Assignment #14 answers

Assignment #14 answers - Answers to Assignment No 14...

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Answers to Assignment No. 14 Chapter 16- Questions and Problems: Answer to Q 4 Your dividend income will increase from $750 to $1000. If you view the dividend as excessive, you can invest the extra $250 in the firm. Use part of the dividend proceeds to buy 5 shares of stock at $50 per share. When the stock goes ex-dividend, the share price will fall by $1.00 instead of $.75, but you will increase the number of shares you hold, and thereby offset the impact of the higher payout policy. Answer to Q 6 The high rate of share repurchase at a time of low dividend payout rates probably was not a coincidence. Instead, it seems likely that firms were using share repurchase as an alternative to increasing dividends. Answer to Q 7 First, this statement violates the notion of efficient markets. One cannot identify “the bottom of the market” until after the fact. In addition, if the firm pays a cash dividend, and I do not use my proceeds to purchase shares in the firm, then I have in effect reduced my investment in the firm: the value of my shares falls. This is no different from the situation I would face if I had sold enough
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