intro to finance homework 4

Homework #4

Chapter 17 – Dividends & Payout Policy

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Fin 3200

This homework is due October 17 at 11:59 PM

1) Joyce & Grace Books has more cash on hand than its operations require. Thus, the firm has decided to pay out some of its earnings in the form of cash to its shareholders. What are these payments to shareholders called?

A) Stock payments

B) Dividends

C) Stock splits

D) Payments in Kind

E) Repurchases

2) The board of directors of Sam & James Supply met this afternoon and passed a resolution to pay a cash dividend of $80 a share next month. In relation to this dividend, today is referred to as which one of the following dates?

A) Date-of-record

B) Ex-dividend date

C) Declaration Date

D) Decision date

E) Payment Date

3) The common stock of Colette’s Closet has historically had a low dividend yield that is expected to continue. As a result, the majority of its shareholders are individuals who prefer capital gains over cash dividends for tax reasons. The fact that most of these shareholders have similar characteristics is referred to by which one of the following terms?

A) Capital effect

B) Investor effect

C) Market reaction effect

D) Information content effect

E) Clientele effect

4) Which one of the following statements related to cash dividends is correct?

A) Extra cash dividends cannot be repeated in the future.

B) Regular cash dividends reduce paid-in capital.

C) The dividend yield expresses the annual dividend as a percentage of net income.

D) A dividend is never a liability of the issuer until it has been declared.

E) If a company has paid regular quarterly dividends for at least five consecutive years, it is legally obligated to continue doing so.

5) Romy’s Rare Gems stock is currently trading at $93 a share. The firm believes its primary clientele can afford to spend between $2,500 and $3,000 to purchase a round lot of 100 shares. The firm should consider a:

A) Stock dividend.

B) Reverse stock split.

C) Special dividend.

D) Liquidating dividend.

E) Stock split.

6) The information content of a dividend increase generally signals that:

A) The firm has few, if any, profitable projects to pursue.

B) Dividends thereafter will be lower.

C) The firm has a one-time surplus of cash.

D) Management believes earnings growth will be strong going forward.

E) The firm has more cash than it needs due to a decline in future orders.

7) Which one of the following favors a low dividend policy?

A) A majority of the shareholders have a low tax rate.

B) Few, if any, profitable projects are available to a firm.

C) The presence of an agency conflict with the firm’s senior managers. 

D) The tax on capital gains is deferred until the gain is realized.

E) A majority of the shareholders have better investment opportunities than the firm.

8) All else equal, the market value of a stock will tend to decrease by roughly the aftertax value of the dividend on the:

A) Date of record.

B) Date of payment.

C) Dividend declaration date.

D) Day after the date of payment.

E) Ex-dividend date.

9) Marguerite purchased 200 shares of E & X stock on May 8. On May 16, she purchased another 300 shares and then on May 20 she purchased a final 100 shares of E & X stock. The company declared a dividend of $1.75 a share on May 6 to holders of record on Friday, May 22. The dividend is payable on June 12. How much dividend income will Marguerite receive on June 12?

A) $350 B) $875 C) $1,050 D) $525 E) $175

10) You own 3,400 shares of Mallory’s Market. The company plans on issuing a dividend of $.89 a share at the end of this year and then issuing a final liquidating dividend of $9.55 a share at the end of next year. Your required rate of return on this security is 17 percent. Ignoring taxes, what is the value of one share of this stock to you today?

A) $7.74 B) $6.98 C) $10.46 D) $9.55 E) $8.81

11) Harper’s Homes has a market value equal to its book value. Currently, the firm has excess cash of $1,500, other assets of $10,400, and equity valued at $4,750. The firm has 250 shares of stock outstanding and net income of $600. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase?

A) $2.61 B) $1.83 C) $2.40 D) $2.93 E) $1.96

12) David’s Deli has 325 shares of common stock outstanding at a market price per share of $74. Currently, the firm has excess cash of $600, total assets of $38,100, and net income of $1,719. The firm has decided to pay out all of its excess cash as a cash dividend. What will the earnings per share be after this dividend is paid?

A) $2.46 B) $6.83 C) $4.96 D) $5.29 E) $1.85

13) Rebekah’s Racing Lines has 16,000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $185,000. The balance sheet shows a capital in excess of par value account balance of $93,000 and retained earnings of $129,000. The company just announced a 2-for-1 stock split. What will be the capital in excess of par value account balance after the split?

A) $186,000

B) $86,667

C) $139,500

D) $93,000

E) $46,500

14) Paul’s Pillows has 84,000 shares of stock outstanding at a market price of $76.53 a share. The company just announced a 5-for-4 stock split. What will be the market price per share after the split?

A) $73.25 B) $137.75 C) $91.84 D) $58.20 E) $61.22

15) Searcy Suits has 72,000 shares of stock outstanding with a par value of $1 per share and a market value of $21.43 a share. The company just announced a 2-for-5 reverse stock split. Currently, you own 920 shares of this stock. How many shares will you own after the reverse stock split?

A) 1,288 shares

B) 368 shares

C) 520 shares

D) 480 shares

E) 974 shares

16) The market value balance sheet for Rosie’s Roses reflects cash of $22,000, fixed assets of $209,000, and equity of $231,000. There are 5,000 shares of stock outstanding with a par value of $1 per share. The company has announced that it is going to repurchase $18,000 worth of stock. What will the price of the stock be after this repurchase?

A) $36.60 B) $43.80 C) $50.10 D) $42.60 E) $39.20

17) Over the last forty years, which of these statements is true?

A) Stock repurchases have declined in both dollars and percent in the United States

B) Stock repurchases have increased in corporate America

C) Stock repurchases have been eliminated for public companies

D) Stock repurchases are used by all public companies

E) Stock repurchases increase the amount of cash on a company’s balance sheet

18) Andrew’s Autos stock is priced at $74 per share. The company has 5,000 shares of stock and paid $45,000 in dividends. How much is the dividend yield for Andrew’s?

A) 12.16%

B) 19.24%

C) 10.31%

D) 21.82%

E) 14.55%

19) A company in the start-up stage of its life cycle is likely to:

A) Pay a high dividend to attract potential investors

B) Pay a high dividend because it has excess cash

C) Repurchase its shares to use excess cash

D) Pay no dividends because it has no excess cash

E) Do a tender offer to take repurchase shares

20) We reviewed a graph that showed dividend changes at US Companies for the years 1988-2013. Which of the following were clearly evident on this graph:

A) Decreases in dividends averaged well below 10%.

B) The majority of companies made no change to their dividends year over year.

C) Increases in dividends averaged around 30%.

D) Companies were far more likely to declare an increase in dividends than a decrease.

E) All of the above

 

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