Exam 16: Dividend Policy

In practice, firms tend to increase their dividend

Assume that on January 1 a firm announces that on June 30 they will pay a dividend of $2.50 per share to holders of record on March 30. When does the stock sell ex-dividend?

Which of the following would result from payment of the stock dividend?

Most stock splits

Which of the following is a reason why management may prefer repurchase offers over cash dividends?

Chandler Corporation has 1 million shares outstanding. The current price per share is $20. If the company decides to pay a $2 million dollar dividend, the company will have ________ shares outstanding worth approximately ________.

Dividend payout ratios are generally much lower for small or newly established firms than for large, publicly owned firms.

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

In the absence of taxes, transaction costs, or changes in a firm's operating or investment policies

What might an investor reasonably expect from a company with excess cash and few internal investment growth opportunities?

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?

Groups of investors who prefer one distribution method over another are known as

In recent years, managers who wish to prioritize investment opportunities over cash distributions to shareholders would be more likely to favor a residual dividend policy over stock repurchase offers.

Five years ago, Mr. Martinez purchased 1000 shares of JPM stock at $50 per share. The market price of the stock is now $55. If Mr. Martinez' tax rate is 25%, would he prefer that the company pay a $5.00 per share dividend or offer to repurchase 100 shares at the market price? Assume that after the ex-dividend date, the price would return to $50 per share, but a stock repurchase would not affect the market price.

Falling oil prices might cause an petroleum company to cut its dividend if it considered the decline long-term or permanent.

The ex-dividend date occurs prior to the declaration date.

The dividend policy that states smoothing of the dividend stream in order to minimize the effect of company reversals is called the

Trevor Co.'s future earnings for the next four years are predicted below. Assuming there are 500,000 shares outstanding, what will the yearly dividend per share be if the dividend policy is as follows? a. A constant payout ratio of 40% b. Stable dollar dividend targeted at 40% of the average earnings over the four-year period c. Small, regular dividend of $0.75 plus a year-end extra of 40% of profits exceeding $1 million Trevor Co. Year 1 $ 900,000 Year 2 1,200,000 Year 3 850,000 Year 4 1,350,000

Which of the following is most likely to increase EPS?

If a stock price increased after a dividend increase, investors probably interpreted the increase as a signal from management that the company expects sustainably higher cash flows in the future.