while the theory dcf based empirical test of dividend theory have generated inclusive result. CAPM based test demonstrated that low payout ratio stock have lowered required return because of tax consideration. True or false?
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while the theory dcf based empirical test of dividend theory have generated inclusive result.
True or false?
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- The terms “irrelevance,” “dividend preference”(or “bird-in-the-hand”), and “tax effect” havebeen used to describe three major theoriesregarding the way dividend payouts affect afirm’s value. Explain these terms, and brieflydescribe each theory.One position expressed in the financial literature is that firms set their dividends as a residual after using income to support new investments. Explainwhat a residual policy implies (assuming that all distributions are in the formof dividends), illustrating your answer with a table showing how differentinvestment opportunities could lead to different dividend payout ratios.One position expressed in the financial literature is that firms set their dividends as a residual after using income to support new investments. Explain what a residual policy implies (assuming that all distributions are in the form of dividends), illustrating your answer with a table showing how different investment opportunities could lead to different dividend payout ratios.
- Discuss why evaluating vertical equity simply based on tax rate structure may be less than optimal.Which one of the following statements is correct concerning both the dollar return and the percentage return on a share investment? a. The dollar return is dependent on the size of the investment while the percentage return is not. b. The dollar return is more accurate than the percentage return because the dollar return includes dividend income while the percentage return does not. c. The dollar return considers the time value of money while the percentage return does not. d. Dollar returns are based on capital gains while percentage returns are based on the total rate of return. Clear my choiceWhich of the following statements is CORRECT? Group of answer choices The component cost of preferred stock is expressed as rp(1 - T). This follows because preferred stock dividends are treated as fixed charges, and as such they can be deducted by the issuer for tax purposes. A cost should be assigned to retained earnings due to the opportunity cost principle, which refers to the fact that the firm’s stockholders would themselves expect to earn a return on earnings that were paid out rather than retained and reinvested. No cost should be assigned to retained earnings because the firm does not have to pay anything to raise them. They are generated as cash flows by operating assets that were raised in the past, hence they are “free.” Suppose a firm has been losing money and thus is not paying taxes, and this situation is expected to persist into the foreseeable future. In this case, the firm’s before-tax and after-tax costs of debt for purposes of calculating the WACC will both be…
- Should a firm pay higher dividend or lower dividend? Support your answer in light of bird in hand, tax effect and other dividend related theories.Would would an investor prefer to receive a distribution as a dividend? Answers: Lower tax rate on dividends than capital gains Higher tax rate on dividends than capital gains Greater certainity Greater uncertainityQ . Which of the following statements is not true?a) The return on shareholders’ funds can be calculated as profit after tax /total equity x 100b) The dividend cover ratio can be calculated from the Income statement andthe statement of cash flows and the answer will be the samec) The interest cover ratio can be calculated from the income statement andthe statement of cash flows and the answer will be differentd) The operating profit margin is also called the net profit margin
- Explain what a residual policy implies (assuming that all distributions are in the form of dividends), illustrating your answer with a table showing how different investment opportunities could lead to different dividend payout ratios.1.Which of the following is not something that you would consider when evaluating the optimal capital structure? d. Security Rating. b. EBIT-EPS Analysis. a. Agency Costs. f. Neither the second nor fourth answer is correct. c. Taxes. e. All of the above are considered when determining the optimal capital structure. 2.Which of the following is an argument for the relevance of dividends? b. Reduction of uncertainty. a. Informational content. c. Some investors' preference for current income. d. All of the above. 3.All of the following are true of stock splits EXCEPT: a. Market price per share is reduced after the split. d. Proportional ownership is unchanged. b. The number of outstanding shares is increased. c. Retained earnings are changed.Is it because: a. The capital gain will be different because the dividend did not change. or b.The capital gain will be different because the selling price has changed.