Economics Homework Help. FIN 307 Temple University CH15 Distributions to Shareholders and Capital Structure Essay
Complete the following textbook questions:
Chapter 14: Questions 14-3 through 14-5 on page 600
14-3)
- What is the difference between a stock dividend and a stock split? As a stockholder, would you prefer to see your company declare a 100% stock dividend or a 2-for-1 split? Assume that either action is feasible.
(14-4)
- One position expressed in the financial literature is that firms set their dividends as a residual after using income to support new investments. Explain what a residual policy implies (assuming that all distributions are in the form of dividends), illustrating your answer with a table showing how different investment opportunities could lead to different dividend payout ratios.
(14-5)
- Indicate whether the following statements are true or false. If the statement is false, explain why.
- If a firm repurchases its stock in the open market, the shareholders who tender the stock are subject to capital gains taxes.
- If you own 100 shares in a company’s stock and the company’s stock splits 2-for-1, then you will own 200 shares in the company following the split.
- Some dividend reinvestment plans increase the amount of equity capital available to the firm.
- The Tax Code encourages companies to pay a large percentage of their net income in the form of dividends.
- A company that has established a clientele of investors who prefer large dividends is unlikely to adopt a residual dividend policy.
- If a firm follows a residual dividend policy then, holding all else constant, its dividend payout will tend to rise whenever the firm’s investment opportunities improve.
Chapter 15: Questions 15-1 through 15-5 on page 647
15-1)
- Define each of the following terms:
- Capital structure; business risk; financial risk
- Operating leverage; financial leverage; break-even point
- Reserve borrowing capacity
(15-2)
- What term refers to the uncertainty inherent in projections of future ROIC?
(15-3)
- Firms with relatively high nonfinancial fixed costs are said to have a high degree of what?
(15-4)
- “One type of leverage affects both EBIT and EPS. The other type affects only EPS.” Explain this statement.
(15-5)
- Why is the following statement true? “Other things being the same, firms with relatively stable sales are able to carry relatively high debt ratios.”