Exam 14: Payout Policy

In a 2-for-1 stock split, the number of shares outstanding decreases by fifty percent and the stock's per share par value will double.

Informational content of dividends throws light with respect to future earnings. In other words, investors view a change in dividends, up or down, as a signal that management expects future earnings to change in the same direction.

The payment of a stock dividend is a shifting of funds between stockholders' equity accounts rather than an outflow of funds.

A stock split is usually taxable to a firm as it restructures the capital.

According to Modigliani and Miller, a firm's value is determined solely by the earning power and risk of its assets and that the manner in which it splits its earnings stream between dividends and internally retained funds does not affect this value.

A firm has had the indicated earnings per share over the last three years: (a) If the firm's dividend policy was based on a constant payout ratio of 50 percent, determine the annual dividend for each year. (b) If the firm's dividend policy was based on a fixed dollar payout policy of 50 cents per share plus an extra dividend equal to 75 percent of earnings per share above $1.00, determine the annual dividend for each year.

The purpose of a stock split is to ________.

A stock split has ________.

An excess earnings accumulation tax is levied when ________.

According to the bird-in-the-hand argument, current dividend payments reduce investor uncertainty and result in a higher value for a firm's stock.