Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259722615
Author: Richard A Brealey, Stewart C Myers, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Question
Chapter 17, Problem 7QP
a.
Summary Introduction
To discuss: Whether the given statement is classified under true of false.
b.
Summary Introduction
To discuss: Whether the given statement is classified under true of false.
c.
Summary Introduction
To discuss: Whether the given statement is classified under true of false.
d.
Summary Introduction
To discuss: Whether the given statement is classified under true of false.
e.
Summary Introduction
To discuss: Whether the given statement is classified under true of false.
f.
Summary Introduction
To discuss: Whether the given statement is classified under true of false.
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1) What is meant by the term 'dividend policy'?A) The desired pattern of dividends over time when a company determines the proportion of profits to be paid out to shareholders, usually done periodicallyB) The selection of specific groups of shareholders to receive dividends this yearC) The balance to be struck between paying interim dividends and final dividendsD) The determination of the dividend policies of industrial firms by government, designed to encourage earnings retention for investment
The use of homemade dividends allows stockholders to change the:
A. cash payout received by selling off shares to receive current income.
B. return pattern of the firm by leveraging their position like the firm.
C. value of the company by increasing shareholders' cash payout
D. Both A and C.
E. Both B and C.
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?
Chapter 17 Solutions
Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 17 - Prob. 1QPCh. 17 - Prob. 2QPCh. 17 - Prob. 3QPCh. 17 - Prob. 4QPCh. 17 - Prob. 5QPCh. 17 - Prob. 6QPCh. 17 - Prob. 7QPCh. 17 - Prob. 8QPCh. 17 - Prob. 9QPCh. 17 - Prob. 10QP
Ch. 17 - Prob. 11QPCh. 17 - Prob. 12QPCh. 17 - Prob. 13QPCh. 17 - Prob. 14QPCh. 17 - Prob. 15QPCh. 17 - Prob. 16QPCh. 17 - Prob. 17QPCh. 17 - Prob. 18QPCh. 17 - Prob. 19QPCh. 17 - Prob. 20QPCh. 17 - Prob. 21QPCh. 17 - Prob. 22QPCh. 17 - Prob. 23QPCh. 17 - Prob. 24QPCh. 17 - Prob. 26QPCh. 17 - Prob. 27QPCh. 17 - Prob. 28QPCh. 17 - Prob. 29QPCh. 17 - Prob. 30QPCh. 17 - Prob. 31QP
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- 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…arrow_forwardExcept for one of the following the constant dividend growth model is useful to corporate managers because: a. the required rate of return of shareholders is related to the company's level of risk as perceived by investors. b. the dividend stream is influenced by earnings and profitability as well as the dividend policy of management c. the growth rate is related to the efficiency of the company in generating returns on equity d. inflation calculations are incorporated in the modelarrow_forwardDeciding how much earnings to retain and how much to return to ordinary shareholders is a key partof dividend policy. Drawing on the dividend policy literature critically discuss some of the factors thatneed to be considered by senior managers of a listed company when deciding on:a) the size of the annual dividend to return to its shareholders and the practical issues that needto be considered when deciding on the size of the dividend payment.Squeezeco is currently deciding on the level and form of its next dividend. It is consideringthree options:i. A cash dividend payment of 15p per shareii. A 5% scrip dividendiii. A repurchase of 15 % of ordinary share capital at the current market priceExtracts form the company’s financial statements are given below £m £mOperating profit 24.5Taxation 7.8 Distributable earnings…arrow_forward
- In Business Finance, we observe a shareholder's required return on a common stock investment because O it is used to predict the cashflows from a capital expansion O it is inversely related to the same firm's bond price O it is an estimate of the cost of equity funding for a corporation O it is the cost of borrowing for the firm Karrow_forwardWhich of the following statements is true? a. High liquidity means a company is short on cash and may be unable to pay its debts.b. When a company decides to go public through an IPO, it is typically targeting to sell its shares to only a handful of shareholders. c. If the company has a higher than expected extremely high profit this year, equity holders will benefit more than debt holders as debtholders are the residual claimers for the cash flows of the company.d. In the extreme case, the debt holders take legal ownership of the firm's assets through a process called bankruptcy.e. Equity holders expect to receive dividends and the firm is always legally obligated to pay them.arrow_forwardWhich of the following is true about dividends: Group of answer choices Increasing dividends can impact retained earnings. Dividends must always be paid if the company makes profit. Dividends are split equally between stockholders and bondholders. Dividends paid reduce the net income that is reported on a company's income statement.arrow_forward
- Which of the following statement is NOT a function of the stock market in a market economy? A. to offer a safe and predictable rate of return for investorsB. allows households to invest savings into corporations in order to make profits through capital gains and earn money through dividendsC. allows public corporations to raise capital for business expansion, to finance new products, and to acquire other businesses.D. All of the statements are function of stock market in the companyarrow_forwardIn case you retain huge amount of profit of your company for long term investment, what financial decision do you take – to pay high cash dividend? Or to issue bonus share (stock dividend)? And explain why?arrow_forwardWhen a company participates in a stock buyback program, it means that the company is buying shares of its own stock and taking them off the market. With this simple definition in mind, how would a company's stock buyback program affect its Earnings per Share?arrow_forward
- What effect would the calculation performed have in terms of shareholder value? In other words, suppose the company’s goal is to maximize shareholder value. How will the rate of return on equity (increase dividend per share by 1.75) support or inhibit that goal? Be sure to justify reasoning.arrow_forwardStockholder Payout Rations Super Duper Corporation had a string of successful years. Super Dupers executives wish to examine how its stockholders have been compensated for their contributed capital. The following information pertains to Super Duper Corporation: Required: Calculate the dividend yield, dividend payout, and total payout.arrow_forwardAs a bakery business continues to grow, cash flow has become more of a concern. The board of directors would like to maintain the market share price, so a discussion ensues about issuing a stock dividend versus a cash dividend. As a newly appointed board member you listen to the conversation and need to cast your vote. Which do you vote for: stock dividend or cash dividend?arrow_forward
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