Old MathJax webview

Old MathJax webview

all questions to be answered

LO1 LO2 141 Dividend Policy Irrelevance How is it possible that dividends are so important, but at the same time, dividend policy is irrelevant? LO4 14.2 Stock Repurchases What is the impact of a stock repurchase on a company's debt ratio? Does this suggest another use for excess cash? 14.3 Life Cycle Theory of Dividends Explain the life cycle theory of dividend payments. How does it explain corporate dividend payments that are seen in the stock market? 104 14.4 Dividend Chronology On Friday, December 8, Hometown Power Coi's board of directors declares a dividend of 75 cents per share payable on Wednesday, January 17, to shareholders of record as of Wednesday, January 3. When is the ex-dividend date? If a shareholder buys stock before that date, who gets the dividends on those shares, the buyer or the seller? LO 14.5 Alternative Dividends Some corporations, like one British company that offers its large shareholders free crematorium use, pay dividends in kind (i.e., offer their services to shareholders at below-market cost). Should mutual funds invest in stocks that pay these dividends in kind? (The fundholders do not receive these services.) LO 2 14.6 Dividends and Stock Price If increases in dividends tend to be followed by immediate) increases in share prices, how can it be said that dividend policy is irrelevant? LO2 14.7 Dividends and Stock Price Last month, Central Virginia Power Company, which had been having trouble with cost overruns on a nuclear power plant that it had been building, announced that it was "temporarily suspending dividend payments due to the cash flow crunch associated with its investment program." The company's stock price dropped from $28.50 to $25 when this announcement was made. How would you interpret this change in the stock price (i.e., what would you say caused it)? 1 LO 1 14.8 Dividend Reinvestment Plans The DRK Corporation recently has developed a dividend reinvestment plan (DRIP). The plan allows investors to reinvest cash dividends automatically in DRK in exchange for new shares of stock. Over time, investors in DRK will be able to build their holdings by reinvesting dividends to purchase additional shares of the company. 482 PART 7 Long-Term Financing Over 1,000 companies offer dividend reinvestment plans. Most companies with DRIPs charge no brokerage or service fees. In fact, the shares of DRK will be purchased at a 10 percent discount from the market price. A consultant for DRK estimates that about 75 percent of DRK's shareholders will take part in this plan. This is somewhat higher than the average. Evaluate DRK's dividend reinvestment plan. Will it increase shareholder wealth? Discuss the advantages and disadvantages involved here. 14.9 Dividend Policy During 2017, 108 companies went public with common stock offerings, raising a combined total of $24.5 billion. Relatively few of these 108 companies involved paid cash dividends. Why do you think most. chose not to pay dividends? 14.10 Investment and Dividends The Phew Charitable Trust pays no taxes on its capital gains or on its dividend income or interest income. Would it be irrational for it to have low-dividend, high-growth stocks in its portfolio? Would it be irrational for it to have municipal bonds in its portfolio? Explain. LO 2 LO 1 2. 21 14.1 Dividend Policy Irrelevance How is it possible that dividends are so important, but, at the same time, dividend policy is irrelevant? 14.2 Stock Repurchases What is the impact of a stock repurchase on a company's debt ratio? Does this suggest another use for excess cash? 14.3 Life Cycle Theory of Dividends Explain the life cycle theory of dividend payments. How does it explain corporate dividend payments that are seen in the stock market? 14.4 Dividend Chronology On Friday, December 8, Hometown Power Co.'s board of directors declares a dividend of 75 cents per share payable on Wednesday, January 17, to shareholders of record as of Wednesday, January 3. When is the ex-dividend date? If a shareholder buys stock before that date, who gets the dividends on those shares, the buyer or the seller? 14.5 Alternative Dividends. Some corporations, like one British company that offers its large shareholders free crematorium use, pay dividends in kind (i.e., offer their services to shareholders at below-market cost). Should mutual funds invest in stocks that pay these dividends in kind? (The fundholders do not receive these services.)