Payout policy (L9)

Question 1

how can firms pay cash to shareholders

Answer 1

cash dividends
share repurchases

Question 2

stock dividend/ split

Answer 2

distribution of additional stock to firms shareholders

Question 3

new stock price

Answer 3

old equity value/total shares

Question 4

no of shares issued

Answer 4

no of shares x stock dividend

Question 5

no of outstanding shares

Answer 5

stock split x no of shares

Question 6

new share price

Answer 6

shares x og price / outstanding shares

Question 7

declaration date

Answer 7

when the firm announces a dividend payment

Question 8

ex-dividend date

Answer 8

those who buy stock on/after declaration date don’t get the new declared dividend

Question 9

payment date

Answer 9

dividend is received

Question 10

open market repurchase

Answer 10

firm announces that it plans to buy stock from the secondary market

Question 11

tender offer

Answer 11

firm offers to buy back shares at a fixed price from shareholders (only if enough of them accept)

Question 12

auction

Answer 12

firm offers what prices they’ll buy shares for,shareholders say how many shares they would sell at these prices, then the firm decides the lowest one

Question 13

direct negotiation

Answer 13

negotiating the repurchase of a block of shares from a major shareholders

Question 14

shareholders wealth per share

Answer 14

stock price + dividend

Question 15

information signalling

Answer 15

dividends send signals to investors to know about the firms prospects (asymmetric info)