Each of the following factors may cause a corporation to lower its dividend payout ratio EXCEPT A. the corporation's current and quick ratios are higher than industry average. B. the corporation's earnings predictability is high. C. current common shareholders are unable to participate in new equity offerings. D. the corporation's retained earnings balance is high.
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Each of the following factors may cause a corporation to lower its dividend payout ratio EXCEPT
| A. |
the corporation's current and quick ratios are higher than industry average. |
|
| B. |
the corporation's earnings predictability is high. |
|
| C. |
current common shareholders are unable to participate in new equity offerings. |
|
| D. |
the corporation's |
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- The Rivoli Company has no debt outstanding, and its financial position is given by the following data: What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based on the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?Which of the following statements is true? a. High liquidity means a company is short on cash and may be unable to pay its debts.b. When a company decides to go public through an IPO, it is typically targeting to sell its shares to only a handful of shareholders. c. If the company has a higher than expected extremely high profit this year, equity holders will benefit more than debt holders as debtholders are the residual claimers for the cash flows of the company.d. In the extreme case, the debt holders take legal ownership of the firm's assets through a process called bankruptcy.e. Equity holders expect to receive dividends and the firm is always legally obligated to pay them.Which of the following statements is most correct?(a) A decline in the inventory turnover ratio suggests that the firm's liquidity position is improving.{b) The profit margin on sales is calculated by dividing net operating income by sales(c) When a corporation buys back its own stock, this is called Treasury Stock. The firm's cash and equity are both reduced.(d) None of the above.
- For each of the companies described here, would you expect it to have a low, medium, or high dividend-payout ratio? Explain why. d. A dividend-paying company that experiences an unexpected drop in earnings from an upward-sloping trend line e. A company with volatile earnings and high business riskIn its most recent financial statements, Kenda Corporation reported basic and diluted earnings per share. This implies that Kenda has a a)simple capital structure. B)is likely a private corporation. C)likely has preferred dividends in arrears. D)has a complex capital structure.Which of the following events is most likely to encourage a firm to INCREASE the amount of debt in its capital structure with other things held constant? Group of answer choices: Management believes that the firm's stock has become overvalued. Its sales become more stable over time. Its degree of operating leverage increases. The costs that would be incurred in the event of bankruptcy increase. The corporate tax rate decreases.
- Based upon the empirical evidence, state whether the following statements are true or false, and briefly explain why. a). Firms are reluctant to change dividends. b). Stock prices generally go up on the ex-dividend date by less than the amount of the dividend in classic tax system. c). Increasing dividend payments to stockholders generally makes bondholders in the firm better off. d). Dividends create a tax disadvantage for investors even when tax rates on dividends and capital gain is the same.Which of the following is a correct statement concerning earnings per share? Select one: a. Earnings per share can never be a negative number. b. Earnings per share must be reported for all corporations. c. If a company has discontinued operations, at least two EPS amounts must be reported. d. Reported earnings per share is the result of dividing weighted-average shares by net income. e. None of the above.For each of the companies described here, would you expect it to have a low, medium, or high dividend-payout ratio? Explain why. a. A company with a large proportion of inside ownership, all of whom are high-income individuals b. A growth company with an abundance of good investment opportunities c. A company that has high liquidity and much unused borrowing capacity and is experiencing ordinary growth d. A dividend-paying company that experiences an unexpected drop in earnings from an upward-sloping trend line e. A company with volatile earnings and high business risk
- Which of the following factors reflect pure market risk for a given corporation?a. Increased short-term interest rates.b. Fire in the corporate warehouse.c. Increased insurance costs.d. Death of the CEO.e. Increased labor costs.A company’s dividend policy can also be affected by factors internal to the organization and by the external (macroeconomic) environment in which the business operates. In the table that follows, identify which factors, in general, tend to favor high or low dividend payout ratios. Factor Favors a High Payout Favors a Low Payout A company has a large retained earnings balance on its balance sheet but has very little cash and almost no other liquid assets. A company has an established credit line that it can access when it needs an external source of funding. A closely held firm has a majority of its shareholders in high marginal tax brackets. Each factor higher or lower payout Having the ability to accelerate or delay projects makes it easier or harder for a firm to adhere to a stable dividend policy. If management is concerned with keeping control of the company, it will be likely to retain more or less earnings than…Which of the following statements is CORRECT? Group of answer choices When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation. Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of debt than on the cost of common stock as measured by the CAPM. If a company's beta increases, this will increase the cost of equity used to calculate the WACC, but only if the company does not have enough reinvested earnings to take care of its equity financing and hence must issue new stock. Higher flotation costs reduce investors' expected returns, and that leads to a reduction in a company's WACC. When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation.
