Exam 14: Payout Policy

Tangshan Mining has common stock at par of $200,000, paid-in capital in excess of par of $400,000, and retained earnings of $280,000. In states where the firm's legal capital is defined as the par value of common stock, the firm could pay out ________ in cash dividends without impairing its capital.

With regard to dividend payments, which of the following is included in the contractual constraints imposed by loan agreements?

In a tender offer share repurchase, a firm announces the price it is willing to pay to buy back shares and the quantity of shares it wishes to repurchase.

Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, the maximum rate of taxation on dividends received by shareholders was set at ________.

Tangshan Mining Company has released the following information. (a) What are Tangshan Mining's current earnings per share? (b) What is Tangshan Mining's current P/E ratio? (c) Tangshan Mining wants to use half of its earnings either to pay shareholders dividends or to repurchase shares for inclusion in the firm's employee stock ownership plan. If the firm pays a cash dividend, what will be the dividend per share received by existing shareholders? (d) Instead of paying the cash dividend, what if the firm uses half of its earnings to pay $55 per share to repurchase the shares, what will be the firm's new EPS? What should be the firm's new share price? (e) Compare the impact of a stock dividend and stock repurchase on shareholder wealth.

Since lenders are generally reluctant to grant loans to a firm to pay dividends, the firm's ability to pay cash dividends is generally constrained by the amount of excess cash available.

In case of stock dividend, the shareholder's proportion of ownership in a firm remains the same, and as long as the firm's earnings remain unchanged, so does his or her share of total earnings.

The level of dividends a firm expects to pay is often directly related to how rapidly it expects to grow and expand its operations.

The clientele effect refers to ________.

Dividend reinvestment plans (DRIPs) enable stockholders to use dividends received on a firm's stock to acquire additional shares-even fractional shares-at little or no transaction (brokerage) cost.

The residual theory of dividends suggests that the dividend paid by a firm should be viewed as a residual, the amount left over after all acceptable investment opportunities have been undertaken.

The ex dividend period begins four business days prior to the payment date.

Purchasers of a stock selling ex dividend receive the current dividend.

The capital impairment restrictions are established to ________.

A firm has current after-tax earnings of $1,000,000 and has declared a cash dividend of $400,000. The firm's dividend payout ratio is ________.

At the quarterly meeting of Tangshan Mining Corporation, held on September 10th, the directors declared a $1.00 per share dividend for the firm's 100,000 shares of common stock outstanding. The net effect of declaring and paying this dividend would be to ________.

By calling the additional dividend an extra dividend, a firm avoids setting expectations that the dividend increase will be permanent.

If a firm pays out a higher percentage of earnings, new equity capital will have to be raised with common stock, which will result in higher control and earnings for the existing owners.

The repurchase of shares reduces the number of outstanding shares.

According to the residual theory of dividends, if a firm's equity need is less than the amount of retained earnings, the firm would ________.