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dividend reinvestment

1) All else being equal, which of the following factors are likely to cause an increase in the firms per-share dividend?
a. An increase in its net income.
b. The company increases the proportion of equity financing in its target capital structure.
c. An increase in the number of profitable projects that it wants to fund this year.
d. Statements a and b are correct.
e. All of the statements above are correct.

2) Which of the following statements is most correct?
a. One reason that companies tend to avoid stock repurchases is that dividend payments are taxed more favorably than stock repurchases.
b. One advantage of dividend reinvestment plans is that they allow shareholders to avoid paying taxes on the dividends that they choose to reinvest.
c. If a company announces a 2-for-1 stock split and the overall value of the firm remains unchanged, the company?s stock price must have doubled.
d. All of the statements above are correct.
e. None of the statements above is correct.

3) A companies stock is trading at $120 a share. The company plans to announce a 3-for-2 stock split. The stock split is expected to increase the companys market capitalization by 5 percent. What is the expected stock price after the stock split is completed?
a. $189.00
b. $ 84.00
c. $ 80.00
d. $ 50.40
e. $ 75.60

Solution Preview

1)All else being equal, which of the following factors are likely to cause an increase in the firms per-share dividend?

Answer: a. An increase in its net income.
An increase in net income is likely to increase the per share dividend. If the company decides to increase the ...

Solution Summary

One advantage of dividend reinvestment plans is noted.

$2.19