AFM274 Chapter Notes - Chapter 20: Cross-Linked Polyethylene, Dividend Policy, Greenmail

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lemonbeetle804

13 Aug 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM274

Professor

Tu Nguyen

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Document Summary

Payout policy: the way a firm chooses between the alternatives to payout excess free cash flow. Declaration date: the date on which the board of directors authorizes the dividend. Record date: all shareholders on record on the record date will receive the dividend payment. It takes three business days for shareholders to be registered after purchase of shares as on the record. Ex-dividend date: the date two business days prior to the record date; anyone who purchases the stock on or after the ex-dividend date will not receive the dividend. Payable date: the day the dividend is paid out. Stock split/stock dividend: when a firm issues additional shares rather than cash to its shareholders. Return of capital/liquidation dividend: a dividend resulting from paid-in capital or the liquidation of assets. Is taxed as a capital gain rather than a dividend for the investor.

Related Questions

25. If a merger is done for __________ reasons, then the combined corporation will be worth more than the two individual corporations (2+2 = 5).

Expropriation
Synergy
Hubris
Wealth Redistribution

26. A(n) __________ is when a parent company sells shares of a subsidiary to the public.

Divestiture
Leveraged Buyout
Joint Venture
Equity Carveout

27. Antitakeover measures primarily protect ______________.

Acquiring firm managers
Acquiring firm shareholders
Target firm shareholders
Target firm managers

28. If investors prefer dividends to capital gains (Bird in the Hand theory is true), then

The cost of equity will decrease as the retention ratio increases
The cost of equity will decrease as the payout ratio decreases
The cost of equity will increase as the retention ratio decreases
The cost of equity will increase as the payout ratio decreases

29. _______________ are when the firm buys back a set number of shares on a set date for a specific price.

Dividend Reinvestment Plans
Tender Offers
Dutch auctions
Clientele Repurchases

30. Any signaling effect of dividends should occur on the ______________.

Declaration Date
Ex-Dividend Date
Record Date
Payment Date

31. Which statement is TRUE?

Dividend rights say that shareholders get any remaining assets after all creditors have been paid in bankruptcy
According to financial theory, shareholder wealth should be unaffected by a two-for-one stock split.
A stock split is a large stock dividend so that you might have twice as many shares with each share being worth half as much.
The stock price should fall by the amount of the dividend on the ex-dividend date.

32. Which statement is FALSE?

In a Stock Swap, the acquiring firm issues shares of stock in order to pay for the acquisition
A conglomerate merger is between unrelated firms
A Leveraged Buyout involves creating a new company out of part of your company and then selling shares of the new company to the public.
In an asset purchase, the acquiring firm does not assume the liabilities of the target firm.

33. Suppose that prior to a merger the stock price of the target company was $50 and the stock price of the acquiring company was $40. If the acquiring firm agrees to pay 1.5 share of their stock for every share of the target firms stock, then what premium are they offering?

a) 10% b) 20% c) 25% d) 33%

34. Which statement is FALSE?

The White Knight defense is when you try to sell yourself to a

magentaraccoon175

Please show work if possible!

The residual dividend theory suggests that dividends should be paid to stockholders first and then what is left can be reinvested by the firm.
True.
False.

An investor purchased 300 shares of ABC Inc. stock on Wednesday, December 16. ABC paid its quarterly dividend of $1.10 a share on Thursday, December 31. The record date was Friday, December 18. How much dividend income did the investor receive on December 31 from his investment in JLK stock?
$0.00
$110
$165
$330

The higher the dividend payout ratio, the more a company must rely on external financing.
True
False

Which of the following transactions will increase a corporation's retained earnings?

stock repurchase
stock split
stock dividend
none of the above

JBC Corp. declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet JBC Corp. stock declined by 3% the day of the announcement. RBG Corp. declared a dividend of $2 per share, which was the same as the prior year, and its stock increased in value by 2% on the day of the announcement. These events could be most readily explained by the _________
Information effect.
Residual dividend theory.
Clientele effect.
Expectations theory.

Which one of the following is probably the best argument in favor of a reverse stock split?
to lower the current stock price to its normal trading range
to provide additional shares to all its shareholders
to avoid delisting
to increase the value of the firm

The ex-dividend date is ________ the holder of record date.
2 days before.
5 days before.
2 weeks before.
3 days after.

Edwards Enterprises currently has 145,000 shares of stock outstanding at a market price per share of $57. Today, the firm announced a 3-for-2 stock split. What will the price per share be after the split?
$19.00
$38.00
$47.20
$85.50

Books and More currently has 75,000 shares of stock outstanding, net income of $46,000, and a PE ratio of 18.7. What will the firm's PE ratio be if the firm repurchases 15,000 shares? Assume all else remains constant.
12.67
13.08
14.96
20.23

John owns 1000 shares of stock in Zebar Corporation with a market value of $2,000. Zebar declares a 10% stock dividend. After the dividend is paid, John owns____________

1100 shares with a market value of $2,200.
1000 shares with a market value of $2,200.
1100 shares with a market value of $2,000.
1100 shares with a market value of $2,100.

scarletsea-lion205

Problem 18-12 Various shareholders' equity topics; comprehensive[LO18-1, 18-4, 18-5, 18-6, 18-7, 18-8]

Part A

In late 2015, the Nicklaus Corporation was formed. The corporatecharter authorizes the issuance of 5,000,000 shares of common stockcarrying a $1 par value, and 1,000,000 shares of $5 par value,noncumulative, nonparticipating preferred stock. On January 2,2016, 3,000,000 shares of the common stock are issued in exchangefor cash at an average price of $15 per share. Also on January 2,all 1,000,000 shares of preferred stock are issued at $30 pershare.

Required:

1.	Prepare journal entries to record these transactions.(If no entry is required for a particular transaction,select "No journal entry required" in the first accountfield.)

2.	Prepare the shareholders' equity section of the Nicklaus balancesheet as of March 31, 2016. (Assume net income for the firstquarter 2016 was $1,500,000.)

Part B
During 2016, the Nicklaus Corporation participatedin three treasury stock transactions:

a.	On June 30, 2016, the corporation reacquires 190,000 shares forthe treasury at a price of $17 per share.
b.	On July 31, 2016, 45,000 treasury shares are reissued at $20per share.
c.	On September 30, 2016, 45,000 treasury shares are reissued at$15 per share.

Required:

1.	Prepare journal entries to record these transactions.(If no entry is required for a transaction/event, select"No journal entry required" in the first accountfield.)

2.	Prepare the Nicklaus Corporation shareholders' equity section asit would appear in a balance sheet prepared at September 30, 2016.(Assume net income for the second and third quarter was$2,950,000.)

Part C

On October 1, 2016, Nicklaus Corporation receives permission toreplace its $1 par value common stock (5,000,000 shares authorized,3,000,000 shares issued, and 2,900,000 shares outstanding) with anew common stock issue having a $.50 par value. Since the new parvalue is one-half the amount of the old, this represents a 2-for-1stock split. That is, the shareholders will receive two shares ofthe $.50 par stock in exchange for each share of the $1 par stockthey own. The $1 par stock will be collected and destroyed by theissuing corporation.

On November 1, 2016, the NicklausCorporation declares a $0.13 per share cash dividend on commonstock and a $0.30 per share cash dividend on preferred stock.Payment is scheduled for December 1, 2016, to shareholders ofrecord on November 15, 2016.

On December 2, 2016, the NicklausCorporation declares a 1% stock dividend payable on December 28,2016, to shareholders of record on December 14. At the date ofdeclaration, the common stock was selling in the open market at $15per share. The dividend will result in 58,000 (0.01 Ã 5,800,000)additional shares being issued to shareholders.

Required:

Prepare journal entries to record the declaration and payment ofthese stock and cash dividends. (If no entry is requiredfor a transaction/event, select "No journal entry required" in thefirst account field.)

1.Record the entry for a 2-for-1 stock split.

2.Record declaration of cash dividend for common shares andpreferred shares.

3.Record the entry on date of record.

4.Record payment of cash dividend for common shares andpreferred shares.

5.Record declaration of common stock dividend.

6.Record distribution of common stock dividend.

2.	Prepare the December 31, 2016, shareholders' equity section ofthe balance sheet for the Nicklaus Corporation. (Assume net incomefor the fourth quarter was $2,450,000.)

3.	Prepare a statement of shareholders' equity for NicklausCorporation for 2016. (Amounts to be deducted should beindicated with a minus sign. Enter your answers inthousands.)

AFM274 Chapter Notes - Chapter 20: Cross-Linked Polyethylene, Dividend Policy, Greenmail

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