Exam 13: Dividend Policy and Internal Financing

Analysis of dividend policy begins with the basic assumption that shareholder wealth maximization is the primary goal,and therefore dividends should be of primary concern even if their payment results in capital rationing.

Concentric Corporation has 10 million shares of stock outstanding.Concentric's after-tax profits are $140 million and the corporation's stock is selling at a price-earnings multiple of 18,for a stock price of $252 per share.Concentric's management issues a 40% stock dividend.What is the effect on an investor who owns 100 shares of Concentric before the dividend if Concentric's price-earnings multiple remains the same after the dividend is paid?

Which of the following statements concerning stock repurchases is MOST correct?

If a firm were to unexpectedly omit payment of its quarterly dividend,that firm's stock price would probably drop.

A stock split is defined as a stock dividend exceeding 25%.

Other things equal,in imperfect markets a firm that maintains a stable dividend will have a lower required rate of return on its equity.

Farrah owns 5,000 shares of stock in DAS,Inc.with a market value of $15,000.DAS declares a 20% stock dividend.After the dividend is paid,Farrah owns

The residual dividend theory is based on the observation that flotation costs make the cost of new common stock significantly higher than the cost of retained earnings.

The information effect hypothesis implies that increasing dividends provides a more credible signal of higher future earnings than does management's assertion that future earnings will be higher.

The problem with the constant dividend payout ratio is

Plantain,Inc.declared a dividend of $1 per share on March 1.The ex-dividend date is March 15th,and the payment date is April 1st.The most likely record date is