Exam 15: Distributions to Shareholders: Dividends and Share Repurchases

If a firm pays out all of its earnings as dividends and its stockholders then elect to have all of their dividends reinvested,the company should reconsider its dividend policy and possibly move to a lower dividend payout ratio.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

If on January 3 a company declares a dividend of $1.50 per share,payable on January 31 to holders of record on January 17,then the price of the stock should drop by approximately $1.50 on January 15,which is the ex-dividend date.

Which of the following statements is CORRECT?

LA Moving Company has the following data,dollars in thousands.If it follows the residual dividend model,what will its dividend payout ratio be? Capital budget \ 6,700 \% Debt 45\% Net income (NI) \ 7,250 ?

Some investors prefer dividends to retained earnings (and the capital gains retained earnings bring),while others prefer retained earnings to dividends.Other things held constant,it makes sense for a company to establish its dividend policy and stick to it,and then it will attract a clientele of investors who like that policy.

Becker Financial recently declared a 2-for-1 stock split.Prior to the split,the stock sold for $60 per share.If the firm's total market value is unchanged by the split,what will the stock price be following the split?

Keys Financial has done extremely well in recent years,and its stock now sells for $65 per share.Management wants to get the price down to a more typical level,which it thinks is $40.00 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?

Miller and Modigliani's dividend irrelevance theory says that the percentage of its earnings a firm pays out in dividends has no effect on either its cost of capital or its stock price.

Clark Farms Inc.has the following data,and it follows the residual dividend model.Currently,it finances with 15% debt.Some Clark family members would like for the dividends to be increased.If Clark increased its debt ratio,which the firm's treasurer thinks is feasible,by how much could the dividend be increased,holding other things constant? Capital budget \ 4,500,000 Net income (NI) \ 5,000,000 \% Debt now 15\% \% Debt after change 68\% ?

Which of the following statements is CORRECT?

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.

If a firm declares a 20:1 stock split,and the pre-split price was $500,then we might expect the post-split price to be $25.However,it often turns out that the post-split price will be higher than $25.This higher price could be due to signaling effects investors believe that management split the stock because they think the firm is going to do better in the future.The higher price could also be because investors like lower-priced shares.

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

Miller and Modigliani's dividend irrelevance theory says that the percentage of its earnings a firm pays out in dividends has no effect on its cost of capital,but it does affect its stock price.

Grullon Co.is considering a 7-for-3 stock split.The current stock price is $97.50 per share,and the firm believes that its total market value would increase by 7% as a result of the improved liquidity that should follow the split.What is the stock's expected price following the split?

Dentaltech Inc.projects the following data for the coming year.If the firm follows the residual dividend model and also maintains its target capital structure,what will its dividend payout ratio be? EBIT \ 3,000,000 Capital budget \ 625,000 Interest rate 10\%\% Debt 40\% Debt outstanding \ 4,600,000\% Equity 60\% Shares outstanding 5,000,000 Tax rate 40\% ?

Which of the following statements is CORRECT?

Torrence Inc.has the following data.If it uses the residual dividend model,how much total dividends,if any,will it pay out? Capital budget \ 1,025,000 \% Debt 60\% Net income (NI) \ 665,000 ?