Exam 16: Dividend Policy

A reasonable conclusion about dividend policy is that management should avoid surprising investors when it comes to the firm's dividend decision.

Chandler Corporation has 1 million shares outstanding.The current price per share is $20.If the company decides to use $2 million dollars to repurchase shares at the market price,the company will have ________ shares outstanding worth approximately ________.Assume that the price does not change during the repurchase period.

Which of the following is the most important factor motivating dividend policy for large American corporations?

Millbury Gas and Oil's rate of return on equity is 12%.It can either pay a dividend of $5.00 today or reinvest the money and pay a dividend of $5.60 at the end of the year.From a shareholder's point of view,the value of the dividend paid now is ________ and the value of the dividend paid a year from now is ________.

After a stock split of 2-1,each investor will have one-half of the percentage ownership in the firm that he had before the split.

Assume that investors' have a 10% required rate of return on MTA stock.According to the Modigliani and Miller dividend indifference theorem,if investors could choose between a $1.00 dividend today and $1.10 dividend one year from today

The ex-dividend date is ________ the holder of record date.

A firm's payout is calculated as the ratio of retained earnings to earnings before interest and taxes (EBIT).

If instead of a stock dividend,your firm decided to split the stock 2-1,then the number of shares outstanding and their par value per share would be

Most stock splits

When a firm begins to pay dividends,it is signalling that it always expects to have enough cash flow to maintain and increase its dividend payout.

Why has the popularity of stock repurchases been growing faster than the cash dividends as a method for companies to distribute cash to their stockholders.

EG's board of directors announced a quarterly dividend of 25 cents.The ex-dividend date is November 3.On November 2,EG's stock closed at $40.00 per share.What is the most likely opening price on November 3?

Apple Computers decided to raise a large amount of money by selling bonds (previously the company had little or no debt)and use the proceeds to repurchase billions of dollars worth of the company's stock.The decision was made after Apple stock lost more than 40% of its value in a six month period when most stock prices were rising.

Which of the following is the most likely reason for a corporation to cut its dividend?

The timing of dividend payments will not matter if the firm's rate of return on equity and the investor's required rate of return are the same.

Because money has a time value investors should prefer that dividends be paid sooner rather than later.Agree or disagree.Explain your answer with a numerical example.

Under what conditions would the Modigliani and Miller dividend indifference theorem be literally true.

Company managers strive to gradually increase dividend series over the long-term future.

Kelly owns 10,000 shares in McCormick Spices,which currently has 500,000 shares outstanding.The stock sells for $86 on the open market.McCormick's management has decided on a 2-1 split. a.Will Kelly's financial position alter after the split,assuming that the stocks will fall proportionately? b.Assuming only a 35% fall on each stock,what will be Kelly's value after the split?