Exam 14: Distributions to Shareholders: Dividends and Repurchases

If the signaling,hypothesis (which is also called the information content hypothesis)is correct,then changes in dividend policy can have an important effect on the firm's value and capital costs.

The capital budget forecast for the Santano Company is $725,000.The CFO wants to maintain a target capital structure of 45% debt and 55% equity,and it also wants to pay dividends of $500,000.If the company follows the residual dividend policy,how much income must it earn,and what will its dividend payout ratio be? Net Income Payout

In recent years Constable Inc.has suffered losses,and its stock currently sells for only $0.50 per share.Management wants to use a reverse split to get the price up to a more "reasonable" level,which it thinks is $25 per share.How many of the old shares must be given up for one new share to achieve the $25 price,assuming this transaction has no effect on total market value?

Which of the following should not influence a firm's dividend policy decision?

Which of the following statements is CORRECT?

Which of the following statements about dividend policies is correct?

David Rose Inc.forecasts a capital budget of $500,000 next year with forecasted net income of $400,000.The company wants to maintain a target capital structure of 30% debt and 70% equity.If the company follows the residual dividend policy,how much in dividends,if any,will it pay?

If management wants to maximize its stock price,and if it believes that the dividend irrelevance theory is correct,then it must adhere to the residual distribution policy.

MM's dividend irrelevance theory says that while dividend policy does not affect a firm's value,it can affect the cost of capital.

Which of the following statements is correct?

Even if a stock split has no information content,and even if the dividend per share adjusted for the split is not increased,there can still be a real benefit (i.e. ,a higher value for shareholders)from such a split,but any such benefit is probably small.

Which of the following statements is correct?

The projected capital budget of Kandell Corporation is $1,000,000,its target capital structure is 60% debt and 40% equity,and its forecasted net income is $550,000.If the company follows a residual dividend policy,what total dividends,if any,will it pay out?

Getler Inc.'s projected capital budget is $2,000,000,its target capital structure is 40% debt and 60% equity,and its forecasted net income is $1,000,000.If the company follows a residual dividend policy,how much dividends will it pay or,alternatively,how much new stock must it issue? Dividends Stock Issued

Downie Foods recently completed a 4-for-1 stock split.Prior to the split,its stock sold for $120 per share.If the firm's total market value increased by 5% as a result of increased liquidity caused by the split,what was the stock price following the split?

Which of the following actions will best enable a company to raise additional equity capital?

Grandin Inc.is evaluating its dividend policy.It has a capital budget of $625,000,and it wants to maintain a target capital structure of 60% debt and 40% equity.The company forecasts a net income of $475,000.If it follows the residual dividend policy,what is its forecasted dividend payout ratio?

Warren Supply Inc.is evaluating its capital budget.The company finances with debt and common equity,but because of market conditions,wants to avoid issuing any new common stock during the coming year.It is forecasting an EPS of $3.00 for the coming year on its 500,000 outstanding shares of stock.Its capital budget is forecasted at $800,000,and it is committed to maintaining a $2.00 dividend per share.Given these constraints,what percentage of the capital budget must be financed with debt?

Last week,Weschler Paint Corp.completed a 3-for-1 stock split.Immediately prior to the split,its stock sold for $150 per share.The firm's total market value was unchanged by the split.Other things held constant,what is the best estimate of the stock's post-split price?

A reverse split reduces the number of shares outstanding.