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FINS1613 Chapter Notes - Chapter 12: Stock Split, Capital Market, Tax Rate

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tealwombat375
2 Nov 2020
School
UNSW, UNSW Sydney
Department
Finance
Course
FINS1613
Professor
Ian Kwan

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Document Summary

Dividends are payments (shares or cash) made from earnings, whilst distributions are payments made from other sources . Regular cash dividends periodic payments to shareholders in the normal course of business. Extra cash dividends non periodic cash payments. Special dividends onetime cash payment (doesn"t repeat) Stock dividends issuance of stocks to existing shareholders. Share repurchases cash payments made to shareholders by means of purchasing a portion. Liquidating dividends (distribution) cash payments after the sale of an asset of shares outstanding. Cash dividends: declaration date - the payment of cash by the firm to shareholders is declared by the board of directors. Stock trades cum dividend (attached with a declared dividend: ex dividend date whoever bought the shares before this date (& holds) is entitled to the dividend. Dividend policy refers to the time pattern of dividend payouts . M&m assumptions: no taxes, no transaction costs, no bankruptcy costs. Dividend policy is irrelevant in the m&m world .

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Related Questions

Dividend payment procedures Wood Shoes, at the quarterly dividend meeting, declared a cash dividend of $1.10 per share for holders of record on Monday, July 10. The firm has 300,000 shares of common stock outstanding and has set a payment date of July 31. Prior to the dividend declaration, the firm’s key account were as follows:

Cash $500,000 Dividends payable $ 0

Retained earnings 2,500,000

a. Show the entries after the meeting adjourned.

b. When is the ex dividend date?

c. After the July 31 payment date, what values would the key accounts have?

d. What effect, if any, will the dividend have on the firm’s total assets?

e. Ignoring general market fluctuations, what effect, if any, will the dividend have on the firm’s stock price on the ex dividend date?

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

  1. Expropriation
  2. Synergy
  3. Hubris
  4. Wealth Redistribution

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

  1. Divestiture
  2. Leveraged Buyout
  3. Joint Venture
  4. Equity Carveout

27. Antitakeover measures primarily protect ______________.

  1. Acquiring firm managers
  2. Acquiring firm shareholders
  3. Target firm shareholders
  4. Target firm managers

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

  1. The cost of equity will decrease as the retention ratio increases
  2. The cost of equity will decrease as the payout ratio decreases
  3. The cost of equity will increase as the retention ratio decreases
  4. 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.

  1. Dividend Reinvestment Plans
  2. Tender Offers
  3. Dutch auctions
  4. Clientele Repurchases

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

  1. Declaration Date
  2. Ex-Dividend Date
  3. Record Date
  4. Payment Date

31. Which statement is TRUE?

  1. Dividend rights say that shareholders get any remaining assets after all creditors have been paid in bankruptcy
  2. According to financial theory, shareholder wealth should be unaffected by a two-for-one stock split.
  3. 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.
  4. The stock price should fall by the amount of the dividend on the ex-dividend date.

32. Which statement is FALSE?

  1. In a Stock Swap, the acquiring firm issues shares of stock in order to pay for the acquisition
  2. A conglomerate merger is between unrelated firms
  3. 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.
  4. 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?

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

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.