he residual theory of dividends argues that dividends a. can only be distributed if there is income remained after funding all prospective investment b. not relevant unless there is an excess demand for cash dividends c. are irrelevant in any dividend distribution plan d. are necessary and important to maintain the market price of any ordinary shares

he residual theory of dividends argues that dividends a. can only be distributed if there is income remained after funding all prospective investment b. not relevant unless there is an excess demand for cash dividends c. are irrelevant in any dividend distribution plan d. are necessary and important to maintain the market price of any ordinary shares

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 7QTD

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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.
Dividend changes may be used by management as a credible communication tool to signal investors about future earnings under which of the following dividend policy theories? Select one: a. the clientele effect b. the expectations theory c. the residual dividend theory d. the information effect Question 19 Incorrect Flag question Question text In perfect capital markets there Select one: a. are no income taxes. b. are no flotation costs. c. All of these. d. is no informational content assigned to a particular dividend policy.
Indicate whether the following statements are true or false. If the statementis false, explain why.e. A company that has established a clientele of investors who prefer largedividends is unlikely to adopt a residual dividend policy.
When a stock repurchase occurs, which of the following is not correct?a. EPS decreasesb. Shares are repurchased then cancelledc. Investors may regard this as a tax break compared to a dividend paymentd. Costs in servicing small shareholders may be reducede. All of the above are correct
The bird-in-the-hand argument espousing the importance of dividends or dividend relevance suggests that investors view a current (certain) dividend as less risky than future (uncertain) dividends or capital gains; nevertheless, proponents of this theory argue that this will have no significant impact on share price. Is this true or false
The residual dividend approach is the best dividend policy to adopt if a firm’s management wants to maximize the current value per share of the existing stock. Do you agree or disagree with this statement? State and justify your conclusions.
Which of the following statements is correct? A. The optimal dividend policy is the one that satisfies management, not shareholders. B. The use of debt financing has no effect on earnings per share (EPS) or stock price. C. Stock price is dependent on the projected EPS and the use of debt, but not on the timing of the earnings stream. D. The riskiness of projected EPS can impact the firm's value. E. Dlvidend policy is one aspect of the firm's financial policy that is determined solely by the shareholders. Reset Selection
Dividend changes may be used by management as a credible communication tool to signal investors about future earnings under which of the following dividend policy theories? Select one: a. the clientele effect b. the expectations theory c. the residual dividend theory d. the information effect Question 19 In perfect capital markets there Select one: a. are no income taxes. b. are no flotation costs. c. All of these.
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The Discounted Dividend Model and the Corporate Valuation Model are two different ways to determine the intrinsic value of a share of stock. The Models are similar but do have some differences. Please review the following statements and select all of the ones (and only the ones) that reflect the differences between the two models. a. The Corporate Valuation Model can be used for companies with uneven cashflow growth rates and the Discounted Dividend Model can not. b. The Discounted Dividend Model uses dividends as the cash flows while the Corporate Valuation Model uses Free Cash Flow (FCF). c. The Discounted Dividend Model uses the required rate of return on the stock to discount the cash flows while the Corporate Valuation Model uses the Weighted Average Cost of Capital (WACC) to discount the cash flows. d. The Corporate Valuation Model requires you to back out the value of the firm's debt and preferred stock from your estimate of the corporation's…
which one is correct please confirm? QUESTION 21 Finance researcher Myron Gordon argues that ____. a. the clientele effect has no influence on share value b. the existence of transaction costs has no impact on the dividend decision c. dividends reduce uncertainty, and thus the payment of dividends will increase the firm's value d. risk-averse shareholders may prefer some dividends over the promise of future capital gains if the interest rate is expected to decline
The issue as to whether dividend policy has an effect on share prices raises a question as to whether dividends paid out to stockholders are any more “certain” than the expected future dividends the stockholders hope to receive from retention of firm earnings. This is known as the bird-in-the-hand theory of dividend policy. Do you agree with this theory? Explain.