Exam 15: Distributions to Shareholders: Dividends and Share Repurchases

Ross-Jordan Financial has suffered losses in recent years,and its stock currently sells for only $0.60 per share.Management wants to use a reverse split to get the price up to a more "reasonable" level,which it thinks is $12 per share.How many of the old shares must be given up for one new share to achieve the $12 price,assuming this transaction has no effect on total market value?

Walter Industries is a family owned concern.It has been using the residual dividend model,but family members who hold a majority of the stock want more cash dividends,even if that means a slower future growth rate.Neither the net income nor the capital structure will change during the coming year as a result of a dividend policy change to the indicated target payout ratio.By how much would the capital budget have to be cut to enable the firm to achieve the new target dividend payout ratio? Do not round intermediate calculations. \% Debt 41\% \% Equity =1.0-\% Debt 59\% Capital budget under the residual dividend model \ 5,000,000 Net income; it will not change this year even if dividends increase \ 3,500,000 Equity to support the capital budget =\% Equity \times Capital budget \ 2,950,000 Dividends paid = NI - Equity needed \ 550,000 Currently projected dividend payout ratio 84.3\% Target dividend payout ratio 75\% ?

Mid-State BankCorp recently declared a 7-for-2 stock split.Prior to the split,the stock sold for $100 per share.If the firm's total market value is unchanged by the split,what will the stock price be following the split?

If a retired individual lives on his or her investment income,then it would make sense for this person to prefer stocks with high payouts so he or she could receive cash without going to the trouble and expense of selling stocks.On the other hand,it would make sense for an individual who would just reinvest any dividends received to prefer a low-payout company because that would save him or her taxes and brokerage costs.

NY Fashions has the following data.If it follows the residual dividend model,how much total dividends,if any,will it pay out? Capital budget \ 1,000,000 \% Debt 65\% Net income (NI) \ 625,000 ?

Which of the following statements is CORRECT?

You own 100 shares of Troll Brothers' stock,which currently sells for $120 a share.The company is about to declare a 2-for-1 stock split.Which of the following best describes your likely position after the split?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

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 dividend policy.

Your firm uses the residual dividend model to set dividend policy.Market interest rates suddenly rise,and stock prices decline.Your firm's earnings,investment opportunities,and capital structure do not change.If the firm follows the residual dividend model,then its dividend payout ratio would increase.

Mortal Inc.expects to have a capital budget of $450,000 next year.The company wants to maintain a target capital structure with 35% debt and 65% equity,and its forecasted net income is $400,000.If the company follows the residual dividend model,how much in dividends,if any,will it pay?

Suppose a firm that has been earning $2 and paying a dividend of $1.00,or a 50% dividend payout,announces that it is increasing the dividend to $1.50.The stock price then jumps from $20 to $30.Some people would argue that this is proof that investors prefer dividends to retained earnings.Miller and Modigliani would agree with this argument.

Whited Products recently completed a 4-for-1 stock split.Prior to the split,its stock sold for $75 per share.If the firm's total market value increased by 6% as a result of increased liquidity and favorable signaling effects,what was the stock price following the split?

Banerjee Inc.wants to maintain a target capital structure with 30% debt and 70% equity.Its forecasted net income is $825,000,and its board of directors has decreed that no new stock can be issued during the coming year.If the firm follows the residual dividend model,what is the maximum capital budget that is consistent with maintaining the target capital structure?

Which of the following statements is NOT CORRECT?

Which of the following does NOT normally influence a firm's dividend policy decision?

Ring Technology has a capital budget of $875,000,it wants to maintain a target capital structure of 35% debt and 65% equity,and it also wants to pay a dividend of $575,000.If the company follows the residual dividend model,how much net income must it earn to meet its capital budgeting requirements and pay the dividend,all while keeping its capital structure in balance?

A 100% stock dividend and a 2:1 stock split should,at least conceptually,have the same effect on the firm's stock price.

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