Exam 14: Dividends

Grullon Co.is considering a 7-for-3 stock split.The current stock price is $75.00 per share, and the firm believes that its total market value would increase by 5% as a result of the improved liquidity that it thinks would follow the split.What is the stock's expected price following the split?

implication of the bird-in-the-hand theory of dividends is that a given reduction in dividend yield must be offset by a more than proportionate increase in growth in order to keep a firm's required return constant, other things held constant.

the information content, or signaling, hypothesis is correct, then changes in dividend policy can have an important effect on the firm's value and capital costs.

Becker Financial recently completed a 7-for-2 stock split.Prior to the split, its stock sold for $90 per share.If the total market value was unchanged by the split, what was the price of the stock following the split?

Toombs Media Corp.recently completed a 3-for-1 stock split.Prior to the split, its stock sold for $150 per share.The firm's total market value was unchanged by the split.Other things held constant, what is the best estimate of the stock's post-split price?

Which of the following statements is NOT CORRECT?

own 100 shares of Troll Brothers' stock, which currently sells for $120 a share.The company is contemplating a 2-for-1 stock split.Which of the following best describes what your position will be after such a split takes place?

Underlying the dividend irrelevance theory proposed by Miller and Modigliani is their argument that the value of the firm is determined only by its basic earning power and its business risk.

dividend irrelevance theory says that while dividend policy does not affect a firm's value, it can affect the cost of capital.

Which of the following statements is CORRECT?

reverse split reduces the number of shares outstanding.

Which of the following statements about dividend policies is CORRECT?

Which of the following statements is CORRECT?

& Co.has a capital budget of $3,000,000.The company wants to maintain a target capital structure that is 15% debt and 85% equity.The company forecasts that its net income this year will be $3,500,000.If the company follows a residual dividend policy, what will be its total dividend payment?

Mortal Inc.expects to have a capital budget of $500,000 next year.The company wants to maintain a target capital structure with 30% debt and 70% equity, and its forecasted net income is $400,000.If the company follows the residual dividend policy, how much in dividends, if any, will it pay?

if a stock split has no information content, and even if the dividend per share adjusted for the split is not increased, there can still be a real benefit (i.e., a higher value for shareholders) from such a split, but any such benefit is probably small.

Sheehan Corp.is forecasting an EPS of $3.00 for the coming year on its 500,000 outstanding shares of stock.Its capital budget is forecasted at $800,000, and it is committed to maintaining a $2.00 dividend per share.It finances with debt and common equity, but it wants to avoid issuing any new common stock during the coming year.Given these constraints, what percentage of the capital budget must be financed with debt?

Which of the following statements is CORRECT?

Co.has a capital budget of $1,000,000.The company wants to maintain a target capital structure which is 30% debt and 70% equity.The company forecasts that its net income this year will be $800,000.If the company follows a residual dividend policy, what will be its total dividend payment?

Brammer Corp.'s projected capital budget is $1,000,000, its target capital structure is 60% debt and 40% equity, and its forecasted net income is $550,000.If the company follows a residual dividend policy, what total dividends, if any, will it pay out?