Exam 13: Distribution of Retained Earnings: Dividends and Stock Repurchases

A firm following the _____ dividend policy pays a specific dollar dividend each year or periodically increases the dividend at a constant rate. 

The distribution of earnings by a firm to stockholders by buying shares of its stock in the financial markets is known as a stock _____. 

If a firm wants to decrease the per-share price of its common stock, which of the following actions should it take? Assume everything else remains constant. 

American Generation Ecology (AGE) expects to grow at a constant rate of 4 percent forever. Its target debt/asset ratio is 60 percent and it expects to have profitable investments of $300,000 this year. AGE plans to continue paying the same dividend that has been paid the past 20 years, $1.50 per share, long into the future. The firm has 400,000 shares of stock outstanding. If net income is expected to be $800,000, what should be AGE's dividend payout ratio this year?

Sunshine Corp. announced a 2-for-1 stock split of its common stock, which currently is selling for $10 per share. Currently, 200,000 shares of stock are outstanding. What should be the market price per share of the stock immediately after the split is initiated?

A major disadvantage of stock repurchases is that the company:

LTD, Inc. plans to initiate a 5-for-1 stock split. LTD's stock currently sells for $180 per share. What will be the per share price of the stock immediately following the split?

Everything else equal, in which of the following situations will a firm generally have a high dividend-payout ratio?

The ______ effect is the tendency of a firm to attract the type of investor who prefers its dividend policy. 

The residual dividend policy implies that investors prefer to have the firm retain and reinvest earnings rather than pay them out in dividends if the rate of return the firm can earn on reinvested earnings:

All else equal, a regular stock split:

A dividend reinvestment plan (DRIP):

Amber Corp. has 3 million shares of common stock outstanding. The stock is selling at $30 per share. If Amber announces a 20 percent stock dividend, the transfer that must be made from retained earnings to the common stock account to account for the stock dividend will be _____. 

Abel Inc. applies the low regular dividend plus extras policy when determining how much of its income will be paid out as dividends each year. Abel's policy states that the minimum dividend that will be paid each year is $1.00 per share. But, when net income is greater than $80 million, the total dividend will be increased by 40 percent of the amount that exceeds $60 million. The firm currently has 10 million shares of stock outstanding. What will be the dividend per share if Abel earns $100 million?

Dividend payments cannot exceed the balance sheet item "Retained earnings." This is known as the _____. 

Liquid Farms is considering a 1-for-2 reverse stock split. Its stock is currently selling for $10 per share. Liquid plans to pay a dividend equal to $0.40 per share after the split. But, it would like to pay an equivalent dividend per share even if the split does not take place. What should the per share dividend be if Liquid doesn't split the stock?

According to the information content hypothesis that has been proposed to explain how dividend policies affect stock prices, if a firm increases its dividend, but at a rate that is lower than investors expect, the price of its stock probably would decrease. 

If the dividend relevance theory is valid, which of the following statements must be correct?

Last week, Grandma's Gardens Inc. split its stock 4-for-1. Today, Grandma's paid a dividend equal to $0.26 per new (post-split) share. The dividend payment was 4 percent greater than last year's pre-split dividend. What was last year's dividend per share?

What effect does a stock dividend have on the financial statements of the company that pays the dividend?