Exam 13: Dividend Policy and Internal Financing

Other things equal,individuals in high-income tax brackets should have a preference for firms that retain their earnings rather than pay dividends.

As a corporation's investment opportunities increase,the dividend payout ratio should decrease so that the corporation can avoid flotation costs.

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.

According to the expectations theory,the actual dividend must equal the expected dividend,or lese the stock price will decrease after the dividend amount is announced.

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

A firm's dividend policy includes two basic components: the dividend payout ratio and the profit retention ratio.

Outpost has 2 million shares of common stock outstanding; net income is $300,000; the P/E ratio is 9; and management is considering an 18% stock dividend.What will be the expected effect on the price of the common stock? If an investor owns 300 shares in the company,how does this change his total value? Explain.

Sam owns 5,000 shares of stock in Global X Corporation with a market value of $15,000.Global X declares a 20% stock dividend.After the dividend is paid,Sam owns

Each of the following factors may cause a corporation to lower its dividend payout ratio except:

JBC Corp.declared a dividend of $2 per share,which was an increase of 25% from the prior year,yet JBC Corp.stock declined by 3% the day of the announcement.RBG Corp.declared a dividend of $2 per share,which was the same as the prior year,and its stock increased in value by 2% on the day of the announcement.These events could be most readily explained by the

JLI Corp.had earnings per share of $4 per share last year and paid a dividend of $1 per share.For the current year,JLI Corp.generated earnings per share of $6 and paid a dividend of $1 per share.This is an example of what type of dividend policy?

If the tax rate on dividends and the tax rate on capital gains are the same,then investors are indifferent to dividend policy.

The higher the dividend payout ratio,the more a company must rely on external financing.

The residual dividend theory suggests that dividends will only be paid

Company A and Company B both paid a $2 per share dividend last year.This year,Company A announces an increase to $3 per share while Company B announces an increase to $2.50 per share.After the announcement,the price of Company B stock increases and the price of Company A's stock decreases.Which of the following best explains this situation?

An increase in flotation costs will most likely result in which of the following?

Which of the following will result from a stock repurchase?

Memory,Inc.expects earnings per share this year to be $8.If earnings per share grow at an average annual rate of 6 percent and if Baker pays 60 percent of its earnings as dividends,what will the expected dividend per share be in 7 years?

The ex-dividend date is typically two days prior to the payment date of the dividend.

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