Does the good news conveyed by the announcement of a dividend increase mean that a firm...
Does the good news conveyed by the announcement of a dividend increase mean that a firm can increase its stock price in the long run simply by paying cash dividends?
Homework Answers
A firm cannot keep increasing the stock price in long run just by paying cash dividends. Generally, dividends are only paid when there is positive free cash flow. We know that Free cash flow is the operating cash flow which is left over after firm makes all the positive-NPV investments. Therefore, a firm must first search or look for positive-NPV projects for increasing value of company & its stock price.
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Does the good news conveyed by the announcement of a dividend
increase mean that a firm...
Explain under which conditions an increase in the dividend payment can be interpreted as a signal...
Explain under which conditions an increase in the dividend payment can be interpreted as a signal of: a. Good news. b. Bad news. a. Good news. Under which conditions can an increase in the dividend payment be interpreted as a signal of good news: (Select the best choice below.) A. By increasing dividends managers signal that they believe that future earnings will be high enough to maintain the new dividend payment. B. Raising dividends gives investors more cash, so the...
i. ii Companies reward their shareholders in two main ways - by paying dividends or by...
i. ii Companies reward their shareholders in two main ways - by paying dividends or by buying back shares of stock. An increasing number of blue chips, or well-established companies, are doing both Paying dividends and stock buybacks make a potent combination that can significantly boost shareholder returns AMC Corporation currently has $400 million of fixed assets and $100 million in excess cash. The firm has 10 million shares outstanding and no debt. Suppose AMC uses its excess cash to...
Burkhardt Corp. pays dividend every year and the company promised to increase its dividend by 3...
Burkhardt Corp. pays dividend every year and the company promised to increase its dividend by 3 percent per year indefinitely. Yesterday, the company paid a dividend of $2 ( is $2). Today morning, the company made a news announcement that the dividend growth rate will decline to 1 percent per year indefinitely from now on. If the discount rate is 8 percent per year compounded annually, how much will the price of the company’s stock drop today immediately after the...
2. We know that the announcement of a dividend increase causes a favorable stock price reaction....
2. We know that the announcement of a dividend increase causes a favorable stock price reaction. Today, Home Depot announces that it will increase the annual amount of its regular dividend by an additional $.15 per share (beginning with the next dividend to be paid next month). By how much would you expect the stock price to increase - more than $.15, less than $.15, or exactly $.15 per share? Briefly explain. Use no more than 50 words.
A firm declared a dividend of $2 per share, which was an increase of 25% from...
A firm declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet the stock declined by 3% the day of the announcement. Another firm 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.
Does an increase in a firm's cash cycle necessarily mean that a firm is managing its...
Does an increase in a firm's cash cycle necessarily mean that a firm is managing its cash poorly? (Select all of the choices below that apply.) A. No. An increase in a firm's cash cycle does not necessarily mean that the firm is managing its cash poorly The increase may be due to a conscious management decision. For example, a firm may decide to increase its inventory in order if it has been experiencing excessive stock-outs. All else equal, this...
Your firm makes good profits in recent years. It also generates plenty of cash. As discussed...
Your firm makes good profits in recent years. It also generates plenty of cash. As discussed in class, there are three options available to you for making use of these profits and cash. They are... paying dividends, reinvesting in the firm through long-term investments, and repurchasing company stock. paying dividends, reinvesting in the firm through retained earnings, and selling additional (or new) stock. paying dividends, reinvesting in the firm through retained earnings, and repurchasing company stock.
Which of the following statements is FALSE? Firm specific news is good or bad news about...
Which of the following statements is FALSE? Firm specific news is good or bad news about the company itself. The risk premium for a stock is affected by its idiosyncratic risk. When firms carry both types of risk, only the firm-specific risk will be diversified when we combine many firms' stocks into a portfolio. Firms are affected by both systematic and firm-specific risk.
Which of the following statements is NOT CORRECT? Stock repurchases can be used by a firm...
Which of the following statements is NOT CORRECT? Stock repurchases can be used by a firm as part of a plan to change its capital structure. After a 3-for-1 stock split, a company's price per share should fall, but the number of shares outstanding will rise. Investors may interpret a stock repurchase program as a signal that the firm's managers believe the stock is undervalued, or, alternatively, as a signal that the firm does not have many good investment opportunities....
12. Dividend policy A firm’s value depends on its expected free cash flow and its cost...
12. Dividend policy A firm’s value depends on its expected free cash flow and its cost of capital. Distributions made in the form of dividends or stock repurchases impact the firm’s value and the investors in different ways. Some analysts have argued that a firm’s value should solely be determined by its basic earning power and the business risk of the firm. Which of these concepts would support these analysts’ argument? The signaling hypothesis The clientele effect Dividend irrelevance theory...
i. ii Companies reward their shareholders in two main ways - by paying dividends or by buying back shares of stock. An increasing number of blue chips, or well-established companies, are doing both Paying dividends and stock buybacks make a potent combination that can significantly boost shareholder returns AMC Corporation currently has $400 million of fixed assets and $100 million in excess cash. The firm has 10 million shares outstanding and no debt. Suppose AMC uses its excess cash to...
2. We know that the announcement of a dividend increase causes a favorable stock price reaction. Today, Home Depot announces that it will increase the annual amount of its regular dividend by an additional $.15 per share (beginning with the next dividend to be paid next month). By how much would you expect the stock price to increase - more than $.15, less than $.15, or exactly $.15 per share? Briefly explain. Use no more than 50 words.
Does an increase in a firm's cash cycle necessarily mean that a firm is managing its cash poorly? (Select all of the choices below that apply.) A. No. An increase in a firm's cash cycle does not necessarily mean that the firm is managing its cash poorly The increase may be due to a conscious management decision. For example, a firm may decide to increase its inventory in order if it has been experiencing excessive stock-outs. All else equal, this...
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