CH6 # 1 The ABC Company has a stable dividend policy ($2 per share per year). It also has a policy of not raising new capital from the market. The policy is to invest the available funds after payment of the dividends (excess cash is invested in marketable securities). What does this imply about the use of the present value method of making investment decisions?

CH6 # 1 The ABC Company has a stable dividend policy ($2 per share per year). It also has a policy of not raising new capital from the market. The policy is to invest the available funds after payment of the dividends (excess cash is invested in marketable securities). What does this imply about the use of the present value method of making investment decisions?

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter9: Stocks And Their Valuation

Section: Chapter Questions

Problem 9TCL

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Question 23 Which of the following is an advantage of equity financing vs debt financing? A If the company makes no profit in a year it has no legal obligation to pay a dividend. B paid to shareholders attract tax relief and so lower the company tax bill. C Equity holders can exert significant pressure of management of a company. D Equity financing can typically be used for all sizes of financing from a few hundred pounds to billions.
4. Dividend policy A firm’s value depends on its expected free cash flow and its cost of capital. Distributions made in the form of dividends or stock repurchases impact the firm’s value and the investors in different ways. Consider the case of Purple Sage Producers Inc., and answer the question that follows: Purple Sage Producers Inc. is an oil drilling company and has some free cash flow that is not expected to be used to finance future growth or potential investment projects. The company plans to distribute its free cash flow to its shareholders but is still deciding whether the distribution should take the form of a stock repurchase or the payment of a cash dividend. Which of the following is a characteristic of a firm’s optimal dividend policy? It maximizes the firm’s total assets. It maximizes the firm’s intrinsic value. It maximizes the firm’s earnings per share. It maximizes the firm’s return on equity. Modigliani and Miller…
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1a. Consider the statement that an asset with higher risk must earn higher risk premium. Is it true or false? Please explain. b) A company with growth opportunities has dividend growth every year. Do you agree or not? Please explain. c) The Trump administration lowered corporate tax rate and this is a monetary policy. Is it true or false? If false, what type of policy is it.
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Q2. In Q1, suppose the company gives up the cash dividend plan because of shareholder opposition.Instead, the company decides to buyback $22,800 worth of stock. a) How many shares will be repurchased? b) What will the price per share be after the repurchase according to MM model?