PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 16, Problem 24PS
Summary Introduction
To determine: The whether the firm value is got affected by the choice between dividends and repurchases.
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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Students have asked these similar questions
Dividend changes may be used by management as a credible communication tool to signal investors about future earnings under which of the following dividend policy theories?
Select one:
a. the clientele effect
b. the expectations theory
c. the residual dividend theory
d. the information effect
Question 19
In perfect capital markets there
Select one:
a. are no income taxes.
b. are no flotation costs.
c. All of these.
Companies sell common stock to raise long-term capital. What are
the pros and cons of selling stock?
Is it better to sell common or preferred stock? Why?
The "Bird in Hand" Dividend Theory implies that
Investors always prefer dividends to repurchases
Investors prefer a high dividend payout
Managers prefer to low payout to increase firm cash holdings
Investors are indifferent between dividends versus capital gains
Since stock price goes up with repurchases, investors prefer repurchases over dividends.
Chapter 16 Solutions
PRIN.OF CORPORATE FINANCE
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. 7PSCh. 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
Ch. 16 - Payout policy in perfect capital markets Go back...Ch. 16 - Payout policy in perfect capital markets Go back...Ch. 16 - Payout policy in perfect capital markets Respond...Ch. 16 - Prob. 15PSCh. 16 - Repurchases and the DCF model Hors dAge...Ch. 16 - Repurchases and the DCF model Surf Turf Hotels is...Ch. 16 - Repurchases and the DCF model House of Haddock has...Ch. 16 - Repurchases and the DCF model Little Oil has 1...Ch. 16 - Repurchases and EPS Many companies use stock...Ch. 16 - Dividends and value We stated in Section 16-3 that...Ch. 16 - Payout and valuation Look back one last time at...Ch. 16 - Dividend clienteles Mr. Milquetoast admires Warren...Ch. 16 - Prob. 24PSCh. 16 - Payout and taxes Which of the following U.S....Ch. 16 - Prob. 26PSCh. 16 - Prob. 27PSCh. 16 - Prob. 28PSCh. 16 - Dividend policy and the dividend discount model...Ch. 16 - Prob. 30PS
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- In examining investors’ preferences for dividends, it is useful to begin with the concept of dividend irrelevance. Dividend irrelevance suggests that in a world with no taxes or brokerage (or transaction) costs, firms and investors are indifferent to the paying or receiving of dividends. However, as these restrictions are relaxed, various factors suggest that firms should pursue high or low payouts. One such factor is: Dividends received far into the future are significantly more uncertain than dividends received in the near future. Based on the factor described, identify whether investors, in general, will tend to favor high or low payout ratios. Favor a high payout Favor a low payoutarrow_forwardHow does the market react to unexpected dividend changes? What does this tell us about dividendpolicy? How is it possible that dividends are so important, but at the same time, dividend policy isirrelevant?arrow_forwardWhy do some investors prefer high-dividend-paying stocks?arrow_forward
- Dividend changes may be used by management as a credible communication tool to signal investors about future earnings under which of the following dividend policy theories? Select one: a. the clientele effect b. the expectations theory c. the residual dividend theory d. the information effect Question 19 Incorrect Flag question Question text In perfect capital markets there Select one: a. are no income taxes. b. are no flotation costs. c. All of these. d. is no informational content assigned to a particular dividend policy.arrow_forwardDividend 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?arrow_forwardWhich one of the following action will not lead to reducing financial risk? Issuing bonus shares Issuing equity shares Issuing preferred stock Reducing dividendarrow_forward
- Which of the following is NOT a reason for a high-dividend-payout policy? A. convenient and direct deposit of cash dividend B. avoidance of transaction costs for selling shares C. higher potential future returns for shareholders D. cash payments today versus uncertain cash payments tomorrowarrow_forwardHow are share repurchases an alternative to dividends, and why might investors prefer them?arrow_forwardWhy might other investors prefer low-dividend-paying stocks?arrow_forward
- Strong form efficient market hypothesis states that stock prices reflects all the information in a market. The information may be public or private (i.e., insider information about the market) and such information will not benefit an investor in the form of higher returns.arrow_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_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_forward
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