Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 19, Problem 15CQ
Dividends and Income Preference The desire for current income is not a valid explanation of preference for high current dividend policy because investors can always create homemade dividends by selling a portion of their stocks. Is this statement true or false? Why?
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Explain why dividends are not preferred for some investors
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
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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.
One of the following decisions is not taken to increase the stock price:
Select one:
a. Maximize costs
b. Attracting additional funds
c. Maximize net income or profit
d. Returning profits to owners over time
Chapter 19 Solutions
Corporate Finance
Ch. 19 - Dividend Policy Irrelevance How is it possible...Ch. 19 - Stock Repurchases What is the impact of a stock...Ch. 19 - Dividend Policy It is sometimes suggested that...Ch. 19 - Dividend Chronology On Tuesday, December 8,...Ch. 19 - Prob. 5CQCh. 19 - Prob. 6CQCh. 19 - Dividends and Stock Price Last month, Central...Ch. 19 - Prob. 8CQCh. 19 - Dividend Policy For initial public offerings of...Ch. 19 - Investment and Dividends The Phew Charitable Trust...
Ch. 19 - Use the following information to answer the next...Ch. 19 - Stock Repurchases How do you think this tax law...Ch. 19 - Dividends and Stock Value The growing perpetuity...Ch. 19 - Bird-in-the-Hand Argument The bird-in-the-hand...Ch. 19 - Dividends and Income Preference The desire for...Ch. 19 - Dividends and Clientele Cap Henderson owns Neotech...Ch. 19 - Prob. 17CQCh. 19 - Prob. 18CQCh. 19 - Prob. 19CQCh. 19 - Prob. 20CQCh. 19 - Prob. 1MCCh. 19 - Jessica believes that the company should use the...Ch. 19 - Prob. 3MCCh. 19 - Another option discussed by Tom, Jessica, and...Ch. 19 - Prob. 5MCCh. 19 - Does the question of whether the company should...
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- Why is there a cost for retained earnings? Group of answer choices Earnings can be reinvested or paid out as dividends Investors could buy other securities, earn a return Neither Eitherarrow_forwardWhy do the clientele effect and the information contenthypotheses imply that investors prefer stable dividends?arrow_forwardThe residual theory of dividends argues that dividends a. can only be distributed if there is income remained after funding all prospective investment b. not relevant unless there is an excess demand for cash dividends c. are irrelevant in any dividend distribution plan d. are necessary and important to maintain the market price of any ordinary sharesarrow_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 In perfect capital markets there Select one: a. are no income taxes. b. are no flotation costs. c. All of these.arrow_forwardThe bird-in-the-hand argument espousing the importance of dividends or dividend relevance suggests that investors view a current (certain) dividend as less risky than future (uncertain) dividends or capital gains; nevertheless, proponents of this theory argue that this will have no significant impact on share price. Is this true or falsearrow_forwardExplain the effect of D/E on asset returns, equity returns (assuming that cost of debt is not affected), asset beta and equity beta (assuming that debt beta is zero). Should an investor choose to invest in a stock of a company with high or low D/E, or why expected returns on these stocks are equivalent, although they are not equal?arrow_forward
- which one is correct please confirm? QUESTION 21 Finance researcher Myron Gordon argues that ____. a. the clientele effect has no influence on share value b. the existence of transaction costs has no impact on the dividend decision c. dividends reduce uncertainty, and thus the payment of dividends will increase the firm's value d. risk-averse shareholders may prefer some dividends over the promise of future capital gains if the interest rate is expected to declinearrow_forwardStrong 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_forwardWhich of the following statements is correct? A. The optimal dividend policy is the one that satisfies management, not shareholders. B. The use of debt financing has no effect on earnings per share (EPS) or stock price. C. Stock price is dependent on the projected EPS and the use of debt, but not on the timing of the earnings stream. D. The riskiness of projected EPS can impact the firm's value. E. Dlvidend policy is one aspect of the firm's financial policy that is determined solely by the shareholders. Reset Selectionarrow_forward
- 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_forward1. The P/E method of valuation is appropriate for Value investors. What does it mean if the P/E ratio is higher than the industry average? Should you buy the stock or not? 2. Why is EPS an inferior measure compared to cash flow? In what way is it a superior measure for stock investing compared to cash flow analysis?arrow_forwardHow does the equity method discourage the manipulation of net income by investors?arrow_forward
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