Exam 13: Dividend Policy and Internal Financing

When Firm X makes the decision to pay dividends,they also make the decision not to reinvest the cash in the firm.

Bass Frozen Foods,Inc.has found three acceptable investment opportunities.The three projects require a total of $5 million in financing.It is the company's policy to finance its investments by using 40% debt and 60% common equity.The firm has generated $3.8 million dollars from its operations that could be used to finance the common equity portion of its investments. a.What portion of the new investments will be financed by common equity and what portion by debt? b.According to the residual dividend theory,how much would be paid out in dividends?

AFB,Inc.stock is currently selling for $20 per share.The company completed a 5-for-1 stock split two days earlier.Two years ago,the company had a 2-for-1 stock split.If the stock splits had not happened,the price of AFB,Inc.stock would,other things being equal,be

Describe the three divergent views of dividend policy's effect on share price.

All of the following are methods available to a corporation that desires to repurchase stock EXCEPT

An investor who requires an 18% percent return for a stock that pays no dividends and requires a 12% return for a stock that pays its entire return from dividends may be following the bird-in-the-hand dividend theory.

In order to reduce agency costs,managers may decrease dividends,thus shifting the focus of investors to future capital gains that can only be attained by a well-run corporation.

QRW,Inc.has a retained earnings balance of $2,000,000.The company reported net income of $600,000,sales of $4,000,000,and has 200,000 shares of common stock outstanding.The company announced a dividend of $2.00 per share.Therefore the company's dividend payout ratio is

The final approval of a dividend payment comes from

When an unexpected change in dividend policy develops,investors may attach informational content to the events.

The viewpoint that high dividends increase stock values is based on which of the following principles?

The clientele effect does not imply that either high or low dividends are optimal,rather that firms should not make significant and arbitrary changes in their existing dividend policy.

Dividend policy is influenced by

Stock repurchases may be used for all of the following EXCEPT

A closely-held company whose owners are trying to maintain control would be less likely to pay dividends so that all earnings may be retained to finance future growth.

A stock repurchase plan that involves issuing long-term debt to fund the purchase of the company's stock may be used as a way to alter a corporation's capital structure.

Low dividends may increase stock value according to the

All of the following are likely to result in a lower dividend,other things the same,EXCEPT

When considering taxes,most investors prefer capital gains over dividend income.

Dividends per share divided by earnings per share equal the dividend payout ratio.