B) False
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B) False
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A) investors require that the dividend yield and capital gains yield equal a constant.
B) capital gains are taxed at a higher rate than dividends.
C) investors view dividends as being less risky than potential future capital gains.
D) investors value a dollar of expected capital gains more highly than a dollar of expected dividends because of the lower tax rate on capital gains.
E) investors are indifferent between dividends and capital gains.
G) C) and D)
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A) The company increases the percentage of equity in its target capital structure.
B) The number of profitable potential projects increases.
C) Congress lowers the tax rate on capital gains.The remainder of the tax code is not changed.
D) Earnings are unchanged,but the firm issues new shares of common stock.
E) The firm's net income increases.
G) All of the above
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A) If a company uses the residual dividend model to determine its dividend payments,dividends payout will tend to increase whenever its profitable investment opportunities increase.
B) The stronger management thinks the clientele effect is,the more likely the firm is to adopt a strict version of the residual dividend model.
C) Large stock repurchases financed by debt tend to increase earnings per share,but they also increase the firm's financial risk.
D) A dollar paid out to repurchase stock is taxed at the same rate as a dollar paid out in dividends.Thus,both companies and investors are indifferent between distributing cash through dividends and stock repurchase programs.
E) The tax code encourages companies to pay dividends rather than retain earnings.
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) A) and B)
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B) False
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A) $673,652
B) $709,107
C) $746,429
D) $785,714
E) $825,000
G) B) and E)
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A) If a company has an established clientele of investors who prefer a high dividend payout,and if management wants to keep stockholders happy,it should not follow the strict residual dividend policy.
B) If a firm follows a strict residual dividend policy,then,holding all else constant,its dividend payout ratio will tend to rise whenever the firm's investment opportunities improve.
C) If Congress eliminates taxes on capital gains but leaves the personal tax rate on dividends unchanged,this would motivate companies to increase their dividend payout ratios.
D) Despite its drawbacks,following the residual dividend policy will tend to stabilize actual cash dividends,and this will make it easier for firms to attract a clientele that prefers high dividends,such as retirees.
E) One advantage of dividend reinvestment plans is that they enable investors to avoid paying taxes on the dividends they receive.
G) C) and E)
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A) Its access to the capital markets increases.
B) Its R&D efforts pay off,and it now has more high-return investment opportunities.
C) Its accounts receivable decrease due to a change in its credit policy.
D) Its stock price has increased over the last year by a greater percentage than the increase in the broad stock market averages.
E) Its earnings become more stable.
G) A) and B)
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A) $32.06
B) $33.75
C) $35.44
D) $37.21
E) $39.07
G) B) and C)
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A) $584,250
B) $615,000
C) $645,750
D) $678,038
E) $711,939
G) C) and D)
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A) $904,875
B) $952,500
C) $1,000,125
D) $1,050,131
E) $1,102,638
G) B) and D)
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A) $23.21
B) $24.43
C) $25.71
D) $27.00
E) $28.35
G) A) and E)
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