A) the same dividend as it paid the prior year.
B) no dividends to common stockholders.
C) dividends only out of funds raised by the sale of new common stock.
D) dividends only out of funds raised by borrowing money (i.e., issuing debt) .
E) dividends only out of funds raised by selling off fixed assets.
G) B) and E)
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A) The firm's net income increases.
B) The company increases the percentage of equity in its target capital structure.
C) The number of profitable potential projects increases.
D) Congress lowers the tax rate on capital gains, leaving the rest of the tax code unchanged.
E) Earnings are unchanged, but the firm issues new shares of common stock.
G) B) and C)
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A) If a company has a 2-for-1 stock split, its stock price should roughly double.
B) Capital gains earned on shares repurchased are taxed less favorably than dividends, which is why companies typically pay dividends and avoid share repurchases.
C) often, a company's stock price will rise when it announces that it plans to commence a share repurchase program. Such an announcement could lead to a stock price decline, but this does not normally happen.
D) Stock repurchases increase the number of outstanding shares.
E) The clientele effect is the best explanation for why companies tend to vary their dividend payments from quarter to quarter. Answer: c is correct, but perhaps the easiest way to answer this question is to eliminate the other choices, which are obviously wrong.
G) C) and D)
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B) False
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True
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A) $29.93
B) $31.50
C) $33.08
D) $34.73
E) $36.47
G) B) and E)
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A) You will have 200 shares of stock, and the stock will trade at or near $120 a share.
B) You will have 200 shares of stock, and the stock will trade at or near $60 a share.
C) You will have 100 shares of stock, and the stock will trade at or near $60 a share.
D) You will have 50 shares of stock, and the stock will trade at or near $120 a share.
E) You will have 50 shares of stock, and the stock will trade at or near $600 a share.
G) None of the above
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A) The firm's ability to accelerate or delay investment projects without adverse consequences.
B) A strong preference by most of its shareholders for current cash income versus potential future capital gains.
C) Constraints imposed by the firm's bond indenture.
D) The fact that much of the firm's equipment is leased rather than bought and owned.
E) The fact that Congress is considering changes in the tax law regarding the taxation of dividends versus capital gains.
G) None of the above
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B) False
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A) 48.11%
B) 50.52%
C) 55.57%
D) 61.13%
E) 67.24%
G) A) and B)
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A
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A) Firms with a lot of good investment opportunities and a relatively small amount of cash tend to have above average payout ratios.
B) One advantage of the residual dividend policy is that it leads to a stable dividend payout, which investors like.
C) An increase in the stock price when a company cuts its dividend is consistent with signaling theory as postulated by MM.
D) If the "clientele effect" is correct, then for a company whose earnings fluctuate, a policy of paying a constant percentage of net income will probably maximize the stock price.
E) Stock repurchases make the most sense at times when a company believes its stock is undervalued.
G) All of the above
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A) Refund long-term debt with lower cost short-term debt.
B) Declare a stock split.
C) Begin an open-market purchase dividend reinvestment plan.
D) Initiate a stock repurchase program.
E) Begin a new-stock dividend reinvestment plan.
G) A) and B)
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A) 18.23%
B) 20.25%
C) 22.50%
D) 25.00%
E) 27.50%
G) A) and D)
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D
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A) investors are indifferent between dividends and capital gains.
B) investors require that the dividend yield plus the capital gains yield equal a constant.
C) capital gains are taxed at a higher rate than dividends.
D) investors view dividends as being less risky than potential future capital gains.
E) investors prefer a dollar of expected capital gains to a dollar of expected dividends because of the lower tax rate on capital gains.
G) C) and E)
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A) Historically, the tax code has encouraged companies to pay dividends rather than retain earnings.
B) If a company uses the residual dividend model to determine its dividend payments, dividend payout will tend to increase whenever its profitable investment opportunities increase relatively rapidly.
C) The more a firm's management believes in the clientele effect, the more likely the firm is to adhere strictly to the residual dividend model.
D) Large stock repurchases financed by debt tend to increase expected earnings per share, but they also tend to increase the firm's financial risk.
E) A dollar paid out to repurchase stock has the same tax benefit as a dollar paid out in dividends. Thus, both companies and investors should be indifferent between distributing cash through dividends and stock repurchase programs.
G) B) and E)
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A) the dividend payout ratio has remained constant.
B) the dividend payout ratio is increasing.
C) no dividends will be paid during the year.
D) the dividend payout ratio is decreasing.
E) the dollar amount of capital investments had decreased.
G) C) and E)
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A) If a firm repurchases some of its stock in the open market, then shareholders who sell their stock for more than they paid for it will be subject to capital gains taxes.
B) An open-market dividend reinvestment plan will be most attractive to companies that need new equity and would otherwise have to issue additional shares of common stock through investment bankers.
C) Stock repurchases tend to reduce financial leverage.
D) If a company declares a 2-for-1 stock split, its stock price should roughly double.
E) One advantage of adopting the residual dividend policy is that this makes it easier for corporations to meet the requirements of Modigliani and Miller's dividend clientele theory.
G) All of the above
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B) False
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B) False
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B) False
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A) Stock repurchases can be used by a firm as part of a plan to change its capital structure.
B) After a 3-for-1 stock split, a company's price per share should fall, but the number of shares outstanding will rise.
C) Investors may interpret a stock repurchase program as a signal that the firm's managers believe the stock is undervalued, or, alternatively, as a signal that the firm does not have many good investment opportunities.
D) A company can repurchase stock to distribute a large one-time cash inflow, say from the sale of a division, to stockholders without having to increase its regular dividend.
E) Stockholders pay no income tax on dividends if the dividends are used to purchase stock through a dividend reinvestment plan.
G) D) and E)
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