Ch 14: Assignment - Distributions to Shareholders: Dividends and Share Repurchases Back to Assignment Attempts: Keep the Highest: /6 1. Dividend policy A firm's value depends on its expected free cash now and its cost of capital. Distributions made in the form of dividends or stock repurchases impact the firm's value and the investors in different ways. Cloudy skies Production Company's Cho 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? Dividend irrelevance theory The residual dividend model The dientele effect The signaling hypothesis Red Dirt Producers Inc. is an oil drilling company and has some free cash flow that is not expected to be used to finance future growth or potential investment projects. The company plans to distribute its free cash flow to its shareholders but is still deciding whether the distribution should take the form of a stock repurchase or the payment of a cash dividend. Which of the following is a characteristic of a firm's optimal dividend polley? It maximizes the firm's earnings per share. It maximizes the firm's stock price. It maximizes the firm's total assets. It maximizes the firm's return on equity. Modigliani and Miller argued that each shareholder can construct his or her own dividend policy. This statement is: True False Modigliani and Miller also pointed out that many institutional investors do not pay taxes and can buy and sell stocks with very low transaction costs, For these investors, dividend policy is relevant than it is for an individual investor. Some researchers and analysts have more trend in which firms that increase their dividends see an increase in their stock price. The theory of explains less homenon. 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. Modigliani and Miller also pointed out that many institutional Investors do not pay taxes and can buy and sell stocks with very low transaction costs For these investors, dividend policy is relevant than it is for an individual investor. 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. information content notice that groups of similar investors tend to flock to stocks that have dividend policies consistent with their needs. This clientele effect ration of: the information content effect. the clientele effect