Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 13, Problem 4SP
(Dividend policy and stock prices) The issue as to whether dividend policy has an effect on share prices raises a question as to whether dividends paid out to stockholders are any more “certain” than the expected future dividends the stockholders hope to receive from retention of firm earnings. This is known as the bird-in-the-hand theory of dividend policy. Do you agree with this theory? Explain.
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The issue as to whether dividend policy has an effect on share prices raises a question as to whether dividends paid out to stockholders are any more “certain” than the expected future dividends the stockholders hope to receive from retention of firm earnings. This is known as the bird-in-the-hand theory of dividend policy. Do you agree with this theory? Explain.
1. Is stock bonus a real dividend payment in principle?
2. Briefly describe the information signaling effect caused by dividend reduction announcement (in terms of assumption and market reaction)
Dividend Policy. How is it possible that dividends are so important, but at the same time, dividend policy is irrelevant? If increases in dividends tend to be followed by (immediate) increases in share prices, how can it be said that dividend policy is irrelevant?
Chapter 13 Solutions
Foundations Of Finance
Ch. 13 - What is meant by the term dividend payout ratio?Ch. 13 - Prob. 2RQCh. 13 - Prob. 3RQCh. 13 - Prob. 4RQCh. 13 - Prob. 5RQCh. 13 - Prob. 6RQCh. 13 - Prob. 7RQCh. 13 - Prob. 8RQCh. 13 - Prob. 9RQCh. 13 - Prob. 10RQ
Ch. 13 - Prob. 1SPCh. 13 - (Dividend policy and the issue of new shares of...Ch. 13 - Prob. 3SPCh. 13 - (Dividend policy and stock prices) The issue as to...Ch. 13 - (Residual dividend policy) FarmCo, Inc. follows a...Ch. 13 - (Legal restrictions on dividend payments) Describe...Ch. 13 - (Practical considerations in setting dividend...Ch. 13 - Prob. 8SPCh. 13 - Prob. 9SPCh. 13 - Prob. 10SPCh. 13 - Prob. 11SPCh. 13 - Prob. 12SPCh. 13 - Prob. 13SPCh. 13 - Prob. 14SPCh. 13 - Prob. 15SPCh. 13 - Prob. 16SPCh. 13 - Prob. 1.1MCCh. 13 - The executive vice-president in charge of finance...Ch. 13 - Prob. 2.1MCCh. 13 - Prob. 2.2MCCh. 13 - Prob. 2.3MC
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- The residual dividend approach is the best dividend policy to adopt if a firm’s management wants to maximize the current value per share of the existing stock. Do you agree or disagree with this statement? State and justify your conclusions.arrow_forwardHow are share repurchases an alternative to dividends, and why might investors prefer them?arrow_forwardHow will the change in required return influence the price of a stock? How will the dividend growth rate influence the price of a stock?arrow_forward
- An analyst is trying to determine the intrinsic value of a certain share. Which of the following is true with regards to the methods of stock valuation? a. Discounting techniques does not involve forecasting future dividends b. Free cash flow is important in discounted dividend model c. Aside from the intrinsic value, the market value of the firm can also be determined by free cash flow model d. Non-constant growth stock is valuated in the same way as preferred stockarrow_forwardEvaluate the following statement: When a firm pays dividend, its stock price decreases in the market. Therefore, it is always better to buy a stock on the date of dividend payment.arrow_forwardhow do the upward trend and downward trend of share price(stock price changes) relates to the market efficiency (weak,semistrong,strong form) chapter : market efficiency and behavioral financearrow_forward
- Are short-term profits always in the best interest of stockholders? Explainarrow_forwardWhat is the relationship between the expected return of a stock and its fair expected return? When is a stock underpriced, overpriced, or fairly priced? Explain what happens to the firm’s cost of equity, cost of debt, and cost of capital when the firm increases the amount of debt in its capital structure. Assume all Modigliani and Miller assumptions hold and that there are no taxes. How can we use the internal rate of return to evaluate whether we should pursue a specific project? Should we pursue a project when the cost of capital is higher than the internal rate of return?arrow_forwardSuppose we observe from market data that, for a given non-dividend paying stock, See ImageWhat might explain the inequality in this relationship, is markets are efficient or does result in arbitrage opportunities?arrow_forward
- A. Why is the goal of financial management to maximize the current share price of the company's stock and not the future share price?arrow_forwardWhat is stock split? How is it equivalent to paying a dividend?arrow_forwardAccording to the weak-form efficient market hypothesis, which of the following types of information are fully reflected in stock prices? Group of answer choices insider information earnings announcements and rates of return dividend and earnings announcements rates of return, trading volume, and news about the economy past price and volume dataarrow_forward
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