Question
A firms value depends on its expected free cash flow and its cost of capital. Distributions made in the form of dividends or stock repurchases
A firms value depends on its expected free cash flow and its cost of capital. Distributions made in the form of dividends or stock repurchases impact the firms value and the investors in different ways.
Cloudy Skies Production Companys CFO has stated that the firm will pay dividends only after all acceptable capital budgeting projects have been financed using retained earnings to the extent possible. Which concept did the CFO most likely base her decision on?
The residual dividend model
The signaling hypothesis
The clientele effect
Dividend irrelevance theory
Consider the case of Blue Water Producers Inc., and answer the question that follows:
Blue Water Producers Inc. is an oil-drilling company. The company paid a dividend of $2.80 last year, and, in the past, its dividend has increased steadily by about 4% a year. Blue Water just announced that its dividend will increase to $3.75 this year, and its share price rose from $35 per share to $38 per share immediately after the announcement.
Which of the following best explains why Blue Waters stock price increased as it did?
The signaling hypothesis
The clientele effect
Dividend irrelevance theory
Which of the following statements is true?
Taxes on dividend income are paid in the year that they are received.
Taxes on dividend income are paid when the stock is sold.
As a result, the U.S. tax code encourages many individual investors to prefer to receive .
Some researchers and analysts have noticed a trend in which firms that increase their dividends see an increase in their stock price. The theory of explains this phenomenon.
In some cases, analysts notice that groups of similar investors tend to flock to stocks that have dividend policies consistent with their needs. This circumstance is an illustration of:
the information content effect.
the clientele effect.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started