EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 15, Problem 10QTD
Summary Introduction
To discuss: The many managers prefer a stable dollar dividend policy to a policy of paying out a constant percentage of each year’s earnings as dividends.
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Which of the following situation in which the quality of the company’s pay-out to shareholders may decline
a. Decrease in cash position
b. Increase in positive NPV investment opportunities
c. Increase in capital gains tax
d. Decrease in marginal tax rate on dividends
Which of the following concepts tells us that dividends are to be paid only when the capital budget has been already supplied?
a. Gordon Growth model
b. Dividend irrelevance theory
c. Retain Earnings break-point principle
d. Residual Dividend Model
In case you retain huge amount of profit of your company for long term investment, what financial decision do you take – to pay high cash dividend? Or to issue bonus share (stock dividend)? And explain why?
If you bought a share of common stock, you would probably expect to receive dividends plus an eventual capital gain. Would the distribution between the dividend yield and the capital gain yield be influenced by the firm’s decision to pay more dividends rather than to retain and reinvest more of its earnings?
Chapter 15 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 15 - Prob. 1QTDCh. 15 - Prob. 2QTDCh. 15 - Prob. 3QTDCh. 15 - Prob. 4QTDCh. 15 - Prob. 5QTDCh. 15 - Prob. 6QTDCh. 15 - Prob. 7QTDCh. 15 - Prob. 8QTDCh. 15 - Prob. 9QTDCh. 15 - Prob. 10QTD
Ch. 15 - Prob. 11QTDCh. 15 - Prob. 12QTDCh. 15 - Prob. 13QTDCh. 15 - Prob. 14QTDCh. 15 - Prob. 15QTDCh. 15 - Prob. 16QTDCh. 15 - Prob. 17QTDCh. 15 - Prob. 18QTDCh. 15 - Prob. 1PCh. 15 - Prob. 2PCh. 15 - Prob. 3PCh. 15 - Prob. 4PCh. 15 - Prob. 5PCh. 15 - Prob. 6PCh. 15 - Prob. 7PCh. 15 - Prob. 8PCh. 15 - Prob. 9PCh. 15 - Prob. 10PCh. 15 - Prob. 11PCh. 15 - Prob. 12PCh. 15 - Prob. 13PCh. 15 - Prob. 14PCh. 15 - Prob. 15P
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- The Gordon Growth Model or dividend discounting model assumes the following conditions: · The company’s business model is stable; i.e. there are no significant changes in its operations · The company grows at a constant, unchanging rate · The company has stable financial leverage · The company’s free cash flow is paid as dividends Based on the assumptions, fill up the gaps in the following table. You are expected to show detailed calculations where necessary. Stock Current Year dividend Expected growth in dividends Required rate of return Value of a share of stock A RM1.00 3% 5% B 4% 6% RM26.00 C RM1.00 10% RM21.00 D RM0.75 2% RM7.650 E RM1.10 4% 10%…arrow_forwardShould stockholder wealth maximization be thought of as a long-term or a short-term goal? For example, if one action increases a firm’s stock price from a current level of $20 to $25 in 6 months and then to $30 in 5 years but another action keeps the stock at $20 for several years but then increases it to $40 in 5 years, which action would be better? Think of some specific corporate actions that have these general tendencies.arrow_forwardThe dividend growth model CANNOT be used in which of the following? a. When dividends are expected to grow every year. b. When the payout ratio is constant.c. When dividends are expected to grow every quarter. d. When the payout is greater than the amount earned.arrow_forward
- Except for one of the following the constant dividend growth model is useful to corporate managers because: a. the required rate of return of shareholders is related to the company's level of risk as perceived by investors. b. the dividend stream is influenced by earnings and profitability as well as the dividend policy of management c. the growth rate is related to the efficiency of the company in generating returns on equity d. inflation calculations are incorporated in the modelarrow_forwardShould stockholder wealth maximization be thought of as a long-term or a short-term goal? For example, if one action increases a firm’s stock price from a current level of $20 to $25 in 6 months and then to $30 in 5 years but another action keeps the stock at $20 for several years but then increases it to $40 in 5 years, which action would be better? Think of some specific corporate actions that have these general tendencies. Financial ratio analysis is conducted by three main groups of analysts: credit analysts, stock analysts, and managers. What is the primary emphasis of each group, and how would that emphasis affect the ratios they focus on? Why might it be rational for a small firm that does not have access to the capital markets to use the payback method rather than the NPV method? A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified and the associated costs and revenues have been…arrow_forwardIn the real world, we find that dividends usually exhibit greater stability than earnings fluctuate more widely than earnings tend to be a lower percentage of earnings for mature firms are usually changed every year to reflect earnings changes are usually set as a fixed percentage of earningsarrow_forward
- Is this statement true or false? Give a reason for your answer. "A company can always increase its stock price by increasing its dividend payout ratio."arrow_forwardWhich one of the following is an underlying assumption of the dividend growth model? - A stock's value changes in direct relation to the required return. - A stock has the same value to every investor. - The dividend growth rate is inversely related to a stock's market price. - A stock's value is equal to the discounted present value of the future cash flows that it generates. - Stocks that pay the same annual dividend have equal market values.arrow_forwardIs this statement true or false? Give a reason for your answer. "An increase in a firm's inclination to pay dividends may be because of a decline in profitable investment opportunities in the future."arrow_forward
- The common stock of National Company pays a constant annual dividend. Thus, the market price of National Company’s stock will decrease when the market rate of return increases decrease over time increase over time increase when the market rate of return increasesarrow_forwardThe idea that changes in dividend policy reflects managers' views about the firm's future earnings is known as: a) Modigliani and Miller Theory b) Payoff Theory c) Dividend Signaling Hypothesis d) Pecking Order Hypothesisarrow_forwardwhich one is correct please confirm? QUESTION 10 Firms with the ____ earnings growth tend to have the ____ dividend payout ratio. a. lowest; highest b. lowest; lowest c. highest; lowest d. highest; highestarrow_forward
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