Exam 18: Payout Policy

A firm with 2,000 outstanding shares selling for $10 each does not have the cash to pay its dividend.In an ideal MM world,how many new shares must be sold and at what price to pay a $2 dividend per share to old shareholders?

An investor who currently holds 582 shares because he created a dividend by selling 18 shares has done the equivalent of a:

CormexInc.paid a dividend of $0.75 per share.It forecasted a $1.90 per share in earnings and had a stock price of $27.Determine the stock price if Cormex declared a 10% stock dividend.

After the payment of a 25% stock dividend,an investor has 500 shares of stock and $400.What did the investor have prior to the stock dividend?

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?

A share repurchase is said to be equivalent to the payment of a cash dividend because each strategy:

A firm's dividend policy involves a trade-off between:

The record date for a dividend is scheduled between the:

An investor who owns stock on the company's __________ date will receive the dividends declared.

Which of the following is not a logical justification for dividend preference (versus capital gains)in the real world?

ABC Corp.stock is selling for $30 per share when a 10% stock dividend is declared.If you own 100 shares of ABC Corp.then you will receive:

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?

Show that a stock repurchase is conceptually the same as a cash dividend using the following example: Repo Corp.has 1,000 shares outstanding at a market price of $20 per share.In debating whether to declare a 5% cash dividend,the directors instead chose to repurchase 50 of the outstanding shares.

With respect to the proposition that dividend policy does not matter,in order to raise an additional $5,600 in cash by issuing stock,the stock sold must be worth:

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

How much should an investor pay now for a stock expected to sell for $30 one year from now if: the stock offers a $2 dividend,dividends are taxed at 40%,capital gains are taxed at 20%,and a 15% after-tax return is expected on the investment?

An investor owns 5,000 shares,which is 1% of a corporation's outstanding stock before a stock repurchase.The investor did not sell any of his stock during the 25,000 share repurchase.Which of the following statements is correct?

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.

Conservative economists feel that high dividend payouts will increase share price because:

Miller and Modigliani proclaim that,under certain ideal conditions,dividend policy is irrelevant. What is it that they are specifically proclaiming to be irrelevant? Explain with the following example.Assume that a firm has $100,000 in assets at market value,no debt,and 100 shares outstanding.Further,$10,000 of the assets is in cash,which represents the recent net income of the firm.Now the firm can choose whether to pay out,say,a 50% dividend,which will necessitate the issuance of $5,000 in new shares,or to pay no dividend and plow back all $10,000 of earnings into a project with an attractive NPV.