Chapter 13

The optimal dividend payout policy in the presence of taxes when capital gains are taxed at a lower rate than dividends is for the firm to pay __________.

zero dividends

A stock repurchase method where the firm specifies the number of shares it is willing to buy back at various prices and then allows investors to indicate how many shares they will sell at each price is the process used in a __________.

Dutch auction repurchase

When common stock is repurchased and retired, the underlying motive is to __________.

distribute excess cash to the owners

Modigliani and Miller argue that when the firm has no acceptable investment opportunities it should __________.

distribute the unneeded funds to the owners

In general, firms with rapid growth:

do not distribute cash to shareholders.

Which of the following is a good reason for a firm to repurchase stock?

enhancing shareholder value

During the 2007-2009 recession dividends:

fell less than earnings.

The residual theory of dividends suggests that dividends are __________ to the value of the firm.

irrelevant

A company might initiate a stock split to __________.

keep the share price in optimal trading range

The dividend signaling hypothesis would interpret a cut in dividends as a __________.

negative symbol

Pear Computer Imaging announced that it will pay a $2.00 per share dividend. The firm will pay the dividend to all shareholders __________.

of record on the date of record

__________ policy is when the firm pays out a fixed dollar dividend each period.

regular dividend

Regular dividends __________.

send a stronger signal of financial strength than infrequent distributions

A __________ lowers the market price of a firm's stock by increasing the number of shares outstanding.

stock split

The purpose of a stock split is to __________.

lower market price of stock

__________ is the most common way for a firm to repurchase shares.

Open market repurchase

According to the bird-in-the-hand theory of dividend relevance, investors believe current dividends:

are less risky than future cash distributions.

Dividend reinvestment plans, or DRIPs, often allow stockholders use dividend proceeds to buy additional shares of the firm's stock:

at prices below the current market price.

The payment of cash dividends to corporate stockholders is decided by the __________.

board of directors

According to __________ theory investors have a fluctuating demand for dividends over time that often differs based on economic or market conditions.

catering

Which of the following is a commonly used dividend policy?

constant payout ratio