Exam 17: Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Show mathematically that, with a tax rate on both dividends and capital gains of 10 percent, it doesn't matter whether earnings are paid out as dividends or kept in the firm to cause g to grow for a constant-dividend stock.

JEN Corp. is expected to pay a dividend of $2.00 per year indefinitely. If the appropriate rate of return on this stock is 12 percent per year, and the stock consistently goes ex-dividend 25 days before dividend payment date, what will be the expected maximum price in light of the dividend payment logistics?

Wheels and More, Inc. normally pays an annual dividend. The last such dividend paid was $3.00, all future dividends are expect to grow at a rate of 8 percent per year, and the firm faces a require rate of return on equity of 12 percent. If the firm just announced that the next dividend will be an extraordinary dividend of $7 per share that is not expected to affect any other future dividends, what should the stock price be?

Which of the following would cause dividends to decrease if the firm was using the residual dividend model?

What important tax-based reason suggests why some investors might prefer capital gains?

An exchange of existing shares for a different (usually larger) number of "new shares," with proportionately different par and market values is which of the following?

Suppose a firm pays total dividends of $50,000 out of net income of $500,000. What would the firm's payout ratio be?

Suppose a firm pays total dividends of $750,000 out of net income of $2 million. What would the firm's retention ratio be?

A firm has retained earnings of $11 million, a common shares account of $2 million, and additional paid-in-capital of $6 million, and the firm just paid a 15 percent stock dividend. Assume that fair market value is reflected in the relative size of both the common shares account and the additional paid-in-capital account. Which of the following statements is correct?

Suppose a firm pays total dividends of $100,000 out of net income of $1 million. What would the firm's payout ratio be?

GBH Inc. is planning on announcing a 5-for-2 stock split. The stock is currently trading at $90 per share. Based on this information, what will be the new stock price?