future dividends, what should the stock price be?

GBH Inc. is planning on announcing a 7-for-3 stock split. The stock is currently trading at $119 per share. Based on this information, what will be the new stock price?

PQR Corp. is expected to pay a dividend of $1.50 per year indefinitely. If the appropriate rate of return on this stock is 8 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?

Which of the following is when the Board of Directors announces its intention to pay a dividend?

Modigliani and Miller disagreed with the proposal by Gordon and Lintner regarding dividends. Why?

If a firm has retained earnings of $20 million, a common shares account of $25 million, and additional paid-in-capital of $15 million, how much would be transferred in (or out) of these accounts in response to a 15 percent stock dividend, respectively?

The bird-in-the-hand fallacy refers to:

If a firm has retained earnings of $20 million, a common shares account of $40 million, and additional paid-in-capital of $10 million, how much would be transferred in (or out) of these accounts in response to a 30 percent stock dividend, respectively?

If a firm has retained earnings of $4 million, a common shares account of $7 million, and additional paid-in-capital of $3 million, how much would be transferred in (or out) of these accounts in response to a 20 percent stock dividend, respectively?

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

Why might a firm announce a "reverse stock dividend"?

Suppose a firm pays total dividends of $100,000 out of net income of $1 million. What would the firm's payout ratio be?

Suppose a firm pays total dividends of $165,000 out of net income of $1 million. What would the firm's retention ratio be?

GB Inc. is planning on announcing a 4-for-1 stock split. The stock is currently trading at $25 per share. Based on this information, what will be the new stock price?

Which of these is the idea that it does not matter whether a firm pays dividends or not as derived from a Modigliani and Miller Theorem?

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

Which of the following is correct?

Suppose a firm has a retention ratio of 25 percent, net income of $30 million, and 5 million shares outstanding. What would be the dividend per share paid out on the firm's stock?

A firm has retained earnings of $10 million, a common shares account of $1 million, and additional paid-in-capital of $4 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?

Suppose a firm has a retention ratio of 25 percent, net income of $21 million, and 3 million shares outstanding. What would be the dividend per share paid out on the firm's stock?