Chapter 17 Dividends and Dividend Policy
1. Even once it is declared, a common stock dividend does not become a legal financial
obligation of the firm.
2. In a world with no taxes or transaction costs, dividend policy is irrelevant.
Alex, Inc. is financed 100% with equity. The firm has 100,000 shares of stock outstanding with a market price of $5
per share. Total earnings for the most recent year are $50,000. The firm has cash of $25,000 in excess of what is
necessary to fund its pos
You own a high-tech manufacturing entity. You would like to expand your operations but to do so you need to either
lease or buy a $1.2 million piece of equipment for the next three years. The lease payments would be $475,000 a
year for the three years. If
3FA3 Study Checklist After Midterm 2
Chapter 21 (International Finance)
o FX Markets and Definitions
o Spot vs. Forward Rates
o Transaction vs. Translation Exposure (Examples in Class)
o How to Hedge FX Exposure
o Forms of Purchasing Power Parit
Use the following to answer questions 96-100:
DEF stockholders are paid the current market value of their firm in the form of ABC stock. Both firms are
100% equity-financed. The total earnings of the combined firm are $77,000.
ABC before merger
CHAPTER 18- SHORT TERM FINANCE AND PLANNING
Statement of change in financial position identity
o Net working capital + fixed assets= long-term debt + equity
o Net working capital = cash + other CA- CL
o Cash = long term debt + equity + CL- curr
Po = d1/(ke - br)
Po = time 0 share price
d1 = period 1 dividend
ke = share yield
b = retention rate
r = return on investment
PV of tax savings from CCA (declining balance depreciation)
c Iod 1
1+ k 2 k + d
THE 3FA3 EXAM PACKAGE ERRATA (FINALS)
In line 4, U.K. and U.S. should be switched. Then the UIP with "indirect quotes" should be
In the solution, the second and third CFs must be 55,000 and 110,000, respectively;
The answer (-$1
DIVIDENDS AND DIVIDEND POLICY
Answers to Concepts Review and Critical Thinking Questions
Dividend policy deals with the timing of dividend payments, not the amounts ultimately paid. Dividend policy
is irrelevant when the timing of dividend p
CREDIT AND INVENTORY MANAGEMENT
How firms manage their receivables and the basic components of a firms credit policies.
The distinct elements of the terms of sale.
The factors that influence a firms d
FINANCIAL LEVERAGE AND CAPITAL STRUCTURE
LO1 The effect of financial leverage on firm value and cost of capital.
LO2 The impact of taxes and bankruptcy on capital structure choice.
LO3 The essentials of the bankruptcy
WORKING WITH FINANCIAL
The sources and uses of a firms cash flows.
How to standardize financial statements for comparison purposes.
How to compute and, more importantly, interpret some common ra