The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

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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 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

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Which of the following statements is CORRECT? * A company can use its retained earnings without incurring a flotation cost. As a O result, while the cost of retained earnings is not zero, it is usually less expensive than the after-tax cost of debt. The capital structure that minimizes a company's weighted average cost of capital often maximizes its stock price. The capital structure that minimizes the firm's weighted average cost of capital often maximizes its earnings per share. If everything else is stable, and corporate tax rates drops, the Modigliani-Miller tax- adjusted tradeoff principle implies that companies should expand their use of debt. When a corporation learns that the cost of debt is less than the cost of equity, rising the debt ratio would lower the WACC.

Is this statement true or false? Give a reason for your answer. "The bird-in-hand theory suggests that a company can reduce its cost of equity capital by reducing its dividend payout ratio."

Which of the following statements is INCORRECT? Cutting the firm's dividend to increase investment will raise the share price if, and only if, the new investments have a positive net present value (NPV). If the firm retains more earnings, it will have less to payout to shareholders. A firm will increase its share price by reducing the total payout to shareholders. A firm can increase its growth rate by increasing its retention ratio.

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 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

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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 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

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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 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

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Answer 5

Chapter 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

Answer 6

Chapter 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

Answer 7

Chapter 16, Problem 27PS

a)

Summary Introduction

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

Answer 8

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

Answer 9

b)

Summary Introduction

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

Answer 10

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

Answer 11

c)

Summary Introduction

To discuss: The statement that “if a company repurchases stock instead of paying dividend, the number of shares falls and earnings per share increase. Thus stock repurchase should often be preferred to paying dividends”.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 16 - Dividend payments In 2017, Entergy paid a regular...Ch. 16 - Dividend payments Seashore Salt Co. has surplus...Ch. 16 - Repurchases Look again at Problem 2. Assume...Ch. 16 - Repurchases An article on stock repurchase in the...Ch. 16 - Company dividend policy Here are several facts...Ch. 16 - Prob. 7PS Ch. 16 - Information content of dividends What is meant by...Ch. 16 - Information content of dividends Does the good...Ch. 16 - Information content of dividends Generous dividend...Ch. 16 - Prob. 11PS

The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

Solution Summary: The author analyzes the statement that country J companies pay out a much smaller proportion of earnings and enjoy lower cost of capital.

Concept explainers

To discuss: The statement that “Unlike country A firms, which are often being pressured by their shareholders to rise the dividends, country J companies pay out a much smaller proportion of earnings and so enjoy a lower cost of capital”.

To discuss: The statement that “unlike new capital, which needs a stream of new dividends to service it, retained earnings have zero cost.”

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Chapter 16 Solutions