Exam 14: Distributions to Shareholders: Dividends and Repurchases

Poff Industries' stock currently sells for $120 a share.You own 100 shares of the stock.The company is contemplating a 2-for-1 stock split.Which of the following best describes what your position will be after such a split takes place?

Victor Rumsfeld Inc.'s dividend policy is under review by its board.Its projected capital budget is $2,000,000,its target capital structure is 60% debt and 40% equity,and its forecasted net income is $600,000.If the company follows a residual dividend policy,what total dividends,if any,will it pay out?

Consider two very different firms,M and N.Firm M is a mature firm in a mature industry.Its annual net income and net cash flows are both consistently high and stable.However,M's growth prospects are quite limited,so its capital budget is small relative to its net income.Firm N is a relatively new firm in a new and growing industry.Its markets and products have not stabilized,so its annual operating income fluctuates considerably.However,N has substantial growth opportunities,and its capital budget is expected to be large relative to its net income for the foreseeable future.Which of the following statements is correct?

If the shape of the curve depicting a firm's WACC versus its debt ratio is more like a sharp "V",as opposed to a shallow "U",it will be easier for the firm to maintain a steady dividend in the face of varying investment opportunities or earnings from year to year.

Underlying the dividend irrelevance theory proposed by Miller and Modigliani is their argument that the value of the firm is determined only by its basic earning power and its business risk.

If a firm adheres strictly to the residual dividend policy,the issuance of new common stock would suggest that

Rohter Galeano Inc.is considering how to set its dividend policy.It has a capital budget of $3,000,000.The company wants to maintain a target capital structure that is 15% debt and 85% equity.The company forecasts that its net income this year will be $3,500,000.If the company follows a residual dividend policy,what will be its total dividend payment?

Sanchez Company has planned capital expenditures that total $2,000,000.The company wants to maintain a target capital structure that is 35% debt and 65% equity.The company forecasts that its net income this year will be $1,800,000.If the company follows a residual dividend policy,what will be its total dividend payment?

The announcement of an increase in the cash dividend should,according to MM,lead to an increase in the price of the firm's stock.

Which of the following statements is correct?

Which of the following statements is correct?

Norton Electrical has quite a few positive NPV projects from which to choose.The problem is that it has more of these projects than it can finance without issuing new stock and the board of directors refuses to issue any new shares in the foreseeable future.Norton's projected net income is $150.0 million,its target capital structure is 25% debt and 75% equity,and its target payout ratio is 65%.The CFO now wants to determine how the maximum capital budget would be affected by changes in capital structure policy and/or the target dividend payout policy.Versus the current policy,how much larger could the capital budget be if (1)the target debt ratio were raised to 75%,other things held constant, (2)the target payout ratio were lowered to 20%,other things held constant,and (3)the debt ratio and payout were both changed by the indicated amounts. Increase in Capital Budget Increase Lower Debt to 75% Payout to 20% Do both

Brinkley Resources stock has increased significantly over the last five years,selling now for $175 per share.Management feels this price is too high for the average investor and wants to get the price down to a more typical level,which it thinks is $25 per share.What stock split would be required to get to this price,assuming the transaction has no effect on the total market value? Put another way,how many new shares should be given per one old share?

One implication of the bird-in-the-hand theory of dividends is that a given reduction in dividend yield must be offset by a more than proportionate increase in growth in order to keep a firm's required return constant,other things held constant.

The capital budget of Creative Ventures Inc.is $1,000,000.The company wants to maintain a target capital structure that is 30% debt and 70% equity.The company forecasts that its net income this year will be $800,000.If the company follows a residual dividend policy,what will be its total dividend payment?

If investors prefer firms that retain most of their earnings,then a firm that wants to maximize its stock price should set a low payout ratio.

If a firm adheres strictly to the residual dividend policy,then if its optimal capital budget requires the use of all earnings for a given year (along with new debt according to the optimal debt/total assets ratio),then the firm should pay

Which of the following statements is NOT correct?

Which of the following statements is correct?

The following data apply to Garber Industries,Inc.(GII): Value of operations $1,000 Short-term investments $100 Debt $300 Number of shares 100 The company plans on distributing $50 million as dividend payments.What will the intrinsic per share stock price be immediately after the distribution?