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BUSA523 - Corporate Finance > Unit 7: Capital Structure & Dividends > Flashcards

Unit 7: Capital Structure & Dividends Flashcards

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1
Q

What information do stock repurchases give the market

A

Sends signal management believes price is low

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2
Q

What is a stock dividend

A

Pays investors in additional shares

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3
Q

What 3 things can a company choose to do with excess cash rather than paying dividends

A

Select additional capital budgeting projects
Repurchase shares
Acquire another company

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4
Q

Why might higher dividend payout be desirable

A
  • Low income individuals may value

- Tax-exempt investors don’t care

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5
Q

What two ratios are the focus of financial leverage

A

(ROE) return on equity (EPS) Earnings per Share

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6
Q

What is the Ex-dividend Date

A

Two business days before date of record which establishes individuals entitles to dividend

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7
Q

True or False - Dividends are irrelevant

A

False - investor prefer higher dividends

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8
Q

What is Asymmetric information

A

Managers have more information about health of company than investors

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9
Q

What does financial leverage mean

A

The extent to which a firm relies on debt

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10
Q

What is the date of record

A

Date which holders receive dividend

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11
Q

When we choose the firms capital structure - what are we trying to do

A

Minimize WACC

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12
Q

What is the date of payment

A

Date of dividend payment

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13
Q

What is the dividend payment chronology

A

Declaration date
Ex-Dividend Date
Date of Record
Date of Payment

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14
Q

What are the 4 basis types of dividends

A

Cash
Extra
Special
Liquidating

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15
Q

What is a liquidating dividend

A

Some or all of the business has been sold

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16
Q

What does Capital Restructuring involve

A

Changing the amount of leverage a firm has without changing the firms assets

17
Q

What are dividends

A

Payments made in cash or stock to shareholders

18
Q

What is Dividend Policy

A

Time pattern of dividend payout

19
Q

What is the equation for the degree of financial leverage

A

Degree of financial leverage(DFL) = EBIT/

EBIT - Interest

20
Q

What is the Declaration Date

A

Date at which board passes resolution to pay dividend

21
Q

What is maximized if WACC is minimized

A

Firm value is Maximized

22
Q

The risks associated with common shares are broken into these 3 components

A

Business Risk
Operating Leverage
Financial Leverage

23
Q

What are homemade dividends

A

Individual investors ability to undo corporate policy by reinvesting dividends or selling shares

24
Q

Why might a lower dividend payment be desirable

A
  • Upper income holders may prefer due to tax consequences
  • Flotation costs
  • Dividend restrictions
25
Q

What is distribution

A

Payments made to owners from sources other than current or accumulated earnings

26
Q

What are the two factors favoring high dividend payout

A

Desire for current income

Resolution of uncertainty

27
Q

What is an Extra Cash Dividend

A

indication dividend is special and may not be repeated

28
Q

What is a Regular Cash Dividend

A

cash payment to stockholder usually each quarter

29
Q

True or False - Dividend Policy is irrelevant

A

True - dividend policy merely establishes the trade off between dividends from different dates.

30
Q

What is the Information Content Effect

A

Markets reaction to change in dividend payout

31
Q

What happens when a stock splits

A

Number of shares available increases

Stock price is reduced

32
Q

True or False - Firms paying higher dividends, all things being equal, have higher share prices

A

True

33
Q

What is a Special Dividend

A

Viewed by market as one time event

34
Q

What is the Clientele effect

A

Stocks attract particular groups based on dividend yield and resulting tax effects

35
Q

What two things can a firm do to change leverage

A

Increase leverage by issuing debt and repurchasing shares

or Decrease leverage by issuing new shares and retiring outstanding debt.

BUSA523 - Corporate Finance (9 decks)

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