B) False
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A) $122, 176
B) $128, 606
C) $135, 375
D) $142, 500
E) $150, 000
G) D) and E)
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A) $584, 250
B) $615, 000
C) $645, 750
D) $678, 038
E) $711, 939
G) B) 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) A) and E)
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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 C)
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A) $114.0 $73.3 $333.9
B) $120.0 $77.2 $351.5
C) $126.4 $81.2 $370.0
D) $133.0 $85.5 $389.5
E) $140.0 $90.0 $410.0
G) A) and E)
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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 D)
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B) False
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A) no dividends to common stockholders.
B) dividends only out of funds raised by the sale of new common stock.
C) dividends only out of funds raised by borrowing money (i.e., issue debt) .
D) dividends only out of funds raised by selling off fixed assets.
E) no dividends except out of past retained earnings.
G) None of the above
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B) False
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A) $23.21
B) $24.43
C) $25.71
D) $27.00
E) $28.35
G) A) and B)
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A) $47.50
B) $50.00
C) $52.50
D) $55.13
E) $57.88
G) B) and D)
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A) After a 3-for-1 stock split, a company's price per share should fall, but the number of shares outstanding will rise.
B) Investors can interpret a stock repurchase program as a signal that the firm's managers believe the stock is undervalued.
C) Companies can repurchase shares to distribute large inflows of cash, say from the sale of a division, to stockholders without paying cash dividends.
D) Stockholders pay no income tax on dividends if the dividends are used to purchase stock through a dividend reinvestment plan.
E) Stock repurchases can be used by a firm as part of a plan to change its capital structure.
G) A) and C)
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A) 30.54%
B) 32.15%
C) 33.84%
D) 35.63%
E) 37.50%
G) A) and B)
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B) False
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A) If a company uses the residual dividend model to determine its dividend payments, dividends payout will tend to increase whenever its profitable investment opportunities increase.
B) The stronger management thinks the clientele effect is, the more likely the firm is to adopt a strict version of the residual dividend model.
C) Large stock repurchases financed by debt tend to increase earnings per share, but they also increase the firm's financial risk.
D) A dollar paid out to repurchase stock is taxed at the same rate as a dollar paid out in dividends.Thus, both companies and investors are indifferent between distributing cash through dividends and stock repurchase programs.
E) The tax code encourages companies to pay dividends rather than retain earnings.
G) B) and E)
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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) 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) B) and E)
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