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Exam 16: Dividend Policy

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Question 61

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Kelly owns 10,000 shares in McCormick Spices,which currently has 500,000 shares outstanding.The stock sells for $86 on the open market.McCormick's management has decided on a 2-1 split. a.Will Kelly's financial position alter after the split,assuming that the stocks will fall proportionately? b.Assuming only a 35% fall on each stock,what will be Kelly's value after the split?

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Question 62

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Chandler Corporation has 1 million shares outstanding.The current price per share is $20.If the company decides to pay a $2 million dollar dividend,the company will have ________ shares outstanding worth approximately ________.

A) 900,000,$20 per share
B) 1,000,000,$20 per share.
C) 900,000,$22.22 per share.
D) 1,000,000,$18 per share.

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Question 63

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A firm that maintains stable cash dividends will generally not increase the dividend unless:

Due to the strengthening of the stock market over the past 50 years,stock splits and stock dividends are more common than cash dividends.

Dividend policy is influenced by:

Use the following information to answer the following question(s) . Your firm is planning a 2 for 1 stock split.The market price for the stock has been $84.The table below presents the equity portion of your firm's balance sheet before the split. -Immediately after the stock split,an investor who owned 100 share before the split will own:

Use the following information to answer the following question(s) . Your firm is planning a 2 for 1 stock split.The market price for the stock has been $84.The table below presents the equity portion of your firm's balance sheet before the split. -Immediately after the stock split,the stock price will be approximately:

If investor's expect a 15% rate of return on their investment,they will be indifferent between a $1.00 dividend received immediately or:

Dividends per share divided by earnings per share (EPS)equals the dividend retention date.

There is absolutely no difference on an economic basis between a stock dividend and a stock split.

In practice,firms tend to increase their dividend:

As a firm's investment opportunities increase,the dividend payout ratio should increase.

You are considering the stock of two firms to add to your portfolio.The companies differ only with respect to their dividend policies.For both firms,investors expect EPS for each of the next two years to be $7 and dividends and ending price for each of the next two periods to be: The required rate of return for the stock of Firm A is 14%.Ignore taxes or transaction fees. a.How much would investors pay for the stock of Firm A? b.How much would investors pay for the stock of Firm B? c.For a less-than-perfect world,provide an argument for each of the following: (1)Investors prefer the dividend policy of Firm A. (2)Investors prefer the dividend policy of Firm B. (3)Firms prefer the dividend policy of Firm A.

A stock dividend increases a firm's retained earnings.

Which of the following dividend policies would cause dividends per share to fluctuate the most?

The dividend declaration date is the date at which the stock transfer books are to be closed for determining the investor to receive the next dividend payment.

A firm with high profitability will always have the cash flow necessary to pay high dividends.

The timing of dividend payments will not matter if the firm's rate of return on equity and the investor's required rate of return are the same.

Unexpected dividend changes would cause investors to reassess their perceptions about a firm's stock.

A stock repurchase increases the: