Exam 14: Distributions to Shareholders: Dividends and Repurchases

Victor Rumsfeld Inc.'s dividend policy is under review by its board.Its projected capital budget is $2,000,000, its target capital structure is 60% debt and 40% equity, and its forecasted net income is $600,000.If the company follows a residual dividend policy, what total dividends, if any, will it pay out?

Poff Industries' stock currently sells for $120 a share.You own 100 shares of the stock.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?

Which of the following statements is correct?

Which of the following statements is correct?

Which of the following actions will best enable a company to raise additional equity capital?

If investors prefer firms that retain most of their earnings, then a firm that wants to maximize its stock price should set a low payout ratio.

Which of the following should not influence a firm's dividend policy decision?

United Builders wants to maintain a target capital structure with 30% debt and 70% equity.Its forecasted net income is $550,000, and because of market conditions, the company will not issue any new stock during the coming year.If the firm follows the residual dividend policy, what is the maximum capital budget that is consistent with maintaining the target capital structure?

One 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.

Downie Foods recently completed a 4-for-1 stock split.Prior to the split, its stock sold for $120 per share.If the firm's total market value increased by 5% as a result of increased liquidity caused by the split, what was the stock price following the split?

The optimal distribution policy strikes that balance between current dividends and capital gains that maximizes the firm's stock price.

Getler Inc.'s projected capital budget is $2,000,000, its target capital structure is 40% debt and 60% equity, and its forecasted net income is $1,000,000.If the company follows a residual dividend policy, how much dividends will it pay or, alternatively, how much new stock must it issue? Dividends Stock Issued a. $\$ 514,425 \quad \$ 162,901$ b. $\$ 541,500 \quad \$ 171,475$ c. $\$ 570,000 \quad\$ 180,500$ d. $\$ 600,000 \quad\$ 190,000$ e. $\$ 0 \quad\quad\quad\quad\$ 200,000$

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.

The following data apply to Elizabeth's Electrical Equipment: Value of operations \ 20,000 Short-term investments \ 1,000 Debt \ 6,000 Number of shares 300 The company plans on distributing $1,000 by repurchasing stock.What will the intrinsic per share stock price be immediately after the repurchase?

If management wants to maximize its stock price, and if it believes that the dividend irrelevance theory is correct, then it must adhere to the residual distribution policy.

If a firm adheres strictly to the residual dividend policy, then if its optimal capital budget requires the use of all earnings for a given year (along with new debt according to the optimal debt/total assets ratio), then the firm should pay

Which of the following statements is correct?

Which of the following statements is correct?

In recent years Constable Inc.has suffered losses, and its stock currently sells for only $0.50 per share.Management wants to use a reverse split to get the price up to a more "reasonable" level, which it thinks is $25 per share.How many of the old shares must be given up for one new share to achieve the $25 price, assuming this transaction has no effect on total market value?

If a firm adopts a residual distribution policy, distributions are determined as a residual after funding the capital budget.Therefore, the better the firm's investment opportunities, the lower its payout ratio should be.