Fin 3060 CH 14
a reverse stock split results in
- a higher share price -an investor owning fewer shares
what are some of the way a firm distributes stock instead of cash to its owners?
-Stock dividend -stock split
dividends recieved by share holders can be expressed in which of the following ways
-dividend yield -dividends per share -dividend pay out
a firm can pay out its cash earnings to its shareholders in which of the following ways
-dividends -shares repurchase
large stock dividend
A stock dividend greater than 20% to 25% of the issued and outstanding stock
T/F apart from some minor accounting differences a stock dividend has the same effect as a stock split
True
T/F: stock split uses ratio instead of percent to calculate stock dividend
True
the dividend policy question addresses whether the firm should pay out:
a larger or smaller percentage of its earnings now
stock split
an increase in a firm's shares outstanding without any change in owners' equity
pro 1 one dividends
cash dividends can underscore good results and provide support to the stock price
cause 5 for reverse stock splits
companies sometime perform reverse stock splits and at the same time buy out any stockholders who end up with less than a certain number of shares
flotation costs will
decrease the value of the stock
a ______ occurs whenever a firm makes a payment to its owners from a source other than current or accumulated retained earnings
distribution
a strong argument can be made that ... does not matter
dividend policy
stock prices react to unanticipated changes in..
dividends
pro 4 divs
dividends absorb excess cash flow and may reduce agency costs that arise from conflicts between management and shareholder
con 1 dividends
dividends are taxed to recipients
con 2 div
dividends can reduce internal sources of financing. divs may force the firm to forgo + NPV projects or to rely on costly external equity financing
pro 2 dividends
dividends may attract institutional investors who prefer some return in the form of dividends. a mix of instiutional and individual investors may allow firm to raise capital at a lower cost because of the ability of the firm to reach a wider market
in a three for one stock split
each old share is split into three new shares, as a result, the par value of each share would be reduced to one-third of the pre-split value
dividend growth will to tend to be much smoother than ...
earnings growth
the life cycle theory says that firms trade off the agency costs of excess cash retention against the potential future costs of
external equity financing
t/f a stock dividend is a true dividend
false (not cash)
true or false: flotation costs may reduce the payout for some firms
false, selling stock is expensive so firms may want to avoid selling new stock to pay a dividend
managers are very reluctant to cut dividends normally doing so due to ...
firm specific problems
which of the following (according to survey) is of very little importance to managers in settling dividend policy
floatation costs to issue new equity
aggregate dividends and stock repurchases are massive and they have been _________ ______ in nominal and real terms over the years
increased steadily
dividend growth ... earnings growth
lags
dividends are heavily concentrated among a relatively small of number of _____, _____ firms
large, mature
the ... effect arises because older, large firms are unwilling to cut dividends
legacy
small stock dividends
less than 20-25%
cause 4 for r stock splits
meet the minimum stock price
con 3 divs
once established, dividend cuts are hard to make without adversely affecting a firms stock price
when a firm authorizes a trustee to repurchase shares as they become available they are using a(n)... purchase technique
open market
in the US, dividends received have historically been taxed as:
ordinary income
trading range
price range between highest and lowest prices at which a stock is typically traded
why does a share repurchase cause EPS to increase
share repurchase reduces the number of outstanding shares, but it has no effect on total earnings
managers smooth dividends, raising them .... as earnings grow
slowly and incrementally
pro 3 div
stock price usually increases with the announcement of new or increased divs
reverse split
stock split under which a firm's number of shares outstanding is reduced
cause 3 for r stock splits
stocks selling at prices below a certain level are not considered respectable meaning they become underestimated
cause 2 for r stock splits
the liquidity and marketability of a company's stock might be improved when its price is raised to the popular trading range
what will happen to a stock's price when dividends are PAID
the price will fall
the basic question of dividend policy is the choice of
the time pattern of dividend payout
a stock split increases the number of outstanding shares while, ...
the total owners equity remains constant
cause 1 for r stock splits
transaction costs to shareholders may be less after the reverse split