Exam 14: Distributions to Shareholders: Dividends and Repurchases

Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is decreased.Their argument is based on the assumption that

Harvey's Industrial Plumbing Supply's target capital structure consists of 40% debt and 60% equity.Its capital budget this year is forecast to be $650,000.It also wants to pay a dividend of $225,000.If the company follows the residual dividend policy,how much net income must it earn to meet its capital requirements,pay the dividend,and keep the capital structure in balance?

Reynolds Paper Products Corporation follows a strict residual dividend policy.All else equal,which of the following factors would be most likely to lead to an increase in the firm's dividend per share?

United Builders wants to maintain a target capital structure with 30% debt and 70% equity.Its forecasted net income is $550,000,and because of market conditions,the company will not issue any new stock during the coming year.If the firm follows the residual dividend policy,what is the maximum capital budget that is consistent with maintaining the target capital structure?

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

If a firm adopts a residual distribution policy,distributions are determined as a residual after funding the capital budget.Therefore,the better the firm's investment opportunities,the lower its payout ratio should be.

McCann Publishing has a target capital structure of 35% debt and 65% equity.This year's capital budget is $850,000 and it wants to pay a dividend of $400,000.If the company follows a residual dividend policy,how much net income must it earn to meet its capital budgeting requirements and pay the dividend,all while keeping its capital structure in balance?

Which of the following statements is correct?

Yesterday,Berryman Investments was selling for $90 per share.Today,the company completed a 7-for-2 stock split.If the total market value was unchanged by the split,what is the price of the stock today?

Which of the following statements is correct?

Which of the following statements is correct?

The dividend irrelevance theory,proposed by Miller and Modigliani,says that provided a firm pays at least some dividends,how much it pays does not affect either its cost of capital or its stock price.

Stock dividends and stock splits should,at least conceptually,have the same effect on shareholders' wealth.

The Meltzer Corporation is contemplating a 7-for-3 stock split.The current stock price is $75.00 per share,and the firm believes that its total market value would increase by 5% as a result of the improved liquidity that it thinks would follow the split.What is the stock's expected price following the split?