Answered: If a company lowers its cash dividend…

If a company lowers its cash dividend payment, does that always send a bad signal? If not, provide an example of when a lower cash dividend would not send a bad signal.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter21: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 8MC

See similar textbooks

Related questions

Q: Why do DCMs use dividends and not earnings in their formulas? a. Because earnings are not equal to…

A: DCMs seek to evaluate the fair value of a company regardless of current market conditions, taking…

Q: How to incease profitability in a service company if Operating cash does not cover debt?

A: operating cash flows - cash flows from the operations of the business are known as operating cash…

Q: is(are)the reason(s) for profit maximization not a reasonable goal for firms. a. Profit concept…

A: Profit Maximisation Concept aims at carrying out the business activities in such a way that the…

Q: Explain "free cash flows." Why do managers like to retain free cash flows instead of distributing it…

A: Free cash flows (FCF) equals the amount left with the company after the required payments to the…

Q: What does a negative value for unlevered free cash flow imply for the claimants of a firm

A: Unlevered free cash flow for a company is that free cash flow which is determined and computed…

Q: True or false? Using the cash flow statement, as a financial control, is not necessary when your…

A: Step 1 A cash flow assessment is a crucial indicator of a company's health, profitability, and…

Q: Which of the following is not correct about the negative cash flows? O a. You cannot cover your…

A: Cash flow statement: It is a statement which reports the cash inflows and outflows of a business…

Q: Most managers try to "smooth" their dividends over time - they try to increase the dividend, but…

A: The dividends is the distribution of surplus profit by a company to its shareholders. It is given as…

Q: The main reason for the failure of companies is the occurrence of a deficit in liquidity resulting…

A: Cash flow: Cash flow is the flow of cash of the organisation There are two types of cash flows:1.…

Q: Cash doesn’t earn interest, so why would a company have a positive target cash balance?

A: The corporation have a positive target balance because of cash plays a vigorous part in the…

Q: Which of the following could cause a company to have a high ratio of cash to noncash assets? a.…

A: Cash: Cash is the money which is readily available in the form of currency. Since cash can be…

Q: Which of the following statements is not correct O a. Cash balance does not have an opportunity…

A: 1.A firm may hold surplus cash balance to pay dividend to its shareholders. It is correct…

Q: Is it impossible for a company to report positive net income on the income statement but have…

A: Cash flow from the operating activities refers to the inflow and outflow of the cash in the business…

Q: What is the difference between dividends that are declared and dividends that are paid

A: There exist difference between dividend that is declared and paid

Q: What is the lowest dividend a firm could pay? What types of firms generally pay high dividends?…

A: Dividend is not compulsory to pay, when the company earns good profits , Board of directors…

Q: Is it possible for a company to show positive cash flows and still be in grave trouble?

A: Positive Cashflows indicates that the company has increased its cash balance from its previous year.…

Q: Which of the following statements is TRUE about the Modigliani and Miller Theory regarding dividend…

A: MM theory was proposed in 1961. It suggests that dividend and capital gain on shares are equivalent…

Q: Is it possible for a company to have significant net income in the same time period that net cash…

A: Yes! It is possible because net income is based on accrual concept i.e. income is recognized as and…

Q: Would it be possible for a company to report negative free cash flow and still be highlyvalued by…

A: Yes. Negative free cash flow is not necessarily bad. Most rapidly growing companies have negative…

Q: How can a company’s operations generate a healthy profitand yet produce meager or even negative cash…

Q: What would be a reason a company would want to overstate income?A. to help nudge its stock price…

A: Income of the business is very important and useful measure of profitability of the business. More…

Q: Explain how a company can be “profit rich, yet cash poor.”

A: Corporation: A corporation is a form of business entity that is incorporated through the state…

Q: Is this statement true or false? Give a reason for your answer. " Relevant or not, frequent changes…

A: Dividend policy is a policy that determines the division of earnings into dividend and retained…

Q: Why might smaller companies prefer to use techniques such as cash payback and accounting rate of…

A: Cash Payback: A simplified explanation is that the cash payback approach entails multiplying a…

Q: Explain "frce cash flows. Why do managers like to retain free cash flows instead of distributing it…

A: Free cash flows : As the name suggests, free cash flows relates to the fund that are leftover to a…

Q: The main reason why there should be cash in a company is for speculation. False or true?

A: The question is related to True or False.

Q: What major advantage does a company that has positive free cash flow have over a company that has…

A: Free cash flow : It is defined as a financial performance metric which shows how much funds are…

Q: (1) How could two companies with similar gross profitfigures end up with dramatically different net…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Which of the following circumstances would result in an increase in cash from operations but not an…

A: Cash flow statement: It is a statement which reports the cash inflows and outflows of a business…

Q: Assume that a company announces an unexpectedly large cash dividend to its shareholders. In an…

A: Dividend policy: The dividend policy of a company is an operation of diverse variables like…

Q: How can a company expand itself out of business, and how can a finance management prevent this from…

A: There are various methods that are been used by the company in order to expand its business. A good…

Q: If a company has very weak cash flows, an investor would prefer to be at the ____ of the waterfall…

A: Cash flows are the inflows and outflows of cash that are received and paid by an organization in a…

Q: Does net income represent a supply of cash that could be dis-tributed to stockholders in the form of…

A: Net income: It can be defined as the income earned by a business after deducting all the expenses…

Q: Companies are far more reluctant to cut dividend than to increase them. Why might this be the case?…

A: Dividends are payouts of a company’s profits to its shareholders as a return on capital invested by…

Q: Which of the following statements is false? O A. A positive cash conversion cycle means the company…

A: Cash Conversion Cycle is cycle that shows that how many days company takes to covert its cash into…

Q: Which scenario would be considered the most favorable by shareholders of a company? Select one: a.…

A: The net earnings after all debt obligations, tax paid to government and dividend paid to preference…

Q: How can the company, which is a profitable one, have insufficient cash flows? Explain your answer.

A: Quickclick Media Ltd. announces that their profits in the current year have increased over the…

Q: Can a firm have income without also having a positive cash flow? Explain.

A: Cash Flows are the inflows & outflows of cash in the business to meet the day to day activities.…

Q: f the following is false? a. Baumol model helps firm to find out their desirable level of cash…

A: Account payable are the amount of money to be given to the suppliers and creditors who provides…

Question

If a company lowers its cash dividend payment, does that always send a bad signal? If not, provide an example of when a lower cash dividend would not send a bad signal.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Money Management and Achieving Financial Goals

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Cash doesn’t earn interest, so why would a company have a positive target cash balance?
Companies are far more reluctant to cut dividend than to increase them. Why might this be the case? What are the implications for financial markets when firms announce that they will be cutting dividends?
What is the difference between dividends that are declared and dividends that are paid? There is no difference When they are declared they reduce Net Income and when they are paid they reduce cash When they are declared they increase Net Income and when they are paid they reduce cash When they are declared they reduce Common Stock and when they are paid they increase Dividends Payable When they are declared they reduce Retained Earnings and when they are paid they reduce Dividends Payable
How would the SCF indicate to an investor that the company is experiencing a "cash crunch?"
Which of the following statements is not correct O a. Cash balance does not have an opportunity cost O b. A firm may hold surplus cash balance to pay dividend to its shareholders O c. The Baumol method suggests holding cash balance such that the carrying costs and transaction costs are minimum Od. The Baumol method may not hold good in case of uncertain cash requirements or bumpy cash requirements
Is a negative free cash flow (FCF) always a bad sign? A negative free cash flow means that the company does not have sufficient internal funds to finance investments in fixed assets and working capital. Is there a scenario where a negative free cash flow is not a bad sign for the company?
Which of the following statements about payout policy is FALSE? a. Share repurchases concentrate ownership in the hands of the remaining shareholders, making their shares worth more than they were before the repurchase. b. Firms should generally pay out no more than their free cash flow to equity, unless they are in the process of paying out a large cash balance. c. Dividends typically increase at a slower rate than earnings. d. Firms today return more cash to shareholders through repurchases than through dividends. e. Dividends are lower for firms that have higher growth rates.
To what extent do you feel the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate your claims.
Assume that a company announces an unexpectedly large cash dividend to its shareholders. In an efficient market without information leakage, one might expect:a. An abnormal price change at the announcement.b. An abnormal price increase before the announcement.c. An abnormal price decrease after the announcement.d. No abnormal price change before or after the announcement.
To what extent does the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate claims.
How can a company’s operations generate a healthy profitand yet produce meager or even negative cash flows?
Which of the following is/are true regarding payout policy to shareholders? A. Most of the time that firms announce an increase in dividends, the market reacts negatively, as this is an admission that the firm has few good investment opportunities going forward. B. Large, mature firms should return a lot of cash to shareholders because there aren’t enough good investment opportunities out there for them. C. Flexibility is one key reason why we have seen much more use of share repurchases to return cash to shareholders in the last 3 decades. D. The primary value driver for the firm is how cash is paid out, not cash generation. E. (A) and (B) F. (B) and (C) G. (C) and (D)