Exam 18: Payout Policy

The Beta Corporation had 1,000 shares outstanding and a market value of $90,000 prior to the declaration of a $5 per share dividend.To finance a new project they will issue equity and the end result will be that the market value of the firm:

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Question 1

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A stock of which you own 100 shares has just split three for two.Its market price before the split was $30 per share.Now discuss what you would expect to happen with this stock and your ownership interests.

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Question 2

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The three-for-two split means that you and other owners will receive one newly issued share for every two that you currently own.Thus, your holdings will increase from 100 to 150 shares.However, the assets of the firm and its investment opportunities have not been altered.Therefore, it would be logical to expect that the market price per share would fall to $20.This can be seen in that three shares at the new price of $20 would precisely equal two shares at the old price of $30.To the extent that the market price does not settle at this theoretically expected level, the investors are "winners" or "losers." But that is the only gain or loss in this process.

Dividends are likely to shift up and down as earnings fluctuate so that managers can maintain a stable payout ratio.

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Question 3

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False

Xian Inc.has 7,000,000 shares outstanding.If the company declares a 3 for 2 reverse stock split, determine the number of shares outstanding afterwards.

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Question 4

Why may a large increase in earnings not translate into a large increase in dividends?

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Question 5

A stock is currently priced at $65 per share and will pay a $4 dividend in one year.What must the stock sell for in one year to meet investors' expectations of a 15% after-tax yield if dividends are taxed at 28%? Ignore capital gains taxes due to investor timing.

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Question 6

In regards to dividend policy, unless a firm's investment policy and borrowing remain constant:

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Question 7

The stock in your portfolio was selling for $40 per share yesterday, but has today declared a three for two stock split.Which of the following statements seems to be true?

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Question 8

MM's proposition of dividend irrelevance depends upon:

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Question 9

Investors require an after-tax rate of return of 10% on their stock investments.The tax rate on dividends is 28%, while capital gains escape taxation.A firm will pay $2 per share in dividends one year from now, after which the stock is expected to be at a price of $20.Determine the current stock price and the expected before tax rate of return for a one-year holding period. DATA Investor return 10\% Dividend arnourt \ 2.00 Tax rate 28\% Future price prediction \ 20.00

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Question 10

A two-for-one stock split results in a doubling of the number of outstanding shares, but they do not affect the company's assets, profits, or total value.

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Question 11

A two-for-one stock split is like a 200% stock dividend.

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Question 12

A firm is said to be "smoothing" dividends if dividends:

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Question 13

The primary purpose of laws prohibiting a firm from paying dividends that include its legal capital is to:

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Question 14

Discuss the concept of dividend "smoothing."

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Question 15

Compare the after-tax returns for a corporation that invests in preferred stock with a 12% dividend versus a common stock with no dividend but a 16% capital gain.The corporation's tax rate is 35%.Assume 30% tax rate on dividends.The:

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Question 16

A company has a retention ratio of 40%, net income of $17 million, and 10 million shares outstanding.What would be the dividend per share for this company?

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Question 17

Corporations pay regular cash dividends to their:

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Question 18

Compare and contrast share repurchases with dividend payouts.

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Question 19

Which of the following is correct for a firm with $400,000 in net earnings, 20,000 shares, and a 30% payout ratio?

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Question 20

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Exam 18: Payout Policy

The Beta Corporation had 1,000 shares outstanding and a market value of $90,000 prior to the declaration of a $5 per share dividend.To finance a new project they will issue equity and the end result will be that the market value of the firm:

A stock of which you own 100 shares has just split three for two.Its market price before the split was $30 per share.Now discuss what you would expect to happen with this stock and your ownership interests.

Dividends are likely to shift up and down as earnings fluctuate so that managers can maintain a stable payout ratio.

Xian Inc.has 7,000,000 shares outstanding.If the company declares a 3 for 2 reverse stock split, determine the number of shares outstanding afterwards.

Why may a large increase in earnings not translate into a large increase in dividends?

A stock is currently priced at $65 per share and will pay a $4 dividend in one year.What must the stock sell for in one year to meet investors' expectations of a 15% after-tax yield if dividends are taxed at 28%? Ignore capital gains taxes due to investor timing.

In regards to dividend policy, unless a firm's investment policy and borrowing remain constant:

The stock in your portfolio was selling for $40 per share yesterday, but has today declared a three for two stock split.Which of the following statements seems to be true?

MM's proposition of dividend irrelevance depends upon:

A two-for-one stock split results in a doubling of the number of outstanding shares, but they do not affect the company's assets, profits, or total value.

A two-for-one stock split is like a 200% stock dividend.

A firm is said to be "smoothing" dividends if dividends:

The primary purpose of laws prohibiting a firm from paying dividends that include its legal capital is to:

Discuss the concept of dividend "smoothing."

Compare the after-tax returns for a corporation that invests in preferred stock with a 12% dividend versus a common stock with no dividend but a 16% capital gain.The corporation's tax rate is 35%.Assume 30% tax rate on dividends.The:

A company has a retention ratio of 40%, net income of $17 million, and 10 million shares outstanding.What would be the dividend per share for this company?

Corporations pay regular cash dividends to their:

Compare and contrast share repurchases with dividend payouts.

Which of the following is correct for a firm with $400,000 in net earnings, 20,000 shares, and a 30% payout ratio?

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