Exam 11: Dividend Policy

In establishing a dividend policy, a firm should retain funds for investment in projects yielding higher returns than the owners could obtain from external investments of equal risk.

Ignoring general market fluctuations, the stock's price would be expected to drop by the amount ofthe declared dividend on the ex-dividend date.

The most commonly used dividend policies are all of the following EXCEPT

Since regularly paying a fixed or increasing dividend eliminates uncertainty about the frequency and magnitude of dividends, it increases the owners' wealth.

The payment date is five days after the date of record, on which the company will mail the dividend to the holders of record.

The regular dividend policy provides the owners with generally positive information, indicating that the firm is okay and thereby minimizing their uncertainty.

The problem with the regular dividend policy from the firm's perspective is that

Dividend reinvestment plans (DRPs) enable stockholders to use dividends received on the firm's stock to acquire additional shares or fractional shares at little or no transaction (brokerage) cost.

Stock repurchases are made for all of the following reasons EXCEPT

Often the payment of dividends follows the life cycle of a firm; growing firms reinvest profits while mature firms pay dividends.

A firm had net income of $1,000,000 during the year.and there are 300,000 shares outstanding, what is the firm's payout ratio?

While an earnings requirement limiting the amount of dividends paid is sometimes imposed, the firm is not prohibited from paying more in dividends than its current earnings.

Proponents of the dividend irrelevance theory argue that, all else being equal, an investor's required return and the value of the firm are unaffected by dividend policy, for all of the following reasons, EXCEPT

In Canada, investors who agree to sell their securities in a fixed-price tender bid will pay taxes on the capital gain as ordinary income.

The informational content of dividends refers to

A dividend reinvestment plan enables stockholders to

The clientele effect is the argument that a firm attracts shareholders whose preferences with respect to the payment and stability of dividends corresponds to the payment pattern and stability of the firm itself.

The residual theory of dividends suggests that dividends are_________to the value of the firm.

A firm has a policy of paying out 50% of its net income over $100,000 in dividends. If the firm's netincome is $400,000, the total dividend payout would be

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.