Exam 18: Long-Term Financial Planning

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?

MM's proposition concerning dividends contends that shareholders will:

Morso Corporation has declared a $5 per share in dividends.The federal tax rate is 26% and the provincial tax rate is 13.39%.Federal and Provincial tax credits are 13.33% and 5.1% respectively on the grossed up amount of the dividend.The gross up amount is 25%.Determine the average tax rate for dividends.

With respect to the dividend-payment process, the price of a share of stock can logically be expected to drop on:

Investors may prefer lower dividends over higher dividends because:

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?

MM's dividend irrelevance proposition assumes that dividends do not affect investment or borrowing policies.

The manager of XYZ Corp.feels that a dividend increase will increase stock price because many investors value stock with a dividend-discount model.Why might MM disagree with this assertion?

Corporations may have a legitimate preference for dividends over capital gains because:

A policy of dividend "smoothing" refers to:

According to MM, "homemade" dividends are created by:

An increase in dividends might not increase price and may actually decrease stock price if:

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

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 stock split and/or a stock dividend will result in an:

A company may choose to repurchase stock rather than pay out dividends when:

127.Investors require an after-tax rate of return of 9% on their stock investments.The tax rate on dividends is 26%, while capital gains escape taxation.A firm will pay $2.50 per share in dividends one year from now, after which the stock is expected to be at a price of $30.Determine the current stock price and the expected before tax rate of return for a one-year holding period.

In a two-for-one stock split, each investor would receive one additional share for each share already held.

Which of the following would you expect to have more impact on a dividend-based-stock-valuation model?

Research has shown all of the following to be true of the way corporations determine dividends except: