Chapter 17 Finance 3400
Dividends received by shareholders are expressed in which of the following ways
-Dividend yield -dividends per share -dividend payout
A firm can pay out its cash earnings to its shareholders in which of the following ways?
-Dividends -Share repurchases
Which of the following sensible payout policies
-Set a consistent payout policy -Overtime, pay out all free cash flows -Avoid cutting positive NPV projects to pay dividends
which of the following are reasons why investors might favor a high paying dividend
-Stock sales are time consuming -investors have a preference of current income -the transaction costs for selling low dividend paying stocks can be avoided
what is true of stock dividends and stock splits?
-both will increase the total number of shares -both will reduce the share price
According to graham, Dodd, and cottle, Firms should generally have a high dividend payout because
-the discounted value of near dividends is greater than the discounted value of distant dividends -everything else being equal, firms that pay higher dividends usually sell at a higher price
Which of the following are reasons for reverse stock splits?
-to comply with listing requirements -to raise stock prices to respectable levels -to eliminate small shareholders
A firms ability to payout dividends may be restricted by
Covenants in the bond indenture
The date on which the company passes a resolution to pay a dividend is called the _______ date
Deceleration date
Flotation costs will:
Decrease in value of stock
A strong argument can be made that
Dividend policy doesn't matter
Which of the following are advantages of paying dividends?
Dividends may attract institutional investors
True or false: because of dividend irrelevance, the stock market does not react to unanticipated changes in dividend
False
to a tax-paying stockholder, a stock repurchase generally_____
Has significant tax advantages compared to a cash dividend
According to a recent survey, the highest priority for financial managers is to
Maintain a constant dividend payout policy
in the United states, dividends received have historically been taxed as
Ordinary income
Which of the following must be tax-exempt investors
Pension funds trust funds university growth funds
A firm should avoid cutting _____ NPV projects to pay dividends or buy back shares
Positive
A dividend can be in the form of cash or
Stock
A ______ _____ causes the number of common shares outstanding to increase but leaves the total owners equity unchanged.
Stock Split
An alternative way to pay out a firms earnings to shareholders instead of a cash dividend is
Stock repurchase
Which of the following factors might lead to a firm to prefer a lower dividend
Taxes flotation Costs
the concept that stocks attract certain investors due to a firms payout policy, and the resulting tax impact is called
The clientele effect
Which of the following is considered to be influencing a firms dividend decision
The consistency of its dividend policy
What is likely to happen to the share price if the company issues a stock dividend
The price will fall
a dividend _____ is the amount of the dividend expressed as a percentage of the stocks market price
Yield
The dividend policy question addresses whether the firm should payout
a larger or smaller percentage of its earnings now
homemade dividends allow a stockholder to change the
cash payout received by selling shares to receive current cash or purchasing additional shares to reduce current cash
in order to receive a dividend, a stockholder must purchase stock before a certain date. that date is called
ex-dividend date
A stocks price will _______ when the ex-dividend date arrives
fall
True or false: Dividends are irrelevant
false
A one-for-five reverse stock split will
increase a $1 par value to $5
in a perfect market stockholders are__________ between a stock _______ and a __________.
indifferent; repurchase; dividend
The crux of dividend policy is whether the firm should pay out money to its shareholders or take that money and:
invest it for shareholders
with a 2-for-1 stock split, the # of shares are doubled and the par value
is cut in half
The information content of a dividend decrease may be that
management believes future earnings will decline
with a share repurchase, earnings per share will increase, and total earnings will
not change
A(n) _______ repurchase occurs when a firm repurchases shares from specific individual stockholders
targeted
When a firm announces to all of its stockholders that it is willing to buy a fixed number of shares at a specific price, it is refered to as a
tender offer
when a firm declares a change in its dividend payout, the reaction in the market is called
the information content effect
The unwillingness of many older, giant firms cut dividends referred to as
the legacy effect
what is the likely impact on a stock's price when dividends are paid
the price will fall
A stock split increase the number of outstanding shares, with
the total owners equity remains constant
the difference between the lowest and highest prices at which a stock has traded is called
trading range