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Exam 17: Dividend and Share-Buyback Policy

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Question 51

True/False

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The residual dividend theory indicates that a firm would never pay dividends unless the firm's profits were larger than its equity financing needs.

A) True
B) False

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Question 52

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Which of the following is the biggest reason for buying back shares via an on-market or an off-market buyback?

A) The shares were purchased to improve earnings per share and net asset backing.
B) The shares were purchased to achieve an optimal capital-structure mix.
C) The shares were purchased because the shares are undervalued.
D) The shares were purchased to increase leverage.

E) All of the above
F) A) and C)

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Question 53

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In 2013, Apple Computers decided to raise a large amount of money by selling bonds (previously the company had little or no debt)and use the proceeds to repurchase billions of dollars worth of the company's shares.The decision was made after Apple shares lost more than 40% of its value in a six-month period when most share prices were rising.What was the company's intention?

Dividend clienteles are [blank].

As a firm's investment opportunities increase, the dividend payout ratio should increase.

Assume that on January 1 a firm announces that on June 30 they will pay a dividend of $2.50 per share to holders of record on March 30.When does the share sell ex-dividend?

A firm's dividend payout decision has a major effect on the value of the firm in the absence of tax.

For a company with unpredictable investment needs and opportunities, the best way to distribute cash to shareholders would be

Explain the significance of each of the following: a.announcement date b.ex-dividend date c.record date d.payment date

From the firm's point of view, a major advantage of share repurchases over cash dividends is

The final approval of a dividend payment comes from the [blank].

In response to a temporary decline in earnings per share (EPS) , most companies would [blank].

Use the following information to answer the following question(s) . Your firm is planning to pay a 15% share dividend.The market price for the share has been $84.The table below presents the equity portion of your firm's balance sheet before the dividend. Common share -StudioNinety's board of directors announced a quarterly dividend of 25 cents.The ex-dividend date is November 3.On November 2, StudioNinety's share closed at $40.00 per share.What is the most likely opening price on November 3?

Fotobeno is presently generating earnings available to common shareholders of $7.25 per share.The firm's income tax rate is 40%.Fotobeno is paying a dividend to the preferred shareholders of $2.10 per share.The firm's dividend payout ratio on common share is 20%.What is the amount per share that Fotobeno will pay in dividends to common shareholders?

Compare management's motives for preferring either share repurchases or cash dividends.

Firms can use share repurchases as a dividend substitute.

Which of the following policies would appeal to an investor using dividends to increase her retirement income?

The [blank] designates the date on which the share transfer books are closed in regard to a dividend payment.

Porticade Corp.has 400,000 shares of common share outstanding, a P/E ratio of 8 and $500,000 available for common shareholders.The board of directors has just voted a 3−2 share split. a.If you had 100 shares before the split, how many shares will you have after the split? b.What was the total value of your investment in Porticade share before the split? c.What should be the total value of your investment in Porticade share after the split? d.In view of your answers to (b)and (c)above, why would a firm's management want to have a share split?

Raedial Corp.has 1 million shares outstanding.The current price per share is $20.If the company decides to pay a $2 million dollar dividend, the company will have [blank] shares outstanding worth approximately [blank].