Exam 17: Payout Policy

XYZ Corp. has 1,000 shares outstanding and retained earnings of $25,000. Theoretically, what would you expect to happen to the price of their stock, currently selling for $30 per share, if a 25% stock dividend is declared?

What are the four main ways to implement stock repurchase?

A company is most apt to repurchase stock rather than pay out dividends when the firm:

Stock repurchases are most commonly interpreted by investors as a signal that:

Discuss the concept of dividend "smoothing."

You purchased a stock today. What should you expect if the stock goes ex-dividend tomorrow?

Why would dividend policy not affect firm value in an ideal world?

When a firm announces a two-for-one stock split (in the absence of other new information), investors should expect that:

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%. The:

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

A stock is currently selling for $40 a share. If the firm declares a 3-for-2 stock dividend there will be:

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 two-for-one stock split will result in:

An unlevered firm expects to generate and payout free cash flows of $120,000 annually in the form of dividends and share repurchases starting next year. The discount rate is 13% and there are 125,000 shares outstanding. What is the current value per share?

Corporate dividends are less volatile than corporate earnings.

Investors often interpret a stock split announcement as a signal of management's confidence in the future.

The information content of dividends says that dividend increases send good news about cash flow and earnings, while dividend cuts send bad news.

Briefly discuss each of the chronological "steps" in the process of paying a dividend.

According to the MM dividend irrelevance proposition, since investors do not need dividends to convert their shares to cash, they will not pay higher prices for firms with higher dividend payouts.

Discuss the concept of dividend signaling.