Purchase Solution

Dividend policy

Not what you're looking for?

Ask Custom Question

20. Dividend Policy. Here are several assertions about typical corporate dividend policies. Which of them are true? Write out a corrected version of any false statements.
a. Most companies set a target dividend payout ratio.
b. They set each year's dividend equal to the target payout ratio times that year's earnings.
c. Managers and investors seem more concerned with dividend changes than dividend levels.
d. Managers often increase dividends temporarily when earnings are unexpectedly high for a year or two.

21. Dividend Policy. For each of the following four groups of companies, state whether you would expect them to distribute a relatively high or low proportion of current earnings and whether you would expect them to have a relatively high or low price-earnings ratio.

a. High-risk companies.
b. Companies that have recently experienced a temporary decline in profits.
c. Companies that expect to experience a decline in profits.
d. "Growth" companies with valuable future investment opportunities.

22. Dividend Policy. "Risky companies tend to have lower target payout ratios and more gradual adjustment rates." Explain what is meant by this statement. Why do you think it is so?

Purchase this Solution
Solution Summary

Three questions on dividend policy are answered.

Solution Preview

20.
a. Most companies set a target dividend payout ratio.

TRUE
Studies by Lintner and Fama suggest that most companies adjust their payout ratios towards ideal or target payout ratios.

b. They set each year's dividend equal to the target payout ratio times that year's earnings.

TRUE

Dividend Payout Ratio = Dividends / Earnings
Or Dividends= Dividend Payout Ratio x Earnings

c. managers and investors seem more concerned with dividend changes that dividend levels.

TRUE

d. Managers often increase dividends temporarily when earnings are unexpected high for a year or ...

Purchase this Solution
Free BrainMass Quizzes
Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

View More Free Quizzes
Related BrainMass Solutions

  • Dividend Policy

    Residual dividend policy ? Constant payout ratio dividend policy ? Regular dividend policy ?

  • Discuss Factors Influencing a Dividend Policy

    640957 Discuss Factors Influencing a Dividend Policy Discuss the factors that influence a firm's dividend policy. Which factors are most important in formulating the dividend policy? Why?

  • Residual Policy vs. Cash Dividends

    The dividend per share would be $0.20 Cash Dividend Policy is an active policy which tries to maintain stability in the dividend payout recognizing that changes in dividends have a sgnalling effect.

  • Dividend Policy

    240509 Dividend Policy Why would a firm want to incorporate a dividend policy? What effect does this policy have on shareholder's wealth? What factors should be considered when recommending changes to a company's dividend policy? RESPONSE: 1.

  • Dividend Policy: how to signal effects for changes in dividends

    Thus, the managers should avoid drastic changes in the dividend policy.

  • Understanding a firms market value

    496430 Market value and dividend policy I need to understand better what is the basis for the view that a firm's total market value is invariant to its choice of dividend policy?

  • 4. Which of the following statements is CORRECT? a. If a fi

    One advantage of adopting the residual dividend policy is that this policy makes it easier for corporations to develop a specific and well-identified dividend clientele. d.

  • Residual Dividend Policy for Old`s California

    Describe a residual dividend policy. A residual dividend policy is a passive dividend policy. The dividend amount is decided by subtracting the amount of equity needed for new investments from the net income.

  • Residual Dividend Policy and Dividend Payout Ratio

    271878 Residual dividend policy and various scenarios Mary's Mugs is evaluating its dividend policy. What would the differences be with a residual policy vs cash dividends?

  • Dividend policy

    264947 Is dividend policy affected by a firm's great ideas and projects? 3. If a firm has a lot of great ideas and projects to invest in, the firm would prefer which dividend policy below? a. Low dividend payout b. High dividend payout c.

View More Related Solutions