PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Textbook Question
Chapter 16, Problem 2PS
Company dividend policy Here are several “facts” about typical corporate dividend policies. Which are true and which false?
- a. Companies decide each year’s dividend by looking at their capital expenditure requirements and then distributing whatever cash is left over.
- b. Managers and investors seem more concerned with dividend changes than with dividend levels.
- c. Managers often increase dividends temporarily when earnings are unexpectedly high for a year or two.
- d. Companies undertaking substantial share repurchases usually finance them with an offsetting reduction in cash dividends.
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1) What is meant by the term 'dividend policy'?A) The desired pattern of dividends over time when a company determines the proportion of profits to be paid out to shareholders, usually done periodicallyB) The selection of specific groups of shareholders to receive dividends this yearC) The balance to be struck between paying interim dividends and final dividendsD) The determination of the dividend policies of industrial firms by government, designed to encourage earnings retention for investment
A company’s dividend policy refers to the manner in which a firm distributes its earnings to shareholders. Firms can pay out cash in one of two ways: a dividend or a share repurchase. Before 1983, stock repurchases were fairly rare, but today they are common. When a firm decides to pay a dividend, it usually follows the following process.
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Chapter 16 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 16 - Prob. 1PSCh. 16 - Company dividend policy Here are several facts...Ch. 16 - Dividend payments Seashore Salt Co. has surplus...Ch. 16 - Repurchases Look again at Problem 3. Assume...Ch. 16 - Payout policy in perfect capital markets Go back...Ch. 16 - Dividends and stock price Go back to the first...Ch. 16 - Prob. 7PSCh. 16 - Repurchases and the DCF model Surf Turf Hotels is...Ch. 16 - Prob. 9PSCh. 16 - Payout and taxes Which of the following U.S....
Ch. 16 - Prob. 11PSCh. 16 - Prob. 13PSCh. 16 - Information content of dividends What is meant by...Ch. 16 - Information content of dividends Does the good...Ch. 16 - Prob. 16PSCh. 16 - Repurchases and the DCF model Little Oil has 1...Ch. 16 - Dividends and value We stated in Section 16-3 that...Ch. 16 - Prob. 19PSCh. 16 - Repurchases and the DCF model House of Haddock has...Ch. 16 - Prob. 21PSCh. 16 - Prob. 22PSCh. 16 - Repurchases and the DCF model Hors dAge...Ch. 16 - Repurchases An article on stock repurchase in the...Ch. 16 - Prob. 25PSCh. 16 - Information content of dividends Generous dividend...Ch. 16 - Repurchases and EPS Many companies use stock...Ch. 16 - Prob. 28PSCh. 16 - Dividend policy and the dividend discount model...Ch. 16 - Prob. 30PS
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
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- If a firm strictly adheres to the residual dividend policy, a sale of new common stock by the company would suggest that The dividend payout ratio has remained constant. The dividend payout ratio is increasing. No dividends were paid for the year. The dividend payout ratio is decreasing. The dollar amount of investments has decreased.arrow_forwardModigliani & Miller show that dividend policy can also be considered irrelevant. Yet, unexpected increases in dividends are often closely followed by price increases, why? To clarify, when a firm pays a dividend the stock price should drop by the amount of the dividend on the ex-dividend date. Let's say a firm has 5 stockholders, each holding 1 share. The firm owns $2,000 in cash and $3,000 in other assets. So the firm is worth $5,000 (it owes no debt). Each stockholder's claim is worth: $5,000/5 = $1000. Now the firm declares a dividend of $100/share. They must pay out a total of: $100 x 5shares = $500. So after the dividend is paid the firm now has $1,500 in cash and $3,000 in other assets, for a total of $4,500. Dividing this by 5 stockholders, we find that each stockholders claim is $900. The same as if we take $1,000 less $100 dividend to get $900. The stockholder hasn't lost anything, he still has $1,000 in value, just $900 in the firm and $100 in cash now.…arrow_forwardThe price to earnings (P/E) ratio is an after-tax metric reflecting growth potential of the common stock of a corporation. P is the selling price (per share) of the common stock, and E is the after-tax earnings per year of a share of stock. A high P/E ratio, for example, indicates that a firm is in a high-growth industry (such as biotechnology) and that annual earnings are not as important to investors as the growth rate of the price of common stock is. Because a corporation can be assumed to have an indefinitely long life, the P/E ratio can be likened to the (P/A, i%,N) factor when N approaches infinity. For a certain transportation company, the P/E ratio is 12. What is the implied IRR for this relatively stable company?arrow_forward
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