Exam 15: Dividends

Companies repurchase their own stock:

A firm projects next year's after-tax earnings at $300,000 and proposes capital budgeting expenditures of $300,000 for new projects. If the target capital structure is 30% debt and 70% equity, what should the dividend payout ratio be if the firm adheres strictly to the residual dividend theory?

Under the residual view, _____ only after all viable capital budgeting projects are funded.

Dividends are the basis of value for stocks even though many stocks that don't pay dividends have substantial value.

Dividends are the basis of _____for stocks.

The dividend irrelevance theory implies that the firm should follow a residual dividend policy.

The dividend decision is whether to pay cash dividends or retain earnings for growth, both of which benefit shareholders.

If a firm follows a stable dividend policy while its earnings are growing and no new stock has been issued, what would happen to the firm's dividend payout ratio over time?

The main purpose of a stock split is to:

Firms prefer not paying _____if it avoids selling new stock, because _____cost less than new equity.

Which is correct about a dividend payment assuming an investor purchases a stock after the ex-dividend date?

Which statement related to the signaling effect of dividends is true?

Yahtze & Company projects next year's after-tax earnings at $900,000 and proposes spending $700,000 on new capital budgeting projects. The target capital structure is 40% debt and 60% equity. What dividend payout ratio would be appropriate to maintain the target capital structure?

Various management actions provide investors with clues as to the future prospects for the firm. Which of the following actions by management contains the most important economic information for common stock investors?

In order to receive the dividend on a common stock, an investor must purchase the stock prior to its ex-dividend date.

Companies generally don't have to pay dividends, but if they have always done so in the past and stockholders invested because of that history, a legal case can be made to force payment even if earnings are depressed.

The clientele argument in dividend theory implies that:

Stock splits confer no direct economic benefit on shareholders. They do, however, keep share price within a "trading range" that makes the stock accessible to small investors, which is likely to exert a mild upward pressure on price.

Firms prefer not paying dividends if it avoids selling new stock, because retained earnings cost less than new equity.

Which of the following is true of a repurchase (buyback) of shares?