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finance data bank

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Question;If a firm adheres strictly to the;residual distribution policy with all distributions in the;form of dividends), then if its optimal capital budget requires the use of all;earnings for;that year (along with new debt according to the optimal debt/total assets;ratio), the firm;should pay;a. No dividends except out of past retained earnings.;b. No dividends to common stockholders.;c. Dividends, in effect, out of a new issue of common stock.;d. Dividends by borrowing the money (debt).;e. Either c or d above could be used.;Which of the following statements is;most correct?;a. "New-stock" dividend reinvestment plans are similar to stock;dividends because they;both increase the number of shares outstanding but don't change the total;equity of a firm.;b. Investors receiving stock dividends must pay taxes on the new shares at the;time the stock dividends are received.;c. Stockholders pay no income tax on dividends reinvested in a dividend;reinvestment plan.;d. Both statements a and b are correct.;e. None of the statements above is correct.;Which of the following statements is;most correct?;a. The tax code encourages companies to pay large dividends to their;shareholders.;b. If your company has established a clientele of investors who prefer large;dividends, the company is unlikely to adopt a residual dividend policy.;c. If a firm follows a residual distribution policy (with all distributions in;the form of dividends), holding all else constant, its dividend payout will;tend to rise whenever the firm's investment opportunities improve.;d. All of the statements above are correct.;e. Answers b and c are correct.;Which of the following statements is;most correct?;a. If a firm repurchases its stock in the open market, the shareholders that;tender are subject to capital gains taxes.;b. If you own 100 shares in a company's stock, and the company does a 2- for-1;stock split, you will own 200 shares in the company following the split.;c. Some dividend reinvestment plans increase the amount of equity capital;available to the firm.;d. All of the statements above are correct.;e. Answers a and b are correct.;Which of the following statements is most;correct?;a. An open-market dividend reinvestment plan is likely to be attractive to;companies that are looking to issue additional shares of common stock.;b. Stock repurchases have the effect of reducing financial leverage.;c. If a company does a 2-for-1 stock split, its stock price will roughly;double.;d. All of the answers above are correct.;e. None of the answers above is correct;Which of the following statements is;most correct?;a. If a company wants to issue new shares of common stock and also wants to;implement a dividend reinvestment plan, then it should implement a new-stock;dividend reinvestment plan, rather than an open-market purchase plan.;b. If a company undertakes a 3-for-1 stock split, then the number of shares;outstanding should fall, and the stock price should rise.;c. If a company wants to reduce its debt ratio, then it should repurchase some;of its common stock.;d. Answers a and c are correct.;e. Answers b and c are correct.;Which of the following statements is;most correct?;a. If you were testing dividend theories and found that a dividend increase;resulted in higher stock prices, then you could rule out all other theories and;conclude that the bird-in-the-hand theory was most consistent with the evidence;you found.;b. The clientele effect suggests that investors choose their investments based;on firms;past dividend policies and changes to established dividend policies may be;costly to investors.;c. Dividends paid under a residual dividend policy might send conflicting;signals to investors.;d. Both statements b and c are correct.;e. All of the statements above are correct;Which of the following actions will;enable a company to raise additional equity capital;(that is, which of the following will raise the total book value of equity)?;a. The establishment of a new-stock dividend reinvestment plan.;b. A stock split.;c. The establishment of an open-market purchase dividend reinvestment plan.;d. A stock repurchase.;e. Answers a and d are correct;Which of the following statements is;most correct?;a. Stock repurchases can be used by firms to defend against hostile takeovers;since they;increase the proportion of debt in a firm's capital structure.;b. After a 3-for-1 stock split, a company's price per share will fall and its;number of shares outstanding will rise.;c. Investors can interpret a stock repurchase by a firm as a signal that the;firm's managers believe the stock is underpriced.;d. Both statements a and b are correct.;e. All of the statements above are correct.;Firm M is a mature firm in a mature;industry. Its annual net income and net cash flow are both consistently high;and very stable. The company's growth prospects are quite limited, therefore;the company's capital budget is small relative to its net income. Firm N is a;relatively new firm in a new industry. Its annual operating income;fluctuates;considerably, but the company has substantial growth opportunities. Its capital;budget is expected to be large relative to its net income for the foreseeable;future. Which of the following statements is most correct?;a. Firm M probably has a lower debt ratio than Firm N.;b. Firm M probably has a higher distribution ratio (the total of dividend;payout ratio and stock repurchase ratio) than Firm N.;c. If the corporate tax rate increases, the debt ratio of both firms is likely;to fall.;d. Statements a and b are correct.;e. Statements b and c are correct.;Petersen Co. has a capital budget of;$1,200,000. The company wants to maintain a target capital structure that is 60;percent debt and 40 percent equity. The company forecasts that its net income;this year will be $600,000. If the company follows a residual distribution;policy (with all distributions in the form of dividends), what will be its;payout ratio?;a. 0% b. 20% c. 40% d. 60% e. 80%;Chandler Communications' CFO has;provided the following information;?;The company's capital budget is expected to be $5,000,000.;?;The company's target capital structure is 70 percent debt and 30 percent;equity.;?;The company's net income is $4,500,000.;If the company follows a residual distribution policy (with all distributions;in the form of dividends), what portion of its net income should it pay out as;dividends this year?;a. 33.33% b. 40.00% c. 50.00% d. 60.00% e. 66.67%;Strategic Systems Inc. expects to have;net income of $800,000 during the next year. Its target, and current, capital;structure is 40 percent debt and 60 percent common equity. The Director of;Capital Budgeting has determined that the optimal capital budget for next year;is $1.2 million. If Strategic uses the residual distribution model (with all;distributions in the form of dividends) to determine next year's dividend;payout, what is the expected dividend payout ratio?;a. 0% b. 10% c. 28% d. 42% e. 56%;Powell Products anticipates that its;capital budget next year will be $3 million. The company expects to report net;income of $5 million this year. The company's target capital structure is 65;percent common equity and 35 percent long-term debt. Assume the company follows;a strict residual distribution policy (with all distributions in the form;of dividends). What is the expected dividend payout ratio this year?;a. 65% b. 39% c. 61% d. 56% e. 100%;Arden Manufacturing follows a strict;residual distribution policy (with all distributions in the form of dividends).;The company is forecasting that its net income will be $500 million this year.;The company anticipates that its capital budget will be $250 million.;The company has a target capital structure that consists of 50 percent equity;and 50 percent long-term debt. What is the company's anticipated dividend;payout ratio?;a. 75% b. 55% c. 50% d. 25% e. 47%;Redwood Systems follows a strict;residual distribution policy (with all distributions in the;form of dividends). The company estimates that its capital expenditures this;year will be $40 million, its net income will be $30 million, and its target;capital structure is 60 percent equity and 40 percent debt. What will be the;company's dividend payout ratio?;a. 80% b. 60% c. 40% d. 20% e. 15%

 

Paper#50901 | Written in 18-Jul-2015

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