EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 7QTD
Summary Introduction
To discuss: The possibility of the provided statement.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
If Gamma Ltd. is a company that prohibits dividend payments entirely and forever, what will its stock be worth?
Select one:
a. Its stock price will be infinitely large.
b. Its stock price will be lower than other similar companies.
c. Its stock price must be calculated with the formula Benchmark P/E ratio x EPS.
d. Its stock will be worth nothing.
e. Its stock price must be calculated using the formula P = D/r.
The issue as to whether dividend policy has an effect on share prices raises a question as to whether dividends paid out to stockholders are any more “certain” than the expected future dividends the stockholders hope to receive from retention of firm earnings. This is known as the bird-in-the-hand theory of dividend policy. Do you agree with this theory? Explain.
Indicate whether the following statements are true or false. If the statementis false, explain why.e. A company that has established a clientele of investors who prefer largedividends is unlikely to adopt a residual dividend policy.
Chapter 7 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 7 - Prob. 1QTDCh. 7 - Prob. 2QTDCh. 7 - Prob. 3QTDCh. 7 - Prob. 4QTDCh. 7 - Prob. 5QTDCh. 7 - Prob. 6QTDCh. 7 - Prob. 7QTDCh. 7 - Prob. 8QTDCh. 7 - Prob. 9QTDCh. 7 - Prob. 10QTD
Ch. 7 - Prob. 11QTDCh. 7 - Prob. 12QTDCh. 7 - Prob. 13QTDCh. 7 - Prob. 14QTDCh. 7 - Prob. 15QTDCh. 7 - Prob. 16QTDCh. 7 - Prob. 17QTDCh. 7 - Prob. 18QTDCh. 7 - Prob. 1PCh. 7 - Prob. 2PCh. 7 - Prob. 3PCh. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6PCh. 7 - Prob. 7PCh. 7 - Prob. 8PCh. 7 - Prob. 9PCh. 7 - Prob. 10PCh. 7 - Prob. 11PCh. 7 - Prob. 12PCh. 7 - Prob. 13PCh. 7 - Prob. 14PCh. 7 - Prob. 15PCh. 7 - Prob. 16PCh. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Prob. 19PCh. 7 - Prob. 20PCh. 7 - Prob. 21PCh. 7 - Prob. 22PCh. 7 - Prob. 23PCh. 7 - Prob. 24PCh. 7 - Prob. 25PCh. 7 - Prob. 26PCh. 7 - Prob. 27PCh. 7 - Prob. 28PCh. 7 - Prob. 29P
Knowledge Booster
Similar questions
- What is the lowest dividend a firm could pay? What types of firms generally pay high dividends? Explain your answer.arrow_forwardThe bird-in-hand theory would predict that the companies could decrease their cost of equity financing by raising their dividend payout. True or false?arrow_forwardThe Discounted Dividend Model and the Corporate Valuation Model are two different ways to determine the intrinsic value of a share of stock. The Models are similar but do have some differences. Please review the following statements and select all of the ones (and only the ones) that reflect the differences between the two models. a. The Corporate Valuation Model can be used for companies with uneven cashflow growth rates and the Discounted Dividend Model can not. b. The Discounted Dividend Model uses dividends as the cash flows while the Corporate Valuation Model uses Free Cash Flow (FCF). c. The Discounted Dividend Model uses the required rate of return on the stock to discount the cash flows while the Corporate Valuation Model uses the Weighted Average Cost of Capital (WACC) to discount the cash flows. d. The Corporate Valuation Model requires you to back out the value of the firm's debt and preferred stock from your estimate of the corporation's…arrow_forward
- 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?arrow_forwardThe homemade dividend strategy argues that investors impose their dividend preference on the firm, is this true or false and why? The bird in hand theory suggests that a company can reduce its cost of equity capital by reducing its dividend payout ratio. true or false and why? A company can always increase its stock price by increasing its dividend payout ratio. true or false and why?arrow_forwardThe residual theory of dividends argues that dividends a. can only be distributed if there is income remained after funding all prospective investment b. not relevant unless there is an excess demand for cash dividends c. are irrelevant in any dividend distribution plan d. are necessary and important to maintain the market price of any ordinary sharesarrow_forward
- 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.arrow_forwardBy calling the additional dividend an extra dividend, a firm avoids setting expectations that the dividend increase will be permanent. true or falsearrow_forwardState whether the following statement is true or false and provide a written explanation of your answer. “The Dividend Growth Model (a.k.a Gordon Model) is a ridiculous model to use to value a share. Firstly, it assumes that the company will be around forever, whereas we know that lots of companies will eventually disappear because of takeovers and mergers and this model doesn’t allow for that. Secondly, it assumes that dividends grow at the rate of inflation which is not necessarily correct.”arrow_forward
- Which of the following is NOT a reason for a high-dividend-payout policy? A. convenient and direct deposit of cash dividend B. avoidance of transaction costs for selling shares C. higher potential future returns for shareholders D. cash payments today versus uncertain cash payments tomorrowarrow_forwardWhy do firms still do stock dividends and stock splits if it doesn't give shareholders much value anyways?arrow_forwardAll of the following are rationales given for a stock dividend or split EXCEPT A. there is positive informational content associated with the announcement. B. the price will not fall proportionately to the share increase. C. conservation of corporate cash. D. an optimum price range does not exist.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning