Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 firm's net income increases.
b. The company increases the percentage of equity in its target capital structure.
c. The number of profitable potential projects increases.
d. Congress lowers the tax rate on capital gains. The remainder of the tax code is not changed.
e. Earnings are unchanged, but the firm issues new shares of common stock.
Which one of the following statements is TRUE?
a. The Corporate Valuation Model can be used to value companies whose capital structure is
changing as long as the interest rate on the debt doesn't change.
b. The Corporate Valuation Model discounts FCFs at the unlevered cost of equity to obtain the
intrinsic value of the firm's equity.
c. The APV model discounts the FCFs at the WACC to obtain the value of the tax shields.
d. The Corporate Valuation Model and the APV models will give the same answer for companies
whose capital structure changes during the projection period, but whose capital structure remains
constant over the horizon.
e. The APV model can be used to value companies whose capital structure is changing and
companies whose capital structure is not changing
Faust Inc., is considering levering up its capital structure from 10% debt to 40% debt. Which of the
following statements is FALSE?
a. The cost of equity will increase.
b. The free cash flow will increase
c. The value of the tax shield will increase.
d. The amount of taxes paid will decrease.
e. The risk of bankruptcy will increase.
Which one of the following statements about dividend policies is FALSE?
a. One advantage of dividend reinvestment plans is that they allow shareholders to maintain a
position in a company with minimal trading.
b. One key disadvantage of a residual dividend policy is that it makes it hard for a company to
follow a stable dividend policy.
c. The clientele effect suggests that brokerage companies should choose customers whose
dividend preferences match those of their client service borkers.
d. The "bird-in-the-hand effect" is the argument that investors prefer dividends to capital gains
because dividends are more certain than capital gains.
e. In today's tax environment, gains through stock repurchases and dividend payments are taxed
at the same rate.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Dividend Policy On Share Price Volatility In Indian Stock Market

Authors: Vijay Deswal

1st Edition

3841859623, 978-3841859624

More Books

Students also viewed these Finance questions

Question

| Who are people who model the values that I want to live?

Answered: 1 week ago