Ask Question, Ask an Expert


Ask Financial Management Expert

Directions: describe how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. Each problem is worth five points apiece for a total of 25 points for this homework assignment.

1. Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is decreased. Their argument is based on the assumption that

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.

2. Which of the following should not influence a firm's dividend policy decision?

a. A strong preference by most shareholders for current cash income versus capital gains.
b. Constraints imposed by the firm's bond indenture.
c. The fact that much of the firm's equipment has been leased rather than bought and owned.
d. The fact that Congress is considering changes in the tax law regarding the taxation of dividends versus capital gains.
e. The firm's ability to accelerate or delay investment projects.

3. Which of the following statements about dividend policies is correct?

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.

4. Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

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.

5. Reynolds Paper Products Corporation follows a strict residual dividend policy. All else equal, which of the following factors would be most likely to lead to an increase in the firm's dividend per share?

a. The company increases the percentage of equity in its target capital structure.
b. The number of profitable potential projects increases.
c. Congress lowers the tax rate on capital gains. The remainder of the tax code is not changed.
d. Earnings are unchanged, but the firm issues new shares of common stock.
e. The firm's net income increases.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M915380

Have any Question? 

Related Questions in Financial Management

Accounts receivable management an evaluation of the books

Accounts receivable management An evaluation of the books of Blair Supply, which follows, gives the end-of-year accounts receivable balance, which is believed to consist of amounts originating in the months indicated. Th ...

Nbspautomatic transmissions inc has the following estimates

Automatic Transmissions Inc., has the following estimates of its new gear assembly project price = $1, 240 per unit, variable cost = $460 per unit; fixed costs = $4 97 million; quantity = 87.000 units. =Suppose the compa ...

Please show all work and explain the steps you took to

Please show all work and explain the steps you took to solve the problem The expected inflation rate is 4.2% and the nominal risk-free rate is 5.08%. The default risk premium is 1.85% and the maturity risk premium is 2.5 ...

The 8 1000 face value bond of glenmore foods is currently

The 8%, $1,000 face value bond of Glenmore Foods is currently selling at $1,027. The bond has 16 years left to maturity. What is the current yield (also known as coupon yield) of this bond?

Lockboxes the financial manager of jac cosmetics is

Lockboxes. The financial manager of JAC Cosmetics is considering opening a lockbox in Calgary. Cheques cleared through the lockbox will amount to $300,000 per month. The lockbox will make cash available to the company th ...

Delray foods must purchase a new gumdrop machine two

DelRay Foods must purchase a new gumdrop machine. Two machines are available. Machine 7745 has a first cost of $8,200, an estimated life of 10 years, a salvage value of $1,000, and annual operating costs estimated at $0. ...

Willy wants to have dollar 7000 available after four year

Willy wants to have dollar 7,000 available after four year to pay down for a new car. His Uncle Wally gave him dollar 15,000 from the sale of the old family farm now. If Wally wants to buy a new home entertainment center ...

The ytm on a 10-year corporate bond is 116 the real

The YTM on a 10-year corporate bond is 11.6%. The real risk-free rate of interest is 3%. Inflation is expected to be a constant 4% for the foreseeable future. If the MRP is 0.1%(t - 1) and the liquidity premium is 0.5%, ...

A person owes 1300 at the end of 5 years and 6550 at the

A person owes $1300 at the end of 5 years and $6550 at the end of 10 years. Due to changes in their financial situation, the person was allowed to pay $900 at the end of 3 year(s) and a final payment at the end of 13 yea ...

Which of the following statements is correcta all else

Which of the following statements is CORRECT? a. All else equal, secured debt is more risky than unsecured debt. b. A Company's bond rating is affected by its financial ratios but not by provisions in its indenture. c. A ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen