Exam 17: Payout Policy

A(n)________ may occur if a major shareholder desires to sell a large number of shares but the market for the shares is not sufficiently liquid to sustain such a large sale without severely affecting the price.

A(n)________ is the most common way that firms repurchase shares.

The practice of maintaining relatively constant dividends is called

BC Brewery has a current share price of $37.50,and has announced a dividend payment of $1.25 per share.Assuming perfect capital markets,what should the price of BC Brewery be once the stock begins trading ex-dividend?

When a firm pays out a dividend,the share price ________,and when it conducts a share repurchase at the market price,the share price ________.

Historical evidence shows that over the last few decades a larger proportion of firms have used ________ for payouts.

Use the information for the question(s) below. Omicron Technologies has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Omicron's unlevered cost of capital is 10% and there are 10 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock. -Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.The amount of the special dividend is closest to:

Collingwood Costumes is an all-equity firm with 80 million shares outstanding.Collingwood has $75 million in cash,and expects future free cash flows of $15 million per year.The cash can be used to expand the firm's future operations,increasing future free cash flows to $16 million per year.If Collingwood's cost of capital for the expansion is 10%,what will be the difference in the firm's share price compared to using the cash for a share repurchase?

When a firm offers to buy its shares at a prespecified price during a short time period it is also known as a(n)

Because ________ are seen as an implicit commitment,they send a ________ signal of financial strength to shareholders.

The date two business days prior to the date on which all shareholders of record receive a payment is called the ________ date.

What is the sequence of the four important dates for a dividend payment,from initial authorization to final payment?

Why do firms still pay dividends,despite their tax disadvantage?

The typical reason for a stock split is to

Use the information for the question(s) below. Iota Industries is an all-equity firm with 50 million shares outstanding. Iota has $200 million in cash and expects future free cash flows of $75 million per year. Management plans to use the cash to expand the firm's operations, which in turn will increase future free cash flows by 12%. Iota's cost of capital is 10% and assume that capital markets are perfect. -The value of Iota,if they use the $200 million to expand,is closest to:

Repurchases and special dividends are useful for making ________ and ________ distributions to shareholders.

In a stock dividend,each shareholder who owns the stock before the ex-dividend date receives

When a firm retains cash,it pays corporate tax on the interest it earns and the investor will owe capital gains tax on the increased firm value-in essence the interest on retained cash is taxed

Use the information for the question(s) below. Omicron Technologies has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Omicron's unlevered cost of capital is 10% and there are 10 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock. -Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.The amount of the regular yearly dividends in the future is closest to:

The way a firm chooses between alternate uses of free cash flow is referred to as