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FINS 1613 Tutorial Week 12 QAs (Ch 14)

FINS 1613 Tutorial Week 12 QAs (Ch 14) - FINS 1613(also...

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FINS 1613 (also Quiz 4 held during tutorial) Tutorial Week 12 (based on week 11 lecture and assigned readings – Text chapters 14) Chapter 14: Dividends and Dividends Policy Concepts Review and Critical Thinking Questions: 1, 2, 4, 5, 6, 7, and 8. Answers to Concepts Review and Critical Thinking Questions 1. Dividend policy deals with the timing of dividend payments, not the amounts ultimately paid. Dividend policy is irrelevant when the timing of dividend payments does not affect the present value of all future dividends. 2. A share repurchase reduces equity while leaving debt unchanged. The debt ratio rises. A firm could, if desired, use excess cash to reduce debt instead. This is a capital structure decision. 4. Wednesday, December 27 is the ex-dividend day. Remember not to count January 1 because it is a holiday, and the exchanges are closed. Anyone who buys the share before December 27 is entitled to the dividend, assuming they do not sell it again before December 27. 5. No, because the money could be better invested in shares that pay dividends in cash that will benefit the fundholders directly. 6. The change in price is due to the change in dividends, not to the change in dividend policy . Dividend policy can still be irrelevant without a contradiction.
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