Exam 17: Distributions to Shareholders

Tarheel Computing's stock was trading at $150 per share before its recent 3-for-1 stock split. The 3-for-1 split led to a 5 percent increase in Tarheel's market capitalization. (Market capitalization equals the stock price times the number of shares.) What was Tarheel's price after the stock split?

The announcement of an increase in the cash dividend always causes an increase in the price of the firm's common stock.

Which of the following actions will enable a company to raise additional equity capital (that is, which of the following will raise the total book value of equity)?

Which of the following statements is most correct?

One implication of the bird-in-the-hand theory of dividends is that a reduction in dividend yield must be offset by a more than proportionate increase in growth in order to keep a firm's required return constant, other things held constant.

Wolfpack Multimedia follows a strict residual distribution policy (with all distributions in the form of dividends). Wolfpack forecasts that its net income will be $12 million this year. The company has no depreciation expense so its net cash flow is $12 million, and its target capital structure consists of 70 percent equity and 30 percent debt. Wolfpack's capital budget is $10 million. What is the company's dividend payout ratio?

Redwood Systems follows a strict residual distribution policy (with all distributions in the form of dividends). The company estimates that its capital expenditures this year will be $40 million, its net income will be $30 million, and its target capital structure is 60 percent equity and 40 percent debt. What will be the company's dividend payout ratio?

Which of the following statements is most correct?

A stock split will cause a change in the total dollar amounts shown in which of the following balance sheet accounts?

A decrease in a firm's willingness to pay dividends is likely to result from an increase in its

Which of the following statements is most correct?

In the real world, we find that dividends

MM's dividend irrelevance theory says that dividend policy does not affect a firm's value but can affect its cost of capital. a. True b. False

Which of the following statements is most correct?

If the shape of the curve depicting a firm's WACC versus its debt ratio is more like a sharp "V", as opposed to a shallow "U", the easier it will be for the firm to maintain a steady dividend in the face of varying investment opportunities from year to year.

Flavortech Inc. expects EBIT of $2,000,000 for the current year. The firm's capital structure consists of 40 percent debt and 60 percent equity, and its marginal tax rate is 40 percent. The cost of equity is 14 percent, and the company pays a 10 percent rate on its $5,000,000 of long-term debt. One million shares of common stock are outstanding. For the next year, the firm expects to fund one large positive NPV project costing $1,200,000, and it will fund this project in accordance with its target capital structure. If the firm follows a residual distribution policy (with all distributions in the form of dividends) and has no other projects, what is its expected dividend payout ratio?

Which of the following statements is most correct?

The optimal distribution policy for a firm strikes a balance between current dividends and capital gains, and results in the maximization of stock price.

A firm that follows a residual distribution policy must believe that the dividend irrelevance theory is correct.

Which of the following statements is most correct?