Under what conditions might dividend policy affect the value of the firm? Question 12 options: a) Dividends are irrelevant because firms can simply repurchase shares b) None of the options are correct c) If a fixed dividend payout preempted the effort to invest in positive NPV projects d) Failure to pay a dividend results in bankruptcy e) Dividend policy can affect the value of equity, but not affect the value of the firm

Under what conditions might dividend policy affect the value of the firm? Question 12 options: a) Dividends are irrelevant because firms can simply repurchase shares b) None of the options are correct c) If a fixed dividend payout preempted the effort to invest in positive NPV projects d) Failure to pay a dividend results in bankruptcy e) Dividend policy can affect the value of equity, but not affect the value of the firm

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter11: Risk-adjusted Expected Rates Of Return And The Dividends Valuation Approach

Section: Chapter Questions

Problem 8QE

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Question 16 (: Which of the following statements is TRUE about the Modigliani and Miller Theory regarding dividend policy ? Shareholders are indifferent between receiving a capital gain on their shares or dividend income Companies should invest in all available positive NPV projects before paying out a dividend Investors in a perfect market may see the cutting of dividends as a bad sign Some investors liquidity requirements mean that they will respond badly to a cut in dividends.
Under which condition an external equity financing can be advantageous? Group of answer choices When a firm wishes to raise additional capital by selling a portion of the existing owners' stock while maintaining control of the firm When a firm's capital structure contains more equity than debt All of the above When common stock becomes less risky to the firm than fixed-income securities
What is the significance of the equity breakpoint? Question 9 options: Once a firm has spent an amount equal to the breakpoint, it must begin issuing new common stock if it wants to continue funding capital investment. Once a firm has spent an amount equal to the breakpoint, it is out of retained earnings and consequently will fund any remaining investment with debt only. Once a firm has spent an amount equal to the breakpoint, it will switch from common stock to preferred stock for its capital investment funding needs.
In calculating the value of a firm's equity which of the following is incorrect? Multiple Choice O The market value of equity should be used as opposed to the book value The value of equity represents the value of the firm less the value of debt A premium is usually paid for equity with higher liquidity. D A discount is usually given for controlling interest in a company.
To the extent that shares sold during an IPO are discounted from their appropriate price, the proceeds that the issuing firm receives from the IPO are lower than it deserves. Question 21 options: True False
Which one of the following statements related to the Security Market Line approach to equity valuation is correct? Assume the firm includes debt in its capital structure. Group of answer choices This model considers a firm's rate of growth. The model will never produce the same cost of equity as the dividend growth model. The model is dependent upon a reliable estimate of the market risk premium. This approach generally produces a cost of equity that equals the firm's overall cost of capital. The model applies only to non-dividend-paying firms.
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.
What impact do flotation costs have on the cost of common equity? Question 8 options: None. The cost of retained earnings and new stock must be the same since they both represent the same claim by shareholders. It makes new stock less expensive compared to retained earnings. It makes new stock more expensive compared to retained earnings.
Question 17 Which one of these is a characteristic of a sensible payout policy? Set the dividends high even if it means acquiring expensive external financing Increase regular dividends to distribute transitory cash flow increases Do not reject positive NPV projects for the purpose of increasing cash dividends or buying back shares. Set the current regular dividends consistent with a 100 percent payout ratio
Which 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 Selection
Is this statement true or false? Give a reason for your answer. " Relevant or not, frequent changes in dividend policy can harm a firm."
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.