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WEEK 10 - DIVIDEND POLICY

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Questions and Answers

Which of these is NOT an assumption of Modigliani and Miller’s Dividend Irrelevance Theory?

There are no transactions costs associated with converting shares into cash by selling them

Firms can issue shares without incurring floatation or transaction costs

There are no taxes at either a corporate or personal level

Firms issue 5% of their earnings as dividends (correct)

Which one of the statements is NOT correct

In a perfect capital market without taxes, the stock price will fall by exact the amount of the dividend on the ex-dividend date.

Based on the dividend irrelevance view, share value is independent of the level of dividend paid by a company.

Based on the dividend irrelevance view, dividend is important to shareholders, but the dividend policy and the timing of dividend is not important.

According to the homemade dividend strategy, if a shareholder receives a greater dividend than desired, he or she can sell off extra shares of stock. (correct)

If next year’s dividend is 50p, the dividend growth rate is 3.5%, and the cost of equity is 12.5%, the price of the share is:

766.52

555.56 (correct)

564.95

685.67

Leslie purchased 100 shares of GT, Inc. stock on Wednesday, June 7th. Marti purchased 100 shares of GT, Inc. stock on Thursday, July 8th. GT declared a dividend on June 20th to shareholders of record on July 12th and payable on August 1st. Which one of the following statements concerning the dividend paid on August 1st is correct given this information? [Note: Under NYSE rules, shares are traded ex dividend on and after the second business day before the record date.]

Leslie is entitled to the dividend but Marti is not. Signup and view all the answers

All else equal, a stock dividend will _ the number of shares outstanding and _ the value per share.

increase; decrease Signup and view all the answers

If Assista Plc is currently trading at 2500p and will pay a dividend of 45p next year, what is the company’s growth rate given that the cost of equity is 10%?

8.2% Signup and view all the answers

If no dividends are paid, shareholders who wanted cash, could generate a ‘homemade’ dividend by

selling some of their shares Signup and view all the answers

You owned 200 shares last year and received a stock dividend of 5% at the end of last year. The number of shares you now have is _ and your wealth has increased by __ %.

210; 0 Signup and view all the answers

The level of dividend paid by a company is:

A management decision Signup and view all the answers

WEEK 10 - DIVIDEND POLICY

Choose a study mode

Podcast

Questions and Answers

Which of these is NOT an assumption of Modigliani and Miller’s Dividend Irrelevance Theory?

Which one of the statements is NOT correct

If next year’s dividend is 50p, the dividend growth rate is 3.5%, and the cost of equity is 12.5%, the price of the share is:

All else equal, a stock dividend will _ the number of shares outstanding and _ the value per share.

If Assista Plc is currently trading at 2500p and will pay a dividend of 45p next year, what is the company’s growth rate given that the cost of equity is 10%?

If no dividends are paid, shareholders who wanted cash, could generate a ‘homemade’ dividend by

You owned 200 shares last year and received a stock dividend of 5% at the end of last year. The number of shares you now have is _ and your wealth has increased by __ %.

The level of dividend paid by a company is:

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WEEK 10 - DIVIDEND POLICY

Choose a study mode

Podcast

Questions and Answers

Which of these is NOT an assumption of Modigliani and Miller’s Dividend Irrelevance Theory?

Which one of the statements is NOT correct

If next year’s dividend is 50p, the dividend growth rate is 3.5%, and the cost of equity is 12.5%, the price of the share is:

All else equal, a stock dividend will _____ the number of shares outstanding and _____ the value per share.

If Assista Plc is currently trading at 2500p and will pay a dividend of 45p next year, what is the company’s growth rate given that the cost of equity is 10%?

If no dividends are paid, shareholders who wanted cash, could generate a ‘homemade’ dividend by

You owned 200 shares last year and received a stock dividend of 5% at the end of last year. The number of shares you now have is _____ and your wealth has increased by ______ %.

The level of dividend paid by a company is:

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All else equal, a stock dividend will _ the number of shares outstanding and _ the value per share.

You owned 200 shares last year and received a stock dividend of 5% at the end of last year. The number of shares you now have is _ and your wealth has increased by __ %.