Fin 314 chapter 17 concept questions
WhAt is the impact of a stock repurchase on a company's debt ratio? Does this suggest another use excess cash?
2.A stock repurchase reduces equity while leaving debt unchanged. The debt ratio rises. A firm could, if desired, use excess cash to reduce debt instead. This is a capital structure decision.
How is it possible that dividends are so important but at the same time dividend policy is irrelevant?
Dividend policy deals with the timing of dividend payments, not the amounts ultimately paid. Dividend policy is irrelevant when the timing of dividend payments doesn't affect the present value of all future dividends.
On Tuesday December 5 home power co.s board of directors declares a dividend of 75 cents per share payable on Wednesday Jan 17th to shareholder buy stock before that date, who gets the dividends on those shares, the buyer or the seller?
Friday, December 29 is the ex-dividend day. Remember not to count January 1 because it is a holiday, and the exchanges are closed. Anyone who buys the stock before December 29 is entitled to the dividend, assuming they do not sell it again before December 29.
Some corporations like one British company that offers its large shareholders free crematorium use pay dividends in kind (that is offer their services to shareholders add a below market cost) should mutual funds invest in stocks that pay these dividends in kind? (The fund holders do not receive these services )
No, because the money could be better invested in stocks that pay dividends in cash which benefit the fundholders directly.
If increases in dividends tend to be followed by immediate increases in shareprices how can it be said that dividend policy is irrelevant?
The change in price is due to the change in dividends, not due to the change in dividend policy. Dividend policy can still be irrelevant without a contradiction.
Last month central Virginia power company which had been having trouble with cost overruns on a nuclear power plant that it had been rebuilding announced that it was temporarily suspending payments due to the cash flow crunch associated with its investment program the company's stock price dropped from $28.50 to $25 when this announcement was made. How would you interpret this change in the stock price that is what would you say caused it
The stock price dropped because of an expected drop in future dividends. Since the stock price is the present value of all future dividend payments, if the expected future
