A downward adjustment in a firm's payout ratio means that the firm is reinvesting a : proportion of its earnings back into the business. Save for Later Submit Answer
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- One position expressed in the financial literature is that firms set their dividends as a residual after using income to support new investments. Explain what a residual policy implies (assuming that all distributions are in the form of dividends), illustrating your answer with a table showing how different investment opportunities could lead to different dividend payout ratios.Relative evaluation models least likely include: a) Dividend growth rate b) Book value of the firm c) Required return d) Payout ratio of the firmThe difference between the market value of the firm and the amount of laiabilities in the firm is known as market value added. Select one: True False
- In general, as a company increases the amount of short-term financing relative to long-term financing, the A)Greater the risk that it will be unable to meet principal and interest payments. B)Leverage of the firm increases. C)Likelihood of having idle liquid assets increases. D)Current ratio increases.Perform horizontal analysis of the business’s income statement. Is the trend becoming more favorable, unfavorable or remaining constant? Explain your answer.Which of the following statements is correct? A. If a firm’s assets are growing at a positive rate, but its retained earnings are not increasing, then it would be impossible for the firm’s AFN to be negative. B. AFN is not always positive. C. If a firm increases its dividend payout ratio in anticipation of higher earnings, but sales and earnings actually decrease, then the firm’s actual AFN must, mathematically, exceed the previously calculated AFN. D. Higher sales usually require higher asset levels, and this leads to what we call AFN. However, the AFN will be zero if the firm chooses to retain all of its profits, i.e., to have a zero dividend payout ratio. E. Dividend policy does not affect the requirement for external funds based on the AFN equation.
- (1) Why do analysts need to consider different factorswhen evaluating a company’s ability to repay shortterm versus long-term debt? (2) Would the currentamount of the owners’ equity be a reasonable price topay for a company? Why or why not?Suppose a company’s return on invested capital is less than itsWACC. What happens to the value of operations if the salesgrowth rate increases?Choose the INCORRECT one among the following statements a) Increase in the working capital turnover is advantageous for the firmb) Increase in the trade receivables turnover means that trade receivables are collected faster c) Increase in the production period is advantageous for the firmd) The shorter the cash conversion period the more liquid is the firm
- Indicate whether the following statements are true or false. If the statementis false, explain why.f. If a firm follows a residual dividend policy then, holding all else constant, its dividend payout will tend to rise whenever the firm’s investment opportunities improve.How should (a) signaling and (b) the clienteleeffect be taken into account by a firm as it considers its dividend decision? Do signaling and clientele effects make it easier or harder to determineif investors prefer high or low payout ratios? Dothese factors influence the desirability of a stabledistribution policy versus one that is flexible andthus varies with the company’s cash flows andinvestment opportunities?Suppose a company increases the price of its product and demand hardly declines.which of the following will increase? A) profit margin B) return - on - equity C) taxes D) all the above
