FIN 307 Grantham University Finances Worksheet

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funjglq

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Mathematics

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FIN 307

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Grantham University

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FIN

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Chapter 14 (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. 1. If a firm repurchases its stock in the open market, the shareholders who tender the stock are subject to capital gains taxes. 2. If you own 100 shares in a company’s stock and the company’s stock splits 2-for1, then you will own 200 shares in the company following the split. 3. Some dividend reinvestment plans increase the amount of equity capital available to the firm. 4. The Tax Code encourages companies to pay a large percentage of their net income in the form of dividends. 5. A company that has established a clientele of investors who prefer large dividends is unlikely to adopt a residual dividend policy. 6. 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 15-1) • Define each of the following terms: 1. Capital structure; business risk; financial risk 2. Operating leverage; financial leverage; break-even point 3. 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.”
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Running Head: PRINCIPLE OF FINANCE- WEEK 6 ASSIGNMENT

Principles of Finance – Week 6 Assignment
Student’s Name
Professor’s Name
Course Name and Code
Date

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PRINCIPLE OF FINANCE- WEEK 6 ASSIGNMENT

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Principles of Finance – Week 6 Assignment
Chapter 14

(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.

Companies that have been listed in a stock exchange market offers interested individuals
some portion of the company as a means of raising further capital for the firm. This portion that
is allocated to every individual depending on the amount of their monetary investment is referred
to as the stock. After a particular period, commonly one year for most companies, the
stockholders are given a share of the firm’s profits in the form of a dividend. A stock dividend is
issued to the customers when the firm aims to raise funds for enhancing further growth of the
company. This means that instead of the company giving its stakeholders their dividends in the
form of cash, cheques, or other means, the funds are used to buy more stocks for the individual
(Ward, 2020). In the end, the shareholder has more shares than before, and the company can use
the allocated dividend payment funds to furnish other needs.
On the other hand, a stock split refers to a situation where a company increases the stock
number of customers by dividing the existing shares two times or more (Ward, 2020). Also, the
stock split aims to save funds for the company while at the same time lowering the stock value to
match the firms’ required levels. As an investor in a certain company, I would prefer to have a
100% stock dividend instead of a 2-for-1 split. Primarily this is because a stock dividend does

PRINCIPLE OF FINANCE- WEEK 6 ASSIGNMENT

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not necessarily alter the price of the stocks. Instead, the prices remain at almost the same level,
with a slight c...