whether it is true or false if a firm repurchases its stock in open market and the shareholder who tender the stock are subject to capital gain taxes . Introduction: Dividend Policy: It is the rules and regulations or protocol which a company sets to share its earning with its shareholders Dividend’s payment include payment to be made legally as well as financially.

Question

Indicate whether the following statements are true or false. If the statement is false, explainwhy.a. If a firm repurchases its stock in the open market, the shareholders who tender thestock are subject to capital gains taxes.b. If you own 100 shares in a company’s stock and the company’s stock splits two-forone,you will own 200 shares in the company following the split.c. Some dividend reinvestment plans increase the amount of equity capital available tothe firm.d. The Tax Code encourages companies to pay a large percentage of their net income inthe form of dividends.e. If your company has established a clientele of investors who prefer large dividends,the company is unlikely to adopt a residual dividend policy.f. If a firm follows a residual dividend policy, holding all else constant, its dividendpayout will tend to rise whenever the firm’s investment opportunities improve.

Answer 1

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 15, Problem 10Q

a.

Summary Introduction

To explain: whether it is true or false if a firm repurchases its stock in open market and the shareholder who tender the stock are subject to capital gain taxes.

Introduction:

Dividend Policy: It is the rules and regulations or protocol which a company sets to share its earning with its shareholders Dividend’s payment include payment to be made legally as well as financially.

b.

Summary Introduction

To explain: whether it is true or false if holder of 100 shares will own 200 share after company’s stock splits 2 for 1.

c.

Summary Introduction

To explain: whether it is true or false if dividend reinvestment plan maximizes the amount of equity capital available to the firm.

d.

Summary Introduction

To explain: whether it is true or false that tax codes encourages company to pay a large percentage of their net income in the form of dividends.

e.

Summary Introduction

To explain: whether it is true or false if company’s investors who prefer large dividends is unlikely to adopt a residual dividend policy.

f.

Summary Introduction

To explain: whether it is true or false if all other things remain constant a firm’s dividend payout will tend to increase whenever the firm’s investment opportunities improve if it is following a residual dividend policy.

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Indicate whether the following statements are true or false. If the statement is false, explainwhy.a. If a firm repurchases its stock in the open market, the shareholders who tender thestock are subject to capital gains taxes.b. If you own 100 shares in a company’s stock and the company’s stock splits two-forone,you will own 200 shares in the company following the split.c. Some dividend reinvestment plans increase the amount of equity capital available tothe firm.d. The Tax Code encourages companies to pay a large percentage of their net income inthe form of dividends.e. If your company has established a clientele of investors who prefer large dividends,the company is unlikely to adopt a residual dividend policy.f. If a firm follows a residual dividend policy, holding all else constant, its dividendpayout will tend to rise whenever the firm’s investment opportunities improve.

Suppose that AC Corp. distributes its cash to shareholders as a dividend and raises new equity to fund the investment. For each question assume the firm operates in perfect capital markets.a.) How many shares will AC need to issue to fund the investment?b.) What is the new stock price?c.) After the transaction, what is the total value of existing shareholders' shares plus the cash payout?d.) What is the total value of the new shareholders' shares (assume that old shareholders do not purchase any of the new shares)?e.) What is the change in firm value due to this transaction?f.) Suppose AC used its cash to fund the investment instead, what is the total value of the shareholders' shares?

Suppose that AC Corp. distributes its cash to shareholders as a dividend and raises new equity to fund the investment. For each question assume the firm operates in perfect capital markets. a.) How many shares will AC need to issue to fund the investment? b.) What is the new stock price? c.) After the transaction, what is the total value of existing shareholders' shares plus the cash payout? d.) What is the total value of the new shareholders' shares (assume that old shareholders do not purchase any of the new shares)? e.) What is the change in firm value due to this transaction? f.) Suppose AC used its cash to fund the investment instead, what is the total value of the shareholders' shares? Relevant information for AC Corp. is given below Cash 30 Shares outstanding 50 Current share price $6.60 Amount needed to…

Answer 2

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 15, Problem 10Q

a.

Summary Introduction

To explain: whether it is true or false if a firm repurchases its stock in open market and the shareholder who tender the stock are subject to capital gain taxes.

Introduction:

Dividend Policy: It is the rules and regulations or protocol which a company sets to share its earning with its shareholders Dividend’s payment include payment to be made legally as well as financially.

b.

Summary Introduction

To explain: whether it is true or false if holder of 100 shares will own 200 share after company’s stock splits 2 for 1.

c.

Summary Introduction

To explain: whether it is true or false if dividend reinvestment plan maximizes the amount of equity capital available to the firm.

d.

Summary Introduction

To explain: whether it is true or false that tax codes encourages company to pay a large percentage of their net income in the form of dividends.

e.

Summary Introduction

To explain: whether it is true or false if company’s investors who prefer large dividends is unlikely to adopt a residual dividend policy.

f.

Summary Introduction

To explain: whether it is true or false if all other things remain constant a firm’s dividend payout will tend to increase whenever the firm’s investment opportunities improve if it is following a residual dividend policy.

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Answer 3

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 15, Problem 10Q

a.

Summary Introduction

To explain: whether it is true or false if a firm repurchases its stock in open market and the shareholder who tender the stock are subject to capital gain taxes.

Introduction:

Dividend Policy: It is the rules and regulations or protocol which a company sets to share its earning with its shareholders Dividend’s payment include payment to be made legally as well as financially.

b.

Summary Introduction

To explain: whether it is true or false if holder of 100 shares will own 200 share after company’s stock splits 2 for 1.

c.

Summary Introduction

To explain: whether it is true or false if dividend reinvestment plan maximizes the amount of equity capital available to the firm.

d.

Summary Introduction

To explain: whether it is true or false that tax codes encourages company to pay a large percentage of their net income in the form of dividends.

e.

Summary Introduction

To explain: whether it is true or false if company’s investors who prefer large dividends is unlikely to adopt a residual dividend policy.

f.

Summary Introduction

To explain: whether it is true or false if all other things remain constant a firm’s dividend payout will tend to increase whenever the firm’s investment opportunities improve if it is following a residual dividend policy.

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Answer 4

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 15, Problem 10Q

a.

Summary Introduction

To explain: whether it is true or false if a firm repurchases its stock in open market and the shareholder who tender the stock are subject to capital gain taxes.

Introduction:

Dividend Policy: It is the rules and regulations or protocol which a company sets to share its earning with its shareholders Dividend’s payment include payment to be made legally as well as financially.

b.

Summary Introduction

To explain: whether it is true or false if holder of 100 shares will own 200 share after company’s stock splits 2 for 1.

c.

Summary Introduction

To explain: whether it is true or false if dividend reinvestment plan maximizes the amount of equity capital available to the firm.

d.

Summary Introduction

To explain: whether it is true or false that tax codes encourages company to pay a large percentage of their net income in the form of dividends.

e.

Summary Introduction

To explain: whether it is true or false if company’s investors who prefer large dividends is unlikely to adopt a residual dividend policy.

f.

Summary Introduction

To explain: whether it is true or false if all other things remain constant a firm’s dividend payout will tend to increase whenever the firm’s investment opportunities improve if it is following a residual dividend policy.

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Answer 5

Chapter 15, Problem 10Q

a.

Summary Introduction

To explain: whether it is true or false if a firm repurchases its stock in open market and the shareholder who tender the stock are subject to capital gain taxes.

Introduction:

Dividend Policy: It is the rules and regulations or protocol which a company sets to share its earning with its shareholders Dividend’s payment include payment to be made legally as well as financially.

b.

Summary Introduction

To explain: whether it is true or false if holder of 100 shares will own 200 share after company’s stock splits 2 for 1.

c.

Summary Introduction

To explain: whether it is true or false if dividend reinvestment plan maximizes the amount of equity capital available to the firm.

d.

Summary Introduction

To explain: whether it is true or false that tax codes encourages company to pay a large percentage of their net income in the form of dividends.

e.

Summary Introduction

To explain: whether it is true or false if company’s investors who prefer large dividends is unlikely to adopt a residual dividend policy.

f.

Summary Introduction

To explain: whether it is true or false if all other things remain constant a firm’s dividend payout will tend to increase whenever the firm’s investment opportunities improve if it is following a residual dividend policy.

Answer 6

Chapter 15, Problem 10Q

a.

Summary Introduction

To explain: whether it is true or false if a firm repurchases its stock in open market and the shareholder who tender the stock are subject to capital gain taxes.

Introduction:

Dividend Policy: It is the rules and regulations or protocol which a company sets to share its earning with its shareholders Dividend’s payment include payment to be made legally as well as financially.

Answer 7

Chapter 15, Problem 10Q

a.

Summary Introduction

To explain: whether it is true or false if a firm repurchases its stock in open market and the shareholder who tender the stock are subject to capital gain taxes.

Introduction:

Dividend Policy: It is the rules and regulations or protocol which a company sets to share its earning with its shareholders Dividend’s payment include payment to be made legally as well as financially.

Answer 8

b.

Summary Introduction

To explain: whether it is true or false if holder of 100 shares will own 200 share after company’s stock splits 2 for 1.

Answer 9

b.

Summary Introduction

To explain: whether it is true or false if holder of 100 shares will own 200 share after company’s stock splits 2 for 1.

Answer 10

c.

Summary Introduction

To explain: whether it is true or false if dividend reinvestment plan maximizes the amount of equity capital available to the firm.

Answer 11

c.

Summary Introduction

To explain: whether it is true or false if dividend reinvestment plan maximizes the amount of equity capital available to the firm.

Answer 12

d.

Summary Introduction

To explain: whether it is true or false that tax codes encourages company to pay a large percentage of their net income in the form of dividends.

Answer 13

d.

Summary Introduction

To explain: whether it is true or false that tax codes encourages company to pay a large percentage of their net income in the form of dividends.

Answer 14

e.

Summary Introduction

To explain: whether it is true or false if company’s investors who prefer large dividends is unlikely to adopt a residual dividend policy.

Answer 15

e.

Summary Introduction

To explain: whether it is true or false if company’s investors who prefer large dividends is unlikely to adopt a residual dividend policy.

Answer 16

f.

Summary Introduction

To explain: whether it is true or false if all other things remain constant a firm’s dividend payout will tend to increase whenever the firm’s investment opportunities improve if it is following a residual dividend policy.

Answer 17

f.

Summary Introduction

To explain: whether it is true or false if all other things remain constant a firm’s dividend payout will tend to increase whenever the firm’s investment opportunities improve if it is following a residual dividend policy.

Answer 18

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Solution Summary: The author explains whether it is true or false if a firm repurchases its stock in open market and the shareholder who tender the stock are subject to capital gain taxes.

To explain: whether it is true or false if holder of 100 shares will own 200 share after company’s stock splits 2 for 1.

To explain: whether it is true or false if dividend reinvestment plan maximizes the amount of equity capital available to the firm.

To explain: whether it is true or false that tax codes encourages company to pay a large percentage of their net income in the form of dividends.

To explain: whether it is true or false if company’s investors who prefer large dividends is unlikely to adopt a residual dividend policy.

To explain: whether it is true or false if all other things remain constant a firm’s dividend payout will tend to increase whenever the firm’s investment opportunities improve if it is following a residual dividend policy.

Chapter 15 Solutions