Exam 14: Distributions to Shareholders: Dividends and Repurchases

Reynolds Paper Products Corporation follows a strict residual dividend policy.All else equal, which of the following factors would be most likely to lead to an increase in the firm's dividend per share?

Which of the following statements is correct?

Which of the following statements is NOT correct?

Sanchez Company has planned capital expenditures that total $2,000,000.The company wants to maintain a target capital structure that is 35% debt and 65% equity.The company forecasts that its net income this year will be $1,800,000.If the company follows a residual dividend policy, what will be its total dividend payment?

Silvana Inc.projects the following data for the coming year.If the firm follows the residual dividend policy and also maintains its target capital structure, what will its payout ratio be? EBIT \ 2,000,000 Capital budget \8 50,000 Interest rate 10\%\% Debt 40\% Debt outstanding \ 5,000,000\% Equity 60\% Shares outstanding \ 5,000,000 Tax rate 25\%

Warren Supply Inc.is evaluating its capital budget.The company finances with debt and common equity, but because of market conditions, wants to avoid issuing any new common stock during the coming year.It 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.Given these constraints, what percentage of the capital budget must be financed with debt?

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

If a firm adheres strictly to the residual dividend policy, the issuance of new common stock would suggest that

Which of the following statements is correct?

The projected capital budget of Kandell Corporation 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?

The announcement of an increase in the cash dividend should, according to MM, lead to an increase in the price of the firm's stock.

Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is decreased.Their argument is based on the assumption that

Brinkley Resources stock has increased significantly over the last five years, selling now for $175 per share.Management feels this price is too high for the average investor and wants to get the price down to a more typical level, which it thinks is $25 per share.What stock split would be required to get to this price, assuming the transaction has no effect on the total market value? Put another way, how many new shares should be given per one old share?

A reverse split reduces the number of shares outstanding.

The capital budget of Creative Ventures Inc.is $1,000,000.The company wants to maintain a target capital structure that 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?

Harvey's Industrial Plumbing Supply's target capital structure consists of 40% debt and 60% equity.Its capital budget this year is forecast to be $650,000.It also wants to pay a dividend of $225,000.If the company follows the residual dividend policy, how much net income must it earn to meet its capital requirements, pay the dividend, and keep the capital structure in balance?

The Meltzer Corporation is contemplating 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?

Stock dividends and stock splits should, at least conceptually, have the same effect on shareholders' wealth.

Yesterday, Berryman Investments was selling for $90 per share.Today, the company completed a 7-for-2 stock split.If the total market value was unchanged by the split, what is the price of the stock today?

The dividend irrelevance theory, proposed by Miller and Modigliani, says that provided a firm pays at least some dividends, how much it pays does not affect either its cost of capital or its stock price.