A) 47.50
B) 49.88
C) 50.00
D) 52.50
E) 55.13
G) A) and B)
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A) $23.21
B) $24.43
C) $25.71
D) $27.00
E) $28.35
G) A) and D)
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B) False
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A) $32.06
B) $33.75
C) $35.44
D) $37.21
E) $39.07
G) A) and C)
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A) $673,652
B) $709,107
C) $746,429
D) $785,714
E) $825,000
G) A) and B)
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A) Back before the SEC was created in the 1930s, companies would declare reverse splits in order to boost their stock prices. However, this was determined to be a deceptive practice, and it is illegal today.
B) Stock splits create more administrative problems for investors than stock dividends, especially determining the tax basis of their shares when they decide to sell them, so today stock dividends are used far more often than stock splits.
C) When a company declares a stock split, the price of the stock typically declines-by about 50% after a 2-for-1 split-and this necessarily reduces the total market value of the equity.
D) If a firm's stock price is quite high relative to most stocks-say $500 per share-then it can declare a stock split of say 10-for-1 so as to bring the price down to something close to $50. Moreover, if the price is relatively low-say $2 per share-then it can declare a "reverse split" of say 1-for-25 so as to bring the price up to somewhere around $50 per share.
E) When firms are deciding on the size of stock splits-say whether to declare a 2-for-1 split or a 3-for-1 split, it is best to declare the smaller one, in this case the 2-for-1 split, because then the after-split price will be higher than if the 3-for-1 split had been used.
G) All of the above
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A) The clientele effect can explain why so many firms change their dividend policies so often.
B) One advantage of adopting the residual dividend policy is that this policy makes it easier for corporations to develop a specific and well-identified dividend clientele.
C) New-stock dividend reinvestment plans are similar to stock dividends because they both increase the number of shares outstanding but don't change the firm's total amount of book equity.
D) Investors who receive stock dividends must pay taxes on the value of the new shares in the year the stock dividends are received.
E) If a firm follows the residual dividend policy, then a sudden increase in the number of profitable projects is likely to reduce the firm's dividend payout.
G) B) and C)
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A) $47.50
B) $50.00
C) $52.50
D) $55.13
E) $57.88
G) C) and D)
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B) False
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B) False
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B) False
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A) After a 3-for-1 stock split, a company's price per share should fall, but the number of shares outstanding will rise.
B) Investors can interpret a stock repurchase program as a signal that the firm's managers believe the stock is undervalued.
C) Companies can repurchase shares to distribute large inflows of cash, say from the sale of a division, to stockholders without paying cash dividends.
D) Stockholders pay no income tax on dividends if the dividends are used to purchase stock through a dividend reinvestment plan.
E) Stock repurchases can be used by a firm as part of a plan to change its capital structure.
G) C) and D)
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B) False
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B) False
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A) 6.65
B) 6.98
C) 7.00
D) 7.35
E) 7.72
G) C) and D)
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A) One nice feature of dividend reinvestment plans (DRIPs) is that they reduce the taxes investors would have to pay if they received cash dividends.
B) Empirical research indicates that, in general, companies send a negative signal to the marketplace when they announce an increase in the dividend, and as a result share prices fall when dividend increases are announced. The reason is that investors interpret the increase as a signal that the firm has relatively few good investment opportunities.
C) If a company wants to raise new equity capital rather steadily over time, a new stock dividend reinvestment plan would make sense. However, if the firm does not want or need new equity, then an open market purchase dividend reinvestment plan would probably make more sense.
D) Dividend reinvestment plans have not caught on in most industries, and today about 99% of all companies with DRIPs are utilities.
E) Under the tax laws as they existed in 2008, a dollar received for repurchased stock must be taxed at the same rate as a dollar received as dividends.
G) B) and D)
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A) $100,000
B) $200,000
C) $300,000
D) $400,000
E) $500,000
G) A) and E)
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A) One advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes on the dividends credited to their account.
B) Stock repurchases can be used by a firm that wants to increase its debt ratio.
C) Stock repurchases make sense if a company expects to have a lot of profitable new projects to fund over the next few years, provided investors are aware of these investment opportunities.
D) One advantage of an open market dividend reinvestment plan is that it provides new equity capital and increases the shares outstanding.
E) One disadvantage of dividend reinvestment plans is that they increase transactions costs for investors who want to increase their ownership in the company.
G) B) and E)
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