Exam 11: Developing a Dividend Policy

If a company has 14 million common and 5 million preferred shares outstanding with dividend per share of $2.8, reported earnings of $70 million and a dividend payout ratio of 25%, what was the dividend paid per share?

What does dividend smoothing refers to?

After being spun-off by a venture capital company, Web Dynamics Ltd., an e-commerce site design company, has had difficulty finding debt financing due to high rates of its hardware and software obsolescence. How much dividends should Web Dynamics pay out?

Peanut Ltd. is in a takeover battle to acquire Oil Distributing. The new firm would be known as Peanut Oil Inc. if the takeover obtains shareholder approval. Peanut has argued in the press that Oil is not maximizing shareholder return because it pays no dividends. How should this argument be received by Oil investors?

Brekker Company has 40 million common shares outstanding and has consistently paid out 25% of its earnings over the past seven years. Last year, it announced earnings of $600 million and paid out a 25% stock dividend in lieu of cash, retaining its earnings to fund its expansion into China. Share price was maintained on news of positive cash flows from the expansion. The company would like to retain all this year's $690 million in earnings to consolidate its overseas investment. What is the minimum dividend per share to ensure investor confidence?

Almonte SoftTech Inc. has 20 million common shares outstanding whose dividend has been $3.50 per quarter. It also has 7.5 million preferred shares outstanding with a dividend of $4.50 per year and no voting rights. The newly elected Board has decided to retain all earnings for the next year to help fund the development expansion of their new web server software. What are the Agency costs?

The PetroTracking and Extraction Ltd.'s, a Calgary-based company, is experiencing double-digit growth in earnings. Given that its Board of Directors has adopted a traditional view of dividend policy, what should the company's dividend policy be?

The dividend cover ratio at Effortless Beauty has been 1.2, 1.1, 1.0, 0.9 starting from four years ago until now. Which of the following is most likely?

A company's shares trade at a P/E ratio of 10 and have a consistent growth in earnings of 4.5%. The company has a 30% payout ratio and dividends are paid at the end of each year. In December the company declared its dividend based on an EPS of $6.50. When the markets opened in January and investor purchased 100 shares. The investor's marginal tax rate is 42%. The dividend tax rate is 36%. Capital gains tax applies. If the entire investment is sold at the end of the year and the investor requires a 10% return, what is the after-tax net present value of her investment?

Which is the minimum assumption that must exist to support the Modernist view that dividend policy should have no effect on shareholder wealth?

Which of the following do the Modernists accept as the best measure of improving shareholder wealth?

To receive the current quarterly dividend, when must an investor buy shares in a company?

The management team of SoftWare Dreamworks Ltd. owns 35% of the outstanding shares of the company. the remainder are widely held by North American investors, with no on else owning more than 2% of the shares. However management is concerned about retaining control because there has been much takeover activity in the software industry recently. The firm's debt-Equity ratio sits at 60%. The current dividend payout ratio is 5%. How should management plan to obtain new funds for expansion into 4D research and development?

Sunshine Day Care Inc.'s balance sheet indicates that it has current assets of $40,000, Capital Assets net of depreciation of $150,000, current liabilities of $23,000, long-term liabilities of $54,000, paid-in capital of $60,000 worth of common shares and $53,000 in retained earnings. Assuming the book value is a reliable indication of market value of the assets, how much is the maximum dividend that the shareholders can legally vote for themselves?

When managers and executives know more about the future plans of a company than its shareholders, what is this phenomenon called?

Which of the following represents a legal restriction on the payment of dividends?

CapiCal Industries Inc. is hoping to sell its upcoming share issue to its current investor base which includes funds that generate income and those whose income is derived from dividends. In determining a payout ratio that will suit its investors, what is CapiCal is considering?

Share prices of Emperor Oil Ltd. have been stagnant for the past five years at around $50.00. The company is in the final stretch of drilling and testing old oil fields located in northern Ontario using the latest tracking technology. Management is expects excellent results within six months but so far the market is unaware of these developments. Which of the following activities would be inequitable to current shareholders?

What does the term Record Date for dividends refer to?

The embattled management team at Ram Inc. has promised a new low power consumption core microprocessor incorporating graphics capability for the past two years. The share price has declined from $25 to $17 in the same period even though earning have stayed the same. How might management convey success is at hand in a way that is believable to the market: