Exam 17: Payout Policy

When a firm purchases shares directly from a major shareholder it is also known as a(n)________.

The way a firm chooses between alternate uses of free cash flow is referred to as ________.

The date on which the board of directors of a company authorizes the dividend is called the ________ date.

A firm has $300 million of assets that includes $40 million of cash and 8 million shares outstanding. The firm uses $30 million of its cash to pay dividends. If an investor has 1000 shares, how many shares must he sell to create a homemade dividend of $6,575?

Omicron Technologies has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Omicron's unlevered cost of capital is 10% and there are 10 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock. Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend. The amount of the special dividend is closest to ________.

A firm has $75 million of assets that includes $12 million of cash and 25 million shares outstanding. If the firm uses $12 million of cash to repurchase shares, what is the new price per share?

Palo Alto Enterprises has $300,000 in cash. They wish to invest the money in Treasury bills at 8% and use the returns to pay dividends to shareholders after a year. Alternatively, they can pay a dividend and allow shareholders to make the investment. If corporate tax rates are 35%, which option will shareholders prefer?

The largest proportion of investors in common stock are ________.

Luther Industries has $6 million in excess cash and 1.2 million shares outstanding. Luther is considering investing the cash in one-year Treasury bills that are currently paying 6% interest and then using the cash to pay a dividend next year. Alternatively, Luther can pay the cash out as a dividend immediately and the shareholders can invest in the Treasury bills themselves. Assume that capital markets are perfect. If Luther invests the excess cash in Treasury bills, then the dividend per share next year will be closest to ________.

In a stock split or stock dividend, the company issues additional shares rather than cash to its shareholders.

The fact that firms continue to issue dividends despite their tax disadvantage is often referred to as the ________.

Historical evidence shows that over the last few decades a larger proportion of firms have used ________ for payouts.

A firm has $300 million of assets that includes $40 million of cash and 10 million shares outstanding. If the firm uses $30 million of its cash to repurchase shares, what is the new price per share?

Omicron Technologies has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Omicron's unlevered cost of capital is 9% and there are 10 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock. Assume that you own 2500 shares of Omicron stock and that Omicron uses the entire $50 million to pay a special dividend. Suppose you are unhappy with Omicron's decision and would prefer that Omicron used the excess cash to repurchase shares. The number of shares that you would have to buy in order to undo the special cash dividend that Omicron paid is closest to ________ shares.

A(n)________ may occur if a major shareholder desires to sell a large number of shares but the market for the shares is not sufficiently liquid to sustain such a large sale without severely affecting the price.

A firm has assets of $240 million, of which $24 million is cash. It has debt of $96 million. If the firm were to repurchase $9.6 million of its stock, what would its new debt-to-equity ratio be?

When a firm has excessive cash, managers may make use of the funds in an inefficient manner. This is also referred to as the ________ cost of retaining cash.

What is the general trend of dividend payments of U.S. corporations over the last few decades?

When a firm offers to buy its shares at a pre specified price during a short time period it is also known as a(n)________.

An alternate way to pay investors is when the firm uses cash to buy shares of its own outstanding stock, also known as ________.