Exam 14: Payout Policy

Regular dividend policy is a dividend policy based on the payment of a certain fixed percentage of earnings to owners in each dividend period.

By purchasing shares through a firm's dividend reinvestment plan (or DRIP), shareholders typically can acquire shares at a value that is above the prevailing market price.

A firm's dividend payout ratio is calculated by ________.

A stock split commonly increases the stock's per share par value.

As per dividend relevance theory, current dividend payments are believed to reduce investor's uncertainty, thereby-all else being equal-placing a lower value on a firm's stock after its payment.

Which of the following is true of arguments for dividend relevance?

Stock dividends are ________.

A firm has the following stockholders' equity balances: In states where the firm's legal capital is defined as the par value of its common stock, the maximum cash dividend the firm could pay is ________.

Paying a stock dividend ________.

In a(n) ________, a firm announces the price it is willing to pay to buy back shares and the quantity of shares it wishes to repurchase.

The motive to pay stock dividend to retain cash to satisfy past-due bills, may result in a decline in market value.

The primary purpose of a stock split is to ________.

If a firm has overdue liabilities or is legally insolvent or bankrupt, most states prohibit its payment of cash dividends.

Mr. R. owns 20,000 shares of ABC Corporation stock. The company is planning to issue a stock dividend. Before the dividend Mr. R. owned 10 percent of the outstanding stock, which had a market value of $200,000, or $10 per share. Upon receiving the 10 percent stock dividend the value of his shares is ________.

Legal constraints prohibit the payment of cash dividends until a certain level of earnings has been achieved or limit the amount of dividends paid to a certain dollar amount or percentage of earnings.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 significantly changed the tax treatment of corporate dividends for most taxpayers by dropping the tax rate to the rate applicable on capital gains, which is a maximum rate of 15%.

The level of dividends a firm expects to pay is generally unrelated to how rapidly it expects to grow as well as the level of asset investments required.

Which type of dividend payment policy has the disadvantage that if a firm's earnings drop or if a loss occurs in a given period, dividends may be low or nonexistent?

By purchasing shares through a firm's dividend reinvestment plan (or DRIP), shareholders typically can acquire shares at a value that is below the prevailing market price.

The problem with the regular dividend policy from a firm's perspective is that ________.