A) $42,869
B) $45,125
C) $47,500
D) $50,000
E) $52,500
G) A) and E)
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A) One advantage of the residual dividend policy is that it leads to a stable dividend payout, which investors like.
B) An increase in the stock price when a company decreases its dividend is consistent with signaling theory as postulated by MM.
C) If the "clientele effect" is correct, then for a company whose earnings fluctuate, a policy of paying a constant percentage of net income will probably maximize the stock price.
D) Stock repurchases make the most sense at times when a company believes its stock is undervalued.
E) Firms with a lot of good investment opportunities and a relatively small amount of cash tend to have above average payout ratios.
G) A) and E)
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A) $904,875
B) $952,500
C) $1,000,125
D) $1,050,131
E) $1,102,638
G) C) and E)
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A) $50.00
B) $52.50
C) $55.13
D) $57.88
E) $60.78
G) A) and B)
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A) An open-market dividend reinvestment plan will be most attractive to companies that need new equity and would otherwise have to issue additional shares of common stock through investment bankers.
B) Stock repurchases tend to reduce financial leverage.
C) If a company declares a 2-for-1 stock split, its stock price should roughly double.
D) One advantage of adopting the residual dividend policy is that this makes it easier for corporations to meet the requirements of Modigliani and Miller's dividend clientele theory.
E) If a firm repurchases some of its stock in the open market, then shareholders who sell their stock for more than they paid for it will be subject to capital gains taxes.
G) B) and D)
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A) $28.43
B) $29.93
C) $31.50
D) $33.08
E) $34.73
G) B) and E)
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A) investors require that the dividend yield and capital gains yield equal a constant.
B) capital gains are taxed at a higher rate than dividends.
C) investors view dividends as being less risky than potential future capital gains.
D) investors value a dollar of expected capital gains more highly than a dollar of expected dividends because of the lower tax rate on capital gains.
E) investors are indifferent between dividends and capital gains.
G) C) and D)
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A) Its access to the capital markets increases.
B) Its R&D efforts pay off, and it now has more high-return investment opportunities.
C) Its accounts receivable decrease due to a change in its credit policy.
D) Its stock price has increased over the last year by a greater percentage than the increase in the broad stock market averages.
E) Its earnings become more stable.
G) A) and D)
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A) You will have 200 shares of stock, and the stock will trade at or near $60 a share.
B) You will have 100 shares of stock, and the stock will trade at or near $60 a share.
C) You will have 50 shares of stock, and the stock will trade at or near $120 a share.
D) You will have 50 shares of stock, and the stock will trade at or near $60 a share.
E) You will have 200 shares of stock, and the stock will trade at or near $120 a share.
G) A) and E)
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B) False
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A) $100,000
B) $200,000
C) $300,000
D) $400,000
E) $500,000
G) B) and C)
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B) False
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A) are usually more stable than earnings.
B) fluctuate more widely than earnings.
C) tend to be a lower percentage of earnings for mature firms.
D) are usually changed every year to reflect earnings changes, and these changes are randomly higher or lower, depending on whether earnings increased or decreased.
E) are usually set as a fixed percentage of earnings, e.g., at 40% of earnings, so if EPS = $2.00, then DPS will equal $0.80. Once the percentage is set, then dividend policy is on "automatic pilot" and the actual dividend depends strictly on earnings.
G) B) and C)
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A) $514,425 $162,901
B) $541,500 $171,475
C) $570,000 $180,500
D) $600,000 $190,000
E) $ 0 $200,000
G) A) and B)
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B) False
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A) One reason that companies tend to avoid stock repurchases is that dividend payments are taxed at a lower rate than gains on stock repurchases.
B) One advantage of dividend reinvestment plans is that they allow shareholders to avoid paying taxes on the dividends that they choose to reinvest.
C) One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy.
D) The clientele effect suggests that companies should follow a stable dividend policy.
E) Modigliani and Miller argue that investors prefer dividends to capital gains because dividends are more certain than capital gains. They call this the "bird-in-the hand" effect.
G) A) and C)
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A) Declare a stock split.
B) Begin an open-market purchase dividend reinvestment plan.
C) Initiate a stock repurchase program.
D) Begin a new-stock dividend reinvestment plan.
E) Refund long-term debt with lower cost short-term debt.
G) All of the above
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A) 40.61%
B) 42.75%
C) 45.00%
D) 47.37%
E) 49.74%
G) B) and E)
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A) $6.32
B) $6.65
C) $7.00
D) $7.35
E) $7.72
G) B) and E)
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A) $122,176
B) $128,606
C) $135,375
D) $142,500
E) $150,000
G) C) and D)
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