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