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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

Indicate whether the following statements are true or false. If the statement is false, explain why.

  1. a. If a firm repurchases its stock in the open market, the shareholders who tender the stock are subject to capital gains taxes.
  2. b. If you own 100 shares in a company’s stock and the company’s stock splits two-for-one, you will own 200 shares in the company following the split.
  3. c. Some dividend reinvestment plans increase the amount of equity capital available to the firm.
  4. d. The tax Code encourages companies to pay a large percentage of their net income in the form of dividends.
  5. e. If your company has established a clientele of investors who prefer large dividend, the company is unlikely to adopt a residual dividend policy.
  6. f. If a firm follows a residual dividend policy, holding all else constant, its dividend payout will tend to rise whenever the firm's investment opportunities improve.

a.

Summary Introduction

To explain: whether it is true or false if a firm repurchases its stock in open market and the shareholder who tender the stock are subject to capital gain taxes.

Introduction:

Dividend Policy: It is the rules and regulations or protocol which a company sets to share its earning with its shareholders Dividend’s payment include payment to be made legally as well as financially.

Explanation

Shareholders are the real investors in firms so they are eligibl...

b.

Summary Introduction

To explain: whether it is true or false if holder of 100 shares will own 200 share after company’s stock splits 2 for 1.

c.

Summary Introduction

To explain: whether it is true or false if dividend reinvestment plan maximizes the amount of equity capital available to the firm.

d.

Summary Introduction

To explain: whether it is true or false that tax codes encourages company to pay a large percentage of their net income in the form of dividends.

e.

Summary Introduction

To explain: whether it is true or false if company’s investors who prefer large dividends is unlikely to adopt a residual dividend policy.

f.

Summary Introduction

To explain: whether it is true or false if all other things remain constant a firm’s dividend payout will tend to increase whenever the firm’s investment opportunities improve if it is following a residual dividend policy.

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