Exam 13: Dividend Policy and Internal Financing

Sam owns 1,000 shares of XYZ Corporation's common stock.The stock has a par value of $1 per share and is currently selling for $80 per share.XYZ declares a 20% stock dividend.In a perfect capital market,after the dividend Sam will have

Radon Corp.'s balance sheet is as follows: Radon decides to pay a dividend.Which of the following statements is most correct?

Howton Corporation declared a dividend of $1 per share on March 1.The ex-dividend date is March 15^th,and the payment date is april 1^st.The most likely record date is

The "bird-in-the-hand" dividend theory suggests that

For accounting purposes a stock split has been defined as a stock dividend exceeding

Which of the following is (are)true?

The final approval of a dividend payment comes from

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

Statutory restrictions may prevent a company from paying dividends if the firm's assets are less than the firm's liabilities.

After a stock split of 2: 1,each investor will have twice the number of shares,but the same percentage ownership in the firm that he had before the split.

All of the following are potential benefits of stock repurchases except:

Coppell Timber Company had total earnings last year of $5,000,000,but expects total earnings to drop to $4,750,000 this year because of a slump in the housing industry.There are currently 1,000,000 shares of common stock outstanding.The company has $4,000,000 worth of investments to undertake this year.The company finances 40 percent of its investments with debt and 60 percent with equity capital.The company paid $3.00 per share in dividends last year. a.If the company follows a pure residual dividend policy,how large a dividend will each shareholder receive this year? b.If the company maintains a constant dividend payout ratio each year,how large a dividend will each shareholder receive this year? c.If the company follows a constant dollar dividend policy,how large a dividend will each shareholder receive this year?

Cryptic Corporation has 10 million shares of stock outstanding.Cryptic'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.Cryptic's management issues a 40% stock dividend.What is the effect on an investor who owns 100 shares of Cryptic before the dividend if Cryptic's price-earnings multiple remains the same after the dividend is paid?

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

We typically expect to find rapidly growing firms to have high payout ratios.

Corporations distribute cash back to their owners (stockholders)either as cash dividends or by repurchasing shares of stock in the open market.

High dividends may increase stock values due to all of the following reasons except:

According to the bird-in-the-hand dividend theory,investors value a dollar of expected capital gain more highly than a dollar of expected dividends because capital gains are more unpredictable than dividends.

All of the following conclusions on the importance of a dividend policy are true except:

The residual dividend theory implies that internally generated funds (i.e.,retained earnings)should be used to fund all new investment projects before the company uses any additional debt.