The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

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Answer 1

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

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Students have asked these similar questions

Based on M & M with taxes and without taxes, how much time should a financial manager spend analyzing the capital structure of their firm? The bird in hand theory suggests that a company can reduce its cost of equity capital by reducing its dividend payout ratio. Is this so and why? the homemade dividend strategy argues that investors impose their dividend preference on the firm. is this true or false and why

TRUE OR FALSE Answer as either true or false and provide a reason for why. When a company pays dividends, its share price falls. Modigliani and Miller proposition II (without taxes) implies that the weighed average cost of capital increases as more debt is issued, since debt make the firm more risky The empirical findings that more profitable firms have lower debt ratios is consistent with the trade-off theory regarding capital structure. The WACC formula assumes that the amount of debt issued remains constant. Other things being equal, buying a put option is the same as selling a call option

Which of the following about optimal capital structure is incorrect? Optimal capital structure is the mixed of debt and equity capital that minimizes the firm’s weighted average cost of capital A company that follows the pecking order theory will use external financing thru debt after exhausting all the possible financing thru equity The management empire-building theory views high interest payments as to prevent management from unreasonable spending A company can take advantage of its high corporate tax rate as tax shield, under the trade-off theory

Answer 2

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

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Answer 3

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

Expert Solution & Answer

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Answer 4

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

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Answer 5

Chapter 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

Answer 6

Chapter 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

Answer 7

Chapter 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

Answer 8

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

Answer 9

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

Answer 10

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

Answer 11

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 16 - Dividend payments In 2017, Entergy paid a regular...Ch. 16 - Dividend payments Seashore Salt Co. has surplus...Ch. 16 - Repurchases Look again at Problem 2. Assume...Ch. 16 - Repurchases An article on stock repurchase in the...Ch. 16 - Company dividend policy Here are several facts...Ch. 16 - Prob. 7PS Ch. 16 - Information content of dividends What is meant by...Ch. 16 - Information content of dividends Does the good...Ch. 16 - Information content of dividends Generous dividend...Ch. 16 - Prob. 11PS

The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

Solution Summary: The author analyzes the statement that country J companies pay out a much smaller proportion of earnings and enjoy lower cost of capital.

Concept explainers

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

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Chapter 16 Solutions