Question
QUESTION 31 Questions 31 to 35 Jody Miller, the corporate treasurer for SchoolStreet, is having a conversation with Caleb about potential options for making a
QUESTION 31
Questions 31 to 35
Jody Miller, the corporate treasurer for SchoolStreet, is having a conversation with Caleb about potential options for making a dividend payment to shareholders. In the conversation, Miller makes two statements:
Statement -1: Issuing a stock dividend will reduce our financial leverage, making the dividend payment beneficial to both our stockholders and our bondholders.
Statement-2: According to the basic DuPont formula, paying a cash dividend will certainly increase our return on equity.
Is Miller correct with respect to statements?
A. | Yes for statement 1 and no for statement 2 | |
B. | No for statement 1 and yes for statement 2 | |
C. | Neither statement is correct |
1 points
QUESTION 32
SchoolStreet expects to earn $6.0 million next year. Forty percent of this amount, or $2.4 million, has been allocated for distribution to common shareholders. There are 2.4 million shares outstanding and the market price is $30 a share. Caleb believes that company can either use the $2.4 million to repurchase shares at the current price of $30 per share or else pay a cash dividend of $1.00 per share.
If SchoolStreet chooses the share repurchase option, what is the market price of the remaining shares?
A. | $29.00 | B. | $31.00 | C. | $30.00 | D. | $12.40 |
1 points
QUESTION 33
If SchoolStreet chooses the cash dividend option, what is the market price of the remaining shares?
A. | $30.00 | B. | $31.00 | C. | $29.00 | D. | $12.40 |
1 points
QUESTION 34
Caleb was wondering which of the following is least likely to have an influence on the optimal dividend policy?
A. | The costs associated with selling new common stock. | |
B. | A strong shareholders' preference for current income versus capital gains | |
C. | The possibility of accelerating or delaying investment projects. | |
D. | A new Chief Financial Officer (CFO) is announced to replace the former CFO. |
1 points
QUESTION 35
Caleb believes all of the following are reasons for a stock repurchase EXCEPT:
A. | Repurchases can be used to decrease supply of the stock, thus increasing the share price. | |
B. | The corporation may purchase its shares at a bargain. | |
C. | Repurchases can be used to produce significant changes in capital structure. | |
D. | Investors see repurchases as a signal that shares are overvalued. |
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