Question Details

Trenton Publishing follows a strict residual dividend policy 


 .	Which of the following would be most likely to lead to a decrease in a firm- dividend payout ratio?

a.	Its earnings become more stable.
b.	Its access to the capital markets increases.
c.	Its R&D efforts pay off, and it now has more high-return investment opportunities.
d.	Its accounts receivable decrease due to a change in its credit policy.
e.	Its stock price has increased over the last year by a greater percentage than the increase in the broad stock market averages.

	
 .	Trenton Publishing follows a strict residual dividend policy.  All else equal, which of the following factors would be most likely to lead to an increase in the firm- dividend per share?

a.	The firm- net income increases.
b.	The company increases the percentage of equity in its target capital structure.
c.	The number of profitable potential projects increases.
d.	Congress lowers the tax rate on capital gains.  The remainder of the tax code is not changed.
e.	Earnings are unchanged, but the firm issues new shares of common stock.

 .	If a firm adheres strictly to the residual dividend policy, then if its optimal capital budget requires the use of all earnings for a given year (along with new debt according to the optimal debt/total assets ratio), then the firm should pay

a.	no dividends except out of past retained earnings.
b.	no dividends to common stockholders.
c.	dividends only out of funds raised by the sale of new common stock.
d.	dividends only out of funds raised by borrowing money (i.e., issue debt).
e.	dividends only out of funds raised by selling off fixed assets.


 .	If a firm adheres strictly to the residual dividend policy, the issuance of new common stock would suggest that

a.	the dividend payout ratio has remained constant.
b.	the dividend payout ratio is increasing.
c.	no dividends were paid during the year.
d.	the dividend payout ratio is decreasing.
e.	the dollar amount of investments has decreased.


 .	Which of the following statements is CORRECT?

a.	One disadvantage of dividend reinvestment plans is that they increase transactions costs for investors who want to increase their ownership in the company.
b.	One advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes on the dividends credited to their account.
c.	Stock repurchases can be used by a firm that wants to increase its debt ratio.
d.	Stock repurchases make sense if a company expects to have a lot of profitable new projects to fund over the next few years, provided investors are aware of these investment opportunities.
e.	One advantage of an open market dividend reinvestment plan is that it provides new equity capital and increases the shares outstanding.




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