Exam 13: Dividend Policy and Internal Financing

Which of the following factors would most likely be present if a company increases its dividend payout ratio significantly?

A firm's dividend payout ratio is

Flotation costs:

Since stock dividends do not require payment in cash,their impact on a corporation's share price can be only positive (if there is an information effect)or neutral,but not negative.

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?

While Captive,Inc.has been in business for over 50 years,newly developed products pushed the firm's year-over-year growth rate to 35% during the latest three years.The firm is proud of its history of paying dividends,but the vigorous recent growth of the firm has left it cash challenged.Which of the following policies/procedures would you consider best under the circumstances?

Stock repurchases may be used for all of the following except:

According to the perfect markets approach to dividend policy

A stock repurchase may be viewed as

Because of the overriding importance of cash flows to valuation,one basic tenet of finance is that dividends increase the value of a company's common stock.

Kelly owns 10,000 shares in McCormick Spices,which currently has 500,000 shares outstanding.The stock sells for $86 on the open market.McCormick's management has decided on a two-for-one split. a.Will Kelly's financial position change after the split,assuming that the stock's price will fall proportionately? b.Assuming only a 35% decrease in the stock price,what will be Kelly's value after the split?

Corporation A's dividend policy is to maintain a constant payout ratio.This year Corporation A paid out a total of $2 million in dividends.Next year,Corporation A's sales and earnings per share are expected to increase.Dividend payments are expected to

The "bird-in-the-hand dividend theory" supports which view of the effect of dividend policy on company value?

Stock dividends

SEC regulations require that corporate stock repurchases must be done in the open market so that all shareholders have an equal opportunity to sell their shares.

All of the following are rationales given for a stock dividend or split except:

A firm that maintains a "stable dollar dividend per share" will generally not increase the dividend unless

Investor A owns 10% of the common stock of IDE Corporation.After IDE completes a 2-for-1 stock split,Investor A will own 20% of the common stock of the corporation.

The existence of taxes can directly affect a common shareholder's preference for capital gains or dividend income.

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