104 managers have been characterized as reluctant to

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104. Managers have been characterized as reluctant to increase dividends if:A. dividends were increased in the preceding year.B. earnings have permanently increased.C. the dividend increase cannot be sustained.D. the dividend payout ratio exceeds 20%.
105. The manager of XYZ Corp. feels that a dividend increase will increase stock pricebecause many investors value stock with a dividend-discount model. Why might MMdisagree with this assertion?
106. Which of the following statements regarding "taxation of dividends and capital gainsunder current tax law" is incorrect (assuming that the marginal tax rate for a large corporationis 35%)?
17-21
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Chapter 17 - Payout PolicyEssay Questions107. What are the reasons felt by financial executives regarding their firms' reluctance to cutthe dividend?108. Why would payout decisions be used by management to signal the prospects of thefirm?109. Briefly discuss each of the chronological "steps" in the process of paying a dividend.110. How will your investment in Acme Corp. change if you currently own 100 shares valuedat $10 each and Acme has just declared a 10% stock dividend? Before the stock dividendthere were 2,000 shares outstanding.17-22
Chapter 17 - Payout Policy111. Congratulations! A stock of which you own 100 shares has just split three for two. Itsmarket price before the split was $30 per share. Now discuss what you would expect tohappen with this stock and your ownership interests.112. Discuss the concept of dividend "smoothing."113. Miller and Modigliani proclaim that, under certain ideal conditions, dividend policy isirrelevant. What is it that they are specifically proclaiming to be irrelevant? Explain with thefollowing example. Assume that a firm has $100,000 in assets at market value, no debt, and100 shares outstanding. Further, $10,000 of the assets are in cash which represents the recentnet income of the firm. Now the firm can choose whether to pay out, say, a 50% dividendwhich will necessitate the issuance of $5,000 in new shares, or to pay no dividend and plowback all $10,000 of earnings into a project with an attractive NPV.17-23
Chapter 17 - Payout Policy114. Discuss the concept of dividend signaling.115. Ignoring the idealized world of MM, why might a higher dividend payout ratio beconsidered detrimental to firm value?

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Term
Fall
Professor
LI,C.
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Financial Markets and Institutions
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Chapter 13 / Exercise 9
Financial Markets and Institutions
Madura
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